Allama Iqbal Open University, Islamabad

Name: Tasneem Naveed

Studend I'd: 0000776701
Program: B.com
Subject: Principle of
accounting Course code: 438
Semester:Atummun, 2024
 Assignment no.1

Q. 1 Define Accounting and explain its objectives and branches?

A. Accounting:
Accounting is an information system for measuring processing and communicating
information that is useful in making economic decisions. Accounting provides the
techniques for gathering and communicating economic data to different individuals and
institutions. The “basic raw materials” of accounting are composed of business
transactiondata. It’s “primary finished products” are composed of verious summaries
analyses and reports. Sound decisions based on reliable information, play an important
role in our economic and social
system.
Accounting has been defined broadly as; “the process of identifying, measuring and
communicating economic information to permit informed judgements and decisions by
user of
the business information”
Objectives of accounting:
The objectives of accounting include
I. Accurate transaction record:
The first objective of accounting is to maintain an accurate record of all transaction. A
transaction includes any exchange of money for goods or services, whether
purchased or
sold by the company. This can include materials, building costs and
equipment. II. Asset and liability tracking:
Assets and liabilities are types of financial items that a company can own. Assets are
any item that value, while liabilities refer to the debt the company has. Another
objective of accounting is to maintain a consistent record of the assets and liabilities a
company
maintains.
III. Business decision guidance:
Business professionals can use accounting resources accounting professionals keep an
accurate record of all transactions and the financial status of the company, a leader can
use the information to better understand which decisions may result in sucess.
IV. Compliance with legal regulations:
Accounting can be a legal requirement for many companies. Legal compliance is
another accounting objective because companies can often supply their accounting
records to show
compliance with rules and
regulations.
V. Economic data recording:
Accounting creates a detailed history of financial actions within a company from when it
start. This generates a store of data relating to the businesses financial history. A
company can use
accounting information to create database containing economic and financial
data. VI. Financial budgeting and planning:
Budgeting and financial planning are aspects of accounting that help companies prepare
for the future. Creating a budget is an important accounting objective because it allows
accounting to professionals to prepare a plan foe what the company intends to spend in
the upcoming month or quarter. Financial planning can help companies keep costs low
and
profits high.
 VII. Information for financing:
Financingis a process that entails a company applying for a loan to fund a business
expense. When companies apply for business loan, they often present their financial
information to show lenders they’re capable of paying the money back. This make
collecting
information of financing applications an important function of accounting.
Branches of accounting:
The branches of accounting are

i. Financial accounting:
Financial accounting involves recording and clarifying business transactions along
with preparation and presentation of financial statements. Financial accounting
follows
GAAP principles and focuses on historical
ii. data. Managerial accounting:
Managerial accounting provides information to a company’s internal structure,
namely management. Unlike financial accounting, managerial accountants monitor
the use of
money, rather than amounts of
iii. money. Cost accounting:
Cost accounting considered a subset of management accounting focuses on
eveluating costs. This branch considers all factors of manufacting to accurately
determine the cost of a project or venture. Cost accounting analyzes
manufacturing cost to prepare and present reports that inform decision makers
on how to reduce
cost, or when to spend
iv. more.
Auditing is a branch of accounting that is usually and externally. Auditors examine
Auditing:
and monitor a business for accurate reporting, compliance with tax laws and
regulations
and financial integrity.
v.
Taxaccounting:
Tax accounting follows states and federal tax rules during tax planning or in the
preparation of tax returns. This branch reports on the effect of taxes on a business
and may offer advisory services on minimising taxes on a business and may offer
advisory
services on minimising taxes or the consequences of tax
vi. decisions. Fiduciary accounting:
Fiduciary accounting handles the accounts entrusted to the person responsible for
custody or management of poverty. The branch tracks and reports receipts and
disbursements from accounts to ensure proper fund allocations and is frequently
used
by guardians or custodians.

……………………………………

Q. 2 Mr. Anass started a sole proprietorship business. The business is newly established, and Mr.
Asfar hired an accountant for keeping the journal updated. Suppose you are the accountant of Mr.
Anasss business, prepare the journal book for the month of December 2023. You are also required to
post journal entries into the ledger and prepare the trial balance. Detail of the transactions during
April 2023 are given
as follows:

Apr. 1. Mr. Anass commenced business with Cash of Rs. 990,000/- Building

Rs. 3, 700,000/-
2. Purchased Machinery with cash Rs. 300,000/-
5. Purchased goods from Miss Zara Rs. 250,000/-

8. Sold goods to Mr. M. Naeem Rs. 80,000/-

20. Goods returned from Miss Zara Rs. 5,000/-

21. Machinery Purchased Rs. 100,000/-

25. Returned goods to Mr. M. Naeem Rs. 3,000/-

28. Utility bills paid for the month Rs. 40,000/-

30. Rent paid for the month Rs. 40,000/-

A. The journal book

Date Particular Debit Credit

1st apr Cash a/c 990,000

Building a/c 3,700,000
To capital 4,690,000
Business
a/c commenced
with cash and building
2nd apr Machinary a/c 300,000
To cash a/c 300,000
Purchase machinary
from cash
5th apr Purchase a/c 250,000
To miss Zara 250,000
a/c
Purchase good from
miss zara.
8th apr Mr. M. Naeem a/c 80,000
To sales a/c 80,000
Sold good to mr.m
naeem
20apr Miss. Zara a/c 5,000
To purchase return 5,000
a/c
Good return from miss.
Zara
21st apr Machinary a/c 100,000
To cash a/c 100,000
Purchase machinary
from cash, credit
25th apr Sales return a/c 3,000
To mr.m naeem 3,000
a/c
Goods return from
mr.m.
Naeem
28th apr Utility bill a/c 40,000
To cash a/c 40,000
Utility bill are paid
30th apr Rent a/c 40,000
To cash a/c 40,000
Rent are paid
 Ledger

Capital account

Date Particular Amount Date Particular Amount

1st apr To balance 4,690,000 1st apr By Cash a/c 990,000
By building a/c 3,700,000
Total 4,690,000 Total 4,690,000

Cash account
Particular Amount Date Particular Amount
1st apr To capital 990,000 2nd apr By machinery 300,000
a/c a/c
21th apr By machinary 100,000
a/c
28th apr By utility bill 40,000
30th apr By rent 40,000
By balance 510,000
Total 990,000 Total 990,000

Building account
Date Particular Amount Date Particular Amount
1st apr To capital 3,700,000 By balance 3,700,000
a/c Total 3,700,000 Total 3,700,000

Parchase account
Date Particular Amount Date Particular Amount
20th apr To miss Zara 250,000 By balance 250,000
a/c
Total 250,000 Total 250,000

Sales account
Date Particular Amount Date Particular Amount
8th apr 8th apr By Mr. M. 80,000
Naeem a/c
To balance 77,000
Total Total 80,000
80,000
Machinary account
Date Particular To Amount Date Particular Amount
2nd apr cash a/c To 300,000 By balance 400,000
21th apr cash a/c 100,000
Total 400,000 Total 400,000
 Miss. Zara a/c
Date Particular Amount Date Particular Amount
20th apr To Parchase 5,000 20th apr By purchase 250,000
Return a/c a/c
To balance a/c 245,000
Total 250,000 Total 250,000

Mr. M. Naeem accouny

Date Particular Amount Date Particular Amount

To sales a/c 80,000 By sales 3,000
return a/c
By balance 77000
Total 80,000 Total 80,000

Utility account
Date Particular To Amount Date Particular By Amount
28th apr cash a/c 40,000 28th apr balance 40,000
Total 40,000 Total 40,000

Rent account
Date Particular To Amount Date Particular By Amount
30th apr cash a/c 40,000 30th apr balance 40,000
Total 40,000 Total 40,000

Purchase return account

Date Particular Amount Date Particular Amount

To balance 5,000 20th apr By Miss. Zara 5,000
a/c
Total 5,000 Total 5,000

Sales return account

Date Particular Amount Date Particular Amount
25th apr To Mr. M. 3,000 By balance 3,000
Naeem a/c
Total 3,000 Total 3,000
 Trial balance
Ledger account Total debit Total credit
Capital account - 4,690,000
Cash account 510,000 -
Building account 3,700,000 -
Parchase account 250,000
Sales account - 80,000
Machinary account 400,000 -
Miss. Zara a/c - 245,000
Mr. M. Naeem 77,000
Utility account 40,000
Rent account 40,000
Purchase return account 5,000
Sales return account 3,000
Total 5,020,000 5,020,000

……………………….

Q. 3 A firm whose accounting year is the calendar year, purchased on 1st April 2020
Machinery costing Rs. 150,000. It purchased further machinery on 1st Oct 2020 costing Rs.
1000,000
and on 1st July 2021, costing Rs. 50,000. On 1st January 2022, machinery installed on 1st April
2020
became obsolete and was sold for Rs. 45,000.Show how machinery Account would appear in the
books
of company, if Machinery was depreciated by fixed installment method @ 10% p.a. What Would be
the
balance of machinery Account on 1st January 2023?
A. Working
Depreciation of 31st Dec 2020
Depreciation of 1st apr= 150,000× 9/12×10/100=
11,250
Depreciation of 1st oct= 1000,000× 3/12×10/100=
25,000 Total of
depreciation = 11250+25000= 36250
Depreciation of 31st Dec 2021
Depreciation of full year= 1,150,000×10/100=
115,000
Depreciation of 1st July = 50,000×6/12×10/100=
2,500 Total of
depreciation 115000+2500=117,500
Installation of 1st apr 2020= 150,000
Book of company 1st apr 2020
Less depreciation of full year= 150,000×10/100=
15,000 Less
depreciation of 9 month= + 11,250
26,250
Total price of machinary = 150,000

Less depreciation = - 26,250

= 123,750

Sold machinary = - 45,000

Loss on machinary = 78,750

 Depriciation of 31st Jan 2022
Depriciation of full year= 150,000×10/100= 15,000

Machinary account:

Date Particular Amount Date Particular Amount

2020 2020 By
1st apr To Back a/c 150,000 31st dec depreciation 36,250
1st Oct To Bank a/c 1,000,000 By balance 1,113,750
Total 1,150,000 Total 1,150,000
2021 2021
1st july To balance 1,113,750 31st dec By
depreciation 11,7500
By balance 996250
Total 1,113,750 Total 1,113,750
2022 2022
1st jan To balance 996,250 31st dec By Bank a/c 45,000
By
depreciation 15,000
By profit or
loss 78,750
By balance 857,500
Total 996,250 Total 996,250
2023
1st Jan To balance 857,500

………………………

Q.4 The following Trial Balance was extracted from the books of Jaffar Brothers on 31st
January 2019. From the given information you are required to prepare a work sheet for
they
ear ending on 31st December
2023 ?
A.

Jaffar brothers
Work sheet:
For the year ended Dec 31, 2023
 Title of Trial balance Adjustments Adjustments T. B Income statement Balance sheet
account
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 170,000 170,000 170,000
Account 90,000 90,000 90,000
Receivable
Merchandise 60,000 60,000 60,000
inventory
Plant and 170,000 153,000 153,000
machinery 17,000
Furniture and 820,000 820,000 820,000
Fixtures
Capital 1,360,000 1,360,000 1,360,000
Account 38,000 38,000 38,000
payable
Purchases 22,000 22,000 22,000
return &
allowances
Purchases 600,000 600,000 600,000
Discount on 6,000 6,000 6,000
Purchases
Sales 700,000 700,000 700,000
Sales Return 30,000 30,000 30,000
and
Allowances
Sales Discount 16,000 16,000 16,000
Insurance 10,000 4,000 14, 000 14,000
Prepaid
Advertisement 40,000 40,000 40,000
Expenses
Salaries 120,000 10,000 130,000 130,000
Expenses

Total 2,126,000 21,126,000

Adjustments:
Prepaid
insurance
Outstanding 10,000 10,000 10,000
salaries
Dep on plant & 17,000 17,000 17,000
machinery
Insurance 4,000 4,000 4,000
Prepaid
Total 31,000 31,000 2,140,000 2,140,000
Net income 119,000 119,000
(loss)
847,000 847,000 1,412,000 1,412,000
…………………………….
Q.5 What do you mean by double entry system of accounting? Explain it with examples.

A. Double entry system of accounting:

Double entry system of book keeping is a system of recording each transaction with it
two
fold aspect. When a certain commodity or services is purchased or sold, two account,
two
parties, two acts or two side are affected . For example giving of one thing in exchange
of
other, if one account or party receives a benefit in the form of cash, good or services
there
must be a corresponding loss to another account or party. The party receiving benefit is
to be
 debited and giving benefit is to be credited. So in double entry book keeping every debit
must have a corresponding credit.
Key concept of double entry
system
Debits and credits:
Debit simply mean making entry on left side of an account. Credit means recording
entry on
right side of an account. Thus for any account lhe left side is debit and the right side is
the
credit side as shown below :
Any account

Left or debit side Right or credit side

Rules for debit and credit:
The basis of double entry bookkeeping is that every transaction affect at least two
account.
In other word, there must be one or more accounts debited and one or more account
credited and the total must equal the total credits. Tn equation form:
Asset= liabilities + equity
Journalizing:
The act of debiting one account and crediting the other account is called journalizing.
Each
transaction is firstly recorded in a journal which is ac original entry book or ttarting
process in
accounts. The journal contains chronological or date wise record of business transaction
the
account debited and credited their respective amount. Each entry is recording so that
the
duality or equilibrium is maintained equalation form:
Asset= liabilities + owner’s equity
And
Debits = credits
Examples1:
Let us Suppose that shahid went to the bank and borrow rs. 5000 om a promissory
note Now transaction are
Cash account rs 5000 (Dr)
To note payable rs. 5000 (Cr)
Increase in asset (cash) is recorded by debit. Increase in liabilities (note payable bank)
are
recorded by credits.

Example:2
A company purchase purchases equipment for rs. 15000 paying 5000 in cash and the
rest credit
Equipment asset increase by rs. 15000 (Dr)
Cash asset decreases by rs 5000 (Cr)
Accounts payable liability increase by rs. 10000
(Cr) Journal book
particular debit cridit
Equipment 15000
cash 5000
Accounts payable 10000
………..................