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In order to download the PDF files you need to have the Adobe Acrobat Reader. T.S. Grewal's Double Entry Book Keeping book. Read 3 reviews from the world's largest community for readers. It's Book contains for financial Accounting. T.S. Grewal is the author of T.S. Grewal's Double Entry Book Keeping ( avg rating, 69 ratings, 3 reviews), CBSE Double Entry Book Keeping Financial A.
Accounting serves this purpose of record keeping by promptly recording all the business transactions in the books of account. We present here a brief explanation about different steps involved in accounting 1.
We discuss in this section the general objectives of accounting. Interpretation of the results is needed for the purpose of decision making regarding sales. Journal and subsidiary books are books of original entry 1. This watermark does not appear in the registered version. Each account in the ledger is balanced and the net balance is shown in the Trial Balance.
Systematic recording of business transaction is the first step in the accounting process. In simple words classifying is the process of grouping transactions or entries of one nature at one place.
Interpretation is usually done through Ratios and Flow statements. It facilitates segregation of numerous business transactions into identifiable groups.
The accounts are the basis. Public Trust Act etc. For this purpose. Financial statements are barometers of health of a business entity. Properly kept accounts are good proof in dispute. Societies Act. This helps the businessman to know his financial strength. Comparing the accounts of various years helps in getting good pieces of information.
They possess curiosity in knowing whether the business is being conducted on sound lines or not and whether the capital is being employed properly or not. Profit and Loss Account and Balance Sheet are nerve centers to know the soundness of the firm..
To the Government Government keeps a close watch on the firms which yield good amount of profits It is usual that these groups re interested to know the financial soundness before granting credit.. To the Research Scholars Accounting information For these reasons The demand for wage rise. To the Consumers These groups are interested in getting the goods at reduced price Researchers are also interested in accounting for interpretation.
Check your Progress 1 List four steps in Accounting The more important point is that the workers expect regular income for the bread To the Investors The prospective investors To compile national accounting is essential To the Employees Payment of bonus depends upon the size of profit earned by the firm To the Creditors Creditors are the persons who supply goods on credit This is to safeguard the investment..
For this To make a study into the financial operations of a particular firm The state and central Governments are interested in the financial statements to know the earnings for the purpose of taxation.. The progress and prosperity of the firm. The day-today operations are compared with some pre-determined standard Check your Progress 2 List four objectives of Accounting. The purpose of this function is to report regularly to the interested parties by means of financial statements Thus accounting becomes compulsory to comply with legal requirements..
The variations of actual operations with pre-determined standards and their analysis is possible only with the help of accounting Managerial Function Decision making programme is greatly assisted by accounting.
There are many parties-owners Various transactions are communicated through accounting.. This watermark does not appear in the registered version These facilitate to know operating results and financial positions..
Accounting is a base and with its help various returns Thus accounting performs historical function i Auditing is not possible without accounting Language of Business Accounting is the language of business. Legal Requirement function Auditing is compulsory in case of registered firms The primary function of accounting relates to recording The accounting shows a real and true position of the firm or the business..
The managerial function and decision making programmes But there is some difference between these two Check your Progress 3 Both Book keeping and Accounting are the art of recording.. It cannot record those transactions which cannot be expressed in terms of money In this section.
Valuation of inventory. It does not reflect the price level changes Distinguish between book keeping and accounting.. If the accounts are properly maintained. Check II. What are the major functions of accounting?
Who are the different parties interested in accounting information? Define Accounting. What are the advantages of Accounting? To identifies business transactions of financial nature and enters into appropriate books of accounts. To gives a true and fair view of the state of affairs of the concern at the end of the accounting period. Preparation of trial balance and final accounts. Managerial Function. Systematic recording of business transactions.
Accounting statements do not always present comparable 1. Legal Requirement function and Language of Business. The result obtained from accounting records makes information available to all those interested parties.
Preparing and ascertaining final accounts. Grouping transactions on a predetermined basis 3. Government and employees iv the main functions of accounting are record Keeping Function. Analysis of data is useful in evaluating past performance and providing guidance for the purpose of decision making regarding price structure of products and credit polices etc. Total and Balance 3.
A book-keeper is not liable An accountant is liable for accountancy work. Profit Preparation of trading. These are not included in These are included in book-keeping accounting. Principles of Accountancy. Income Statement and Balance Sheet 4 5 Rectification of errors Special skill knowledge and It does not require any special It requires special skill skill and knowledge as in and knowledge.
To make total of the amount To prepare trial balance in journal and accounts of with the help of balances ledger. Basis of difference Transactions Book-keeping Accounting Recording of transactions in To examine these books of original entry. To ascertain balance of ledger accounts. Preparation of trading. After going through this lesson. Here we discuss the different type of entry systems of accounting.
The word credit is derived from the Latin word Creder which means Due to that. Hence we present here a brief note on a statement which is used to calculate the amount of capital. If these two aspects of a transaction are recorded. All business transactions are has two aspects namely Debit and Credit. The excess of assets over liabilities is called capital. The term single entry is vaguely used to refer to any method of maintaining accounts which does not conform to strict principles of double entry system.
In short. It is always an incomplete double entry. It is incomplete and unsatisfactory system and it is clear that accurate information of the operations of the business is entirely lacking. This system is not based on any scientific system therefore it cannot be termed as a system. If opening capital is not given. If closing capital is not given. By convention. Check your Progress 1 List four defects of single entry system.. It is highly flexible accounting to the capabilities of individuals maintaining the records It is difficult to trace out omission of assets or liabilities in a statement of affairs Capital account is not maintained The purpose of statement of affairs is to find out capital..
Value of assets and liabilities in a statement of affairs are prepared on the basis of estimates The answer so obtained will be the profit or loss before adjustment earned during the year. There are two methods of ascertaining profit or loss under the single entry system. Statement of profit is prepared as follows: In single entry system the nominal accounts are not maintained and hence trading results cannot be known by preparing final accounts.
Every person keeps the accounts in his own way. The closing capital is taken. Additional capital Less: But all businessmen wish to know the amount of profit or loss during any year. Rs Capital as on Statement of profit or loss Closing capital Add: Drawings Assets items: Cash 2. Rs Cash 2. First identify which are the items are assets and which are liabilities from the given things.
Creditors 5. Opening capital Profit for the year Illustration 2 Nithilan maintains books on single entry. To find out the amount of capital. He gives you the following information. Liabilities Rs Assets Rs Creditors 5. She gives you the following information.
Calculate the amount of profit or loss for the year In this problem the amount of opening and closing capitals are not given. Opening capital Profit for the year. Further capital introduced by her 3. Capital at the end Capital at the beginning 8. Capital at the end 8. Capital introduced during the year 4. Drawings 1. Profit made during the year 2. Capital introduced during the year 2. Profit made during the year 3. It does not show sales. So is not possible to make a meaningful analysis of the financial statements and initiate effective steps to improve the financial position of the business.
The following are the steps to be followed for conversion of incomplete records to complete record system Double entry system From all the accounts balance in the ledger and any other additional details trading account.
Single or double column cash book should be prepared to find out missing items like opening cash.. Shortage on the credit site can be cash download or drawings or sundry expenses or closing cash balance. The balance in the statement represents opening capital Appropriate journal entry should be passed in respect of assets and liabilities included in the opening statement of affairs..
Bills receivables account and Bills payable account should be prepared Any shortage on the debit side can be cash sales or additional capital introduced or opening cash.. This system was invented by an Italian named Iuco Pacioli in A. For every transaction Conversion to double entry system enables a business to avoid the harassment of taxation authorities and ensures better management of the business The basic.
Therefore every transaction affects two accounts in opposite direction Real and nominal accounts must be written from the information recorded in the cash book. The double effect of every entry must be posted to the ledger According to this system..
A statement of affairs at the beginning of the year should be prepared. Impersonal accounts like total debtors account. Check your Progress 3 How does statement of affairs differ from balance sheet. This is done with the help of Real and personal accounts Third stage: First stage: Explain Note: Second stage: All entries in the journal book should be posted to the appropriate ledger account to find out the total effect of all such transactions in a particular account. These steps can be broadly categorized into five stages..
By preparing balance sheet the financial position of the business can be ascertained. It involves more clerical labour.
Accurate net profit can be calculated directly. Two aspect of a transaction are recorded. There may be debit without a corresponding credit and vice versa. To test the arithmetical accuracy a trial balance can be prepared. It is a perfect and scientific system. Fourth stage: Final accounts that is Trading account.
The Accounting records are not acceptable as evidence. In case of disputes. Fifth stage: Analysis and interpretation of final accounts are made in order to have true and fair idea about the concern. As the ledger does not contain all accounts. Only one aspect of a transaction is recorded.
Personal account and cash account alone are maintained. Balance sheet cannot prepare. It involves less clerical labour. They can be prepared. I t is an imperfect way of bookkeeping. Tax authorities accept this method. Internal check is not possible It is suitable for small businessmen. It is possible in this system. Tax authorities do not accept it as such Profit and loss account and Balance sheet cannot be prepared as it has incomplete record.
Reliable financial position can be found through balance sheet. Approximate net profit can be indirectly calculated. Double entry system Personal account. For every debit there is a corresponding equal credit.
Trading account. Double entry system is helpful to businessmen for ascertain the amounts due to his creditors.
Therefore Trading and profit and loss account and balance sheet cannot be prepared in a scientific manner Single entry system is suitable for sole trader Five steps involved in converting single entry system into double entry system Under single entry methods Briefly describe the procedure to be adopted in the conversion of single entry to double entry system 2. What is Double entry system of book keeping?
Explain its advantages.. Explain single entry system In this system ignore nominal accounts and it is highly flexible accounting to the capabilities of individuals maintaining the records.. Frauds can be committed easily Single entry system is not a scientific method of accounting Counter check is not at all possible.
Any method of maintaining accounts which does not conform to strict principles of double entry system.. How does it differ from double entry system? Under the double entry system the business enables to ascertain the result of its operation and financial position for any given period Comparison of business from tear to year is not possible Full information about the business cannot be obtained because records are incomplete system Errors happened cannot be traced out easily..
If the Debit and Credit. In many ways single entry system differ from double entry system 2. A statement of affair at the beginning period should be prepared to find out opening capital. Advanced accountancy. It is difficult to trace out omission of assets or liabilities in statement of affairs. Double Entry Book Keeping 3. Preparing final accounts i. Check 3 1. Check 4 The following is the procedure to be adopted for ascertained profit or loss under conversion method.
Mainly sales account and download account must be prepared to find out credit sales and credit download. The purpose of statement of affairs is to find out capital. Gupta -. Cash book should be verified and the all items in the debit and credit side of the cash book should be posted to respective accounts.
Jain and Narang -. Omission of assets or liabilities can easily be found out when balance sheet disagrees. If any information missing. Statement of affairs is prepared on the basis of those books which are maintained partly on the basis of double entry and partly on the basis of single entry.
Advanced accountancy 2. The purpose of balance sheet is to find out the financial position of the firm. Balance sheet is prepared on the basis of those books which are maintained in double entry. S Grewal -. Equities can be divided into two part equity of the owners and equity of creditors. Another one is receiving of benefit or credit aspect. Here we discuss here. According to this concept. The rights to properties are called equities. One aspect is giving benefit or debits aspect.
The equation is as follows: Both the aspects have to be recorded in accounts appropriately. As per debit and credit rules.
Abishnavi starts a business with a capital of Rs Equities can be subdivided into equity of the owners which is known as capital and equity of creditors who represent the debts of the business known as liabilