Course: Principles of Accounting (5401)

0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
ASSIGNMENT No. 1
Q.1 Define the term Account and describe the various classifications of Accounts in detail.
Accounts are classified using two approaches – traditional approach (also known as British approach) and modern
approach (also known as American approach). On this page, we shall briefly discuss the classification of
accounts under both the approaches.

According to modern approach, the accounts are classified as asset accounts, liability accounts, capital or owner’s
equity accounts, withdrawal accounts, revenue/income accounts and expense accounts.
1. Asset accounts:
Assets are things or items of value owned by a business and are usually divided into tangible or intangible.
Tangible assets are physical items such as building, machinery, inventories, receivables, cash, prepaid expenses
and advance payments to other parties. Intangible assets normally include non-physical items and rights.
Examples of intangible assets include goodwill, trademarks, copyrights, patent rights and brand recognition etc.
A separate account for each tangible and intangible asset is maintained by the business to record any increase or
decrease in that account.
2. Liability accounts:
Liabilities are obligations or debts payable to outsiders or creditors. The title of a liability account usually ends
with the word “payable”. Examples include accounts payable, bills payable, wages payable, interest payable, rent
payable and loan payable etc. Besides these, any revenue received in advance is also a liability of the business
and is known as unearned revenue. For example, a marketing firm may receive marketing fee from its client for
the forthcoming quarter in advance. Such unearned revenue would be recorded as a liability as long as the related
marketing services against it are not provided to the client who has made the advance payment.
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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
3. Capital or owner’s equity accounts:
Capital is the owner’s claim against the assets of the business and is equal to total assets less all liabilities to
external parties. The balance in capital account increases with the introduction of new capital and profits earned
by the business and decreases as a result of withdrawals and losses sustained by the business.
In sole proprietorship, a single capital account titled as owner’s capital account or simply capital account is
used. In partnership or firm, each partner has a separate capital account like John’s capital account, Peter’s capital
account etc. In corporate form of business there are many owners known as stockholders or shareholders and the
title capital stock account is used to record any change in the capital.
4. Withdrawal accounts:
Withdrawals are cash or assets taken by a business owner for his personal use. In sole proprietorship and
partnership, an account titled as drawings account is used to account for all withdrawals. In corporate form of
business withdrawals are more systematic and usually termed as distributions to stockholders. The account used
for recording such distributions is known as dividend account.
5. Revenue or income accounts:
Revenue is the inflow of cash as a result of primary activities such as provision of services or sale of goods. The
term income usually refers to the net profit of the business derived by deducting all expenses from revenue
generated during a particular period of time. However, in accounting and finance, the term is also used to denote
all inflows of cash resulted by those activities that are not primary revenue generating activities of the business.
For example, a merchandising company may have some investment in an oil company. Any dividend received
from oil company would be termed as dividend income rather than dividend revenue. Other examples of income
include interest income, rent income and commission income etc. The businesses usually maintain separate
accounts for revenues and all incomes earned by them.
6. Expense accounts:
Any resource expended or service consumed to generate revenue is known as expense. Examples of expenses
include salaries expense, rent expense, wages expense, supplies expense, electricity expense, telephone expense,
depreciation expense and miscellaneous expense.
Traditional approach
According to traditional approach, the accounts are classified into four types – personal accounts, real accounts,
nominal accounts, and valuation accounts. A brief explanation of each is given below:
1. Personal accounts:
The accounts related to real persons and organizations are classified as personal accounts. Examples of personal
accounts include John’s account, Peter’s account, Procter and Gamble’s account, Vibrant Marketing Agency’s
account and City bank’s account etc. The business keeps a separate account for each individual and organization
for the purpose of ascertaining the balance due from or due to them.

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
2. Real accounts:
Real accounts are accounts related to assets or properties (both tangible and intangible) owned by a business
enterprise. A separate account for each asset is maintained to account for increases and decreases in that asset.
Examples of real accounts include cash account, inventory account, investment account, plant account, building
account, goodwill account, patent account, copyright account etc.
3. Nominal accounts:
The accounts related to incomes, gains, expenses and losses are classified as nominal accounts.These accounts
normally serve the purpose of accumulating data needed for preparing income statement or profit and loss account
of the business for a particular period. Examples of nominal accounts include sales account, purchases account,
wages account, salaries account, interest account, rent account, gain on sale of fixed assets account and loss on
sale of fixed assets account etc.
4. Valuation account:
Valuation account (also known as contra account) is an account used to report the carrying value of an asset or
liability in the balance sheet. A popular example of valuation account is the accumulated depreciation account.
Companies maintaining fixed assets in the books of accounts at their original cost also maintain an accumulated
depreciation account for each fixed asset. In balance sheet, the balance in the accumulated depreciation account
is deducted from the original cost of the asset to report it at its book value or carrying value. Another example of
valuation account is allowance for doubtful accounts. In balance sheet, the balance in allowance for doubtful
accounts is deducted from the total receivables to report them at their net realizable value or carrying value.
Q.2 Mr. Noman started a sole proprietorship business. The business is newly established and Mr. Noman
hired an accountant for keeping the journal updated. Suppose you are the Accountant of Mr.
Noman’s business, prepare the journal book for the month of December, 2020. You are also required
to post journal entries into the ledger and prepare the trial balance. Detail of the transactions during
December, 2020 are given as follows:
Dec. 1. Mr. Noman commenced business with Cash of Rs. 2,200,000/- Building Rs.4, 500, 000/-
2. Purchased Goods with cash Rs. 300,000/-
7. Purchased furniture from Miss Hareem Rs.250, 000/-
8. Sold goods to Mr. M. Naeem Rs. 120,000/-
15. Goods returned to Miss Hareem Rs.10, 000/-
18. Stationery Purchased Rs.10, 000/-
24. Returned goods to Mr. M. Naeem Rs.12, 000/-
26. Utility bills paid for the month Rs.70, 000/-
31. Rent paid for the month Rs.50, 000/-

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
Date Journal Debit Credit
01 Dec Cash (Nouman) 2200000
Cash 2200000
01 Dec Building 4500000
Cash 4500000
02 Dec Good (Purchased) 300000
Amount 300000
07 Dec Furniture (Purchased) 250000
Cash (Hareem) 250000
08 Dec Sold (Good) 120000
Credit (Naeem) 120000
15 Dec Good (Return) 10000
Credit (Nouman) 10000
18 Dec Stationary (Purchased) 10000
Amount 10000
24 Dec Goods (Return) 12000
Paid 12000
26 Dec Utility Bills 70000
Paid 70000
31 Dec Rent (Month) 50000
Paid 50000
Q.3 i. Define journal and also explain in detail the objective and importance of journal in daily life of
business.
1. The journal is a memorandum or first record in the process of recording business transactions that occurred
before posting to the ledger.
2. The journal records all business transactions according to the date of the Journal showing the chronological
records of all business transactions.
3. The journal can reduce the error and omission of transaction records or incomplete transaction records. The
journal functions as a control system.
1. Purchase journals record purchases of merchandise on credit based on the original invoice.
Sales Journal
1. Sales Journal records the sales of merchandise on credit based on invoice copy.
Purchase Return Journal/Outward
1. The Purchase Return Journal records:

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
i. the return of trade goods to creditors.
ii. allowances received from creditors/suppliers for the return of empty containers.
2. The notes in this journal are based on the original credit note received from creditors.
3. 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.
4. No description is required for the Purchase Return Journal.
Sales Return Journal/Inward
1. Sales Return Journal records:
i. the return of merchandise from debtors.
ii. The allowance is given to the debtor for the return of empty containers.
2. The notes in this journal are based on a copy of a credit note sent to the debtor.
3. 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.
4. No description is required for the Sales Return Journal.
ii. What is meant by non- trading concerns? Differentiate between receipts & payments account
and income & expenditure account.
Individuals or institutions with activities other than trade are known as non-trading concerns. Examples of
nontrading concerns are clubs, hospitals, libraries, colleges, athletic clubs etc.
These institutions are started not for carrying on a business and making a profit but for some charitable, religious
or similar purpose. Their income, which is derived from donations, subscriptions, entrances fees etc., is spent on
the objects for which they are started.
Non-trading concerns usually maintain their accounts by the double entry system and periodically prepare their
final accounts for the submission to their members and subscribers. The method of preparing final accounts by
non-trading concerns is different than trading concerns.
The method of preparing final accounts by non-trading concerns is different than trading concerns. As these
concerns do not deal in any goods like trading concerns, so they cannot prepare a trading and profit and loss
account? At the end of the year they make out an account called an Income and expenditure account and balance
sheet. The Income and expenditure account serve the same purpose as the profit and loss account in the case of
trading concerns and is made out exactly in the same manner.
Usually the non-profit making institutions do not maintain a full set of books but merely a cash book in which
all receipts and payments are entered. At the end of the year the cash book is summarised under suitable heads
and the summary thus prepared is called a Receipt and Payment Account. In order to know the result of the year's
working it should be converted into Income and expenditure account.

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
Receipt and payment account is a mere summary of cash book for a year. It begins with the cash in hand at the
commencement and ends with that at the close of the year. Similarly to cash account, in receipts and payments
account receipts are shown on the debit side while payments are shown on the credit side.
Receipt and payment account is a mere summary of cash book for a year. It begins with the cash in hand at the
commencement and ends with that at the close of the year. Similarly to cash account, in receipts and payments
account receipts are shown on the debit side while payments are shown on the credit side, without any distinction
between capital and revenue. Moreover, it does not include an unpaid expenditure not any unrealized income
relating to the period under review and so fails to reveal the financial position on the concern.
The following are the main differences between receipts and payments account and income and expenditure
account:
1. Nature
Receipts and payments account is a summary of cash transactions for a period and it is a real account. Income
and expenditure account is a summary of expenditure and income like trading and profit and loss account and it
is a nominal account.
2. Objective
Receipts and payments account is prepared to show cash and bank receipts and payments during the period to
derive closing balance of cash and bank. Income and expenditure account is prepared to show the net result of the
operation during the period to derive surplus or deficit.
3. Recording
All cash and cheque receipts are recorded on debit side of receipts and payments account where as all cash and
bank payments are recorded on credit side. In income and expenditure account all expenditure of revenue nature
are recorded on debit side and all incomes of revenue nature are recorded on credit side.
4. Capital And Revenue Items
There is no distinction between capital and revenue receipts and payments in receipts and payments account. All
expenses and incomes of revenue nature are recorded on accrual basis in income and expenditure account.
5. Contents
Receipts and payments account contains only cash and bank transactions. Income and expenditure account
contains both cash and non-cash expenses and incomes of revenue nature.
6. Balance Sheet Requirement
Receipts and payments account is not required to prepare balance sheet. Income and expenditure account is
required to prepare balance sheet.
7. Adjustments
No adjustments are required in receipts and payments account. In income and expenditure account adjustments
are made because it is prepared on accrual basis.

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
Q.4 Mr. Abdullah purchased a second hand machine on 1st December 2015 for Rs. 407,000 and
immediately spent Rs. 22,000 on its repairs and Rs. 11,000 on its erection. On 1 st July 2016 it
purchased another machine for Rs.110, 000.
Depreciation was provided machinery @ 10% p.a. on the original cost annually on 31st December.
In, 2017, the company changed the method of providing depreciation and adopted the written down
value method, rate of depreciation being 15% p.a. Give an account for four year commencing from
the acquisition of first machine. Compute to nearest paisa.
Note: (Change method during year straight line to diminishing balance method)
At 10%
Amount Amount
Date Particulars J.F. Date Particular J.F.
(Rs) (Rs)
2015-16 2017
Dec.01 Bank (M1) 407,000 Dec. 31 Depreciation
July 01 Bank (M2) 110,000 M1 40,700
M2 (6 months) 5,500 46,200
Mar.31 Balance c/d
M1 366,300
M2 (6 months) 104,500 470,800
517,000 517,000
At 15%
Amount Amount
Date Particulars J.F. Date Particular J.F.
(Rs) (Rs)
2015-16 2017
Dec.01 Bank (M1) 407,000 Dec. 31 Depreciation
July 01 Bank (M2) 110,000 M1 61050
M2 (6 months) 8250 69,300
Dec.31 Balance c/d
M1 345,950
M2 (6 months) 101,750 447,700
517,000 517,000
Repair and renewal made on December 31, 2017 will not be recorded in Machinery Account because, this repair
was made after putting the Machinery into use.

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
Q.5 Mr. Zubair is running a sole proprietorship business. During the month of August 2016, following
transactions were recorded, you are required to enter the transaction in three column Cash Book.
August 2016
2: Cash in hand Rs. 300,000/-
2: Cash at Bank Rs. 222,500/-
3: Paid salaries Rs. 5,000/-
5: Purchased Machinery Rs. 135,000/-
8: Cash sales Rs. 67,500/-
12: Received a cheque from Mr. Farooq for Rs. 154,000 in full settlement of his account Rs. 155,
000/- and deposited into the bank.
15: Payment to Mr. Furqan cash Rs. 75,000/- and a cheque for Rs. 73,500 in full settlement of
his account 150,000/-
17: Cash purchases Rs. 25,500/-
20: Electricity bill paid by Bank Rs. 15000/-
23: Received interest from Bank Rs. 27,000/-
24: Cheque received from Mr. Noman Rs. 73,500 but full settlement of his account Rs.74, 000/-
and deposited into Bank.
25 Mr. Noman cheque was dishonored.
25: Cash deposited into Bank Rs.30,000/-
28: Received a cheque from Mr. Asif Rs. 60,000/- but not deposited into bank.
29: Mr. Asif cheque’s deposited into bank.
29: Paid Mr. Kaleem by a cheque Rs. 70,000/-
30: Cash drew from Bank for office use Rs. 10,000/-
31: Cash drew from Bank for personal use Rs. 7,500/

ASSIGNMENT No. 02
Q. 1 Hussain & Co. is a partnership business dealing with the supply of surgical items. Business is facing
difficulty in recording its business transactions as there is no person on the payroll with accounting

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
literacy. Hussain & Co. has decided to hire an accountant with sufficient accountancy literacy.
Management of Hussain & Co., after interviewing several candidates hired Mr. Asif as an accountant.
First assignment of Mr. Asif is to prepare the three column cash book for the month of January, 2017.
During the month of January 2017, following transactions were recorded:
Date Particular
2017
Jan.1 Cash balance 500,000 from which deposited into Bank Rs.
3. 300,000.
5. Cash purchases Rs. 35000 less 2.5% trade discount.
Received cheque Rs.85, 000 for sale of old Furniture and
8. deposited into bank same day.
Cash drew from bank Rs. 17,500 and paid to salaries Rs. 7,500
10. and rent Rs. 10,000.
12. Bank charges Rs. 1,800
13. Purchased furniture paid by cheque. Rs. 25,300.
15. Paid salary Rs. 14,000.
19. Cash deposited into Bank Rs. 21,000.
Goods sold to Mr. Ali on credit Rs. 28,000.
23. Paid telephone charges Rs. 2000.
26. Received a cheque from Mr. Ali Rs. 27,500 but full settlement
27. of his account Rs. 28,000.
28. Mr. Ali‘s cheque deposited into Bank.
29. Withdrew from the bank for business use Rs. 45,000.
30. Cash drew from business for his personal use. Rs. 5,000.
31. Stationery purchased for cash Rs. 1,500.
Received cash from Mr. Faqi-ul-Hasan Rs. 19,500 and
discount allowed Rs. 500.

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739

Working -1
Cash purchases Rs. 35000 less 2.5% trade discount.
Purchases =Rs. 35000
Discount rate @ 2.5%
Discount price = Rs.35, 000 × 2.5 ÷ 100 = Rs. 875
Net purchases after less trade discount = Rs.35, 000 - Rs.875 = Rs. 34,125
• Net price of the purchases is Rs. 34,125 is recorded but rs.875 is not recorded due to trade discount.
Working -2
19 January 2017 Goods sold to Mr. Ali on credit Rs. 28,500.
Entry is not passed because it will be treated as credited basis.
Q. 2 (a) Define partnership and discuss the rights and duties of partners.
In Pakistan the partnership Act, 1932 regulates the law of partnership. According to Section 4 of this Act:
i. "It is the relation between the persons who have agreed to share the profits of business carried on by all or any
of them acting for all".
ii. "When two or more than two persons agree to combine their resources (capital & services) to carry on some
lawful business is called partnership".
Rights of Partners:
Broadly, the provisions of the Act regarding rights, duties and powers of partners are as under:

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
(a) Every partner has a right to take part in the conduct and management of business.
(b) Every partner has a right to be consulted and heard in all matters affecting the business of the partnership.
(c) Every partner has a right of free access to all records, books and accounts of the business, and also to examine
and copy them.
(d) Every partner is entitled to share the profits equally.
(e) A partner who has contributed more than the agreed share of capital is entitled to interest at the rate of 6 per
cent per annum. But no interest can be claimed on capital.
(f) A partner is entitled to be indemnified by the firm for all acts done by him in the course of the partnership
business, for all payments made by him in respect of partnership debts or liabilities and for expenses and
disbursements made in an emergency for protecting the firm from loss provided he acted as a person of ordinary
prudence would have acted in similar circumstances for his own personal business.
(g) Every partner is, as a rule, joint owner of the partnership property. He is entitled to have the partnership
property used exclusively for the purposes of the partnership.
(h) A partner has power to act in an emergency for protecting the firm from loss, but he must act reasonably.
(i) Every partner is entitled to prevent the introduction of a new partner into the firm without his consent.
(J) Every partner has a right to retire according to the Deed or with the consent of the other partners. If the
partnership is at will, he can retire by giving notice to other partners.
(k) Every partner has a right to continue in the partnership.
(l) A retiring partner or the heirs of a deceased partner are entitled to have a share in the profits earned with the
aid of the proportion of assets belonging to such outgoing partner or interest at six per cent per annum at the
option of the outgoing partner (or his representative) until the accounts are finally settled.
Duties of Partners:
(a) Every partner is bound to diligently carry on the business of the firm to the greatest common advantage. Unless
the agreement provides, there is no salary.
(b) Every partner must be just and faithful to the other partners.
(c) A partner is bound to keep and render true, proper, and correct accounts of the partnership and must permit
other partners to inspect and copy such accounts.
(d) Every partner is bound to indemnify the firm for any loss caused by his willful neglect or fraud in the conduct
of the business.
(e) A partner must not carry on competing business, nor use the property of the firm for his private purposes. In
both cases, he must hand over to the firm any profit or gain made by him but he must himself suffer any loss that
might have occurred.
(f) Every partner is bound to share the losses equally with the others.
(g) A partner is bound to act within the scope of his authority.

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
(h) No partner can assign or transfer his partnership interest to any other person so as to make him a partner in
the business.
(b) If the goods purchased from Mr. Kabeer for Rs. 40,000 were recorded in purchase book as Rs.4,000
and posted to Mr. Kabeer account as Rs.400, what rectifying entry will be passed?
Detail Amount Amount
Purchase 36000
Suspense 3600
Kabeer 39600
Q. 3 The following is the Receipt and Payment account of Friends Recreation Club, you are required to
prepare an Income& Expenditure Account of the Club for the year ending 31st August, 2017.
Receipts Amount Payments Amount
Balance b/ d 5,000 Rent 75,000
Entrance fee 10,000 Salaries 58,200
Subscription 2016 5,000 Billiards Table 85,000
Subscription 2017 250,000 Repair & Renewals 10,500
Subscription 2018 4,000 Interest 20,000
commission 12,000 Wages 5,000
Special subscription for 10,000
annual function Balance c/d 42,300
Total 296,000 Total 29,6000
Additional Information
Commission includes Rs. 800 which were received for 2016 and Rs. 1,200 is still due. Rent paid
Includes Rs. 12,000 pertaining to 2016 and Rs.12, 000 is still due. Salaries relating to 2016 Rs.7, 500
and is Still due Rs.8, 500 Subscriptions in arrear Rs.5, 800 and subscription for annual function
outstanding Rs.1, 100.
Expenditure Amount Income Amount
Rent 75000 Subscription 250000
Less: Include 12000 Add: Arrear 5800
63000 255800
Add: Outst:…..12000 75000 Add: Outst 1100 256900
Salaries 58200 Commision 12000
Less: Arrear (7500) Less: 2016 (800)
50700 11200
Add: Outst.. 8500 59200 Add: due 1200 12400

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
Repair 10500 Entrance Fee 10000
Interest 20000
Wages 5000
Excess income over
expenditure 119600
279300 279300
Q. 4 Mr. Naeem has a trading business of computer accessories. The business has been successfully run
for the last 10 years and is considered as one of the leading trading store of the city. Recently, due to
the increase in volume of the transactions, Mr. Naeem is unable to identify the difference in the
balances of Cash book and the pass book. Details of the transactions are given in the preceding
paragraph. On 31st March, 2017 the pass book showed a credited balance of Rs. 500,000 and as per
cash book is Rs. 408,750 of Mr. Naeem Trader. These are following discrepancy items between pass
book and cash book: -
1. Cheque for Rs. 100,000 was paid in 5 March, 2017, but out of which
Rs. 80,000 credited by the bank on 25 March, 2017 and remaining balance on 5 April, 2017.
2. Interest on investments collected by bank Rs. 1,750.
3. Bank charges for the above period also debited in the pass book of Rs.500.
4. Cheque for Rs.85, 000 were issued to creditor but not presented into bank for payment till 31 st
March, 2017.
5. On 29 March, 2017 a cheque of Rs. 25,000 received was deposited into the bank but was omitted
to the entered into cash book.
Required: Prepare bank reconciliation statement under double balance method.

Working -1
Total cheque Rs. 100,000 deposited into bank in 5 March.

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 Course: Principles of Accounting (5401)
0314-4646739 0332-4646739
Semester: Spring, 2021 0336-4646739
Credited cheque Rs. 80,000 by bank on 25 March, 2017
Credited cheque remaining balance Rs. Rs.20, 000 (Rs.100, 000- Rs. 80,000 = Rs.20, 000) on 5 April, 2017.
Its cheque credited by bank to next month not in march, 2017 so this cheque is un-credited cheque Rs. 20,000.
Q. 5 A and B entered into partnership on 1st January, 2020 contributing Rs. 150,000/- and Rs. 100,000.
During the year A invested Rs. 60,000 as additional capital on1st May, 2020 whereas B brought additional
capital of Rs. 40,000/- on 1st October, 2020. They earned a profit of Rs. 66,000/- during the year. Profits are
to be shared in their capital ratio. Calculate partners share of profit and pass the necessary journal entry.
A’s Contribution for one month
150000*12 1800000
60000*8 480000
2280000
B’s Contribution for one month
100000*12 1200000
40000*3 120000
1320000
Capital ratio b/w A and B will be 2280000:1320000 or
228:132 or 57:33 or 19:11
A’s Share Profit (66000 * 19/30) 41800
B’s Share Profit (66000 * 11/30) 24200

Detail Amount Amount

Profit and Loss Account 66000
A’s Capital Account 41800
B’s Capital Account 24200

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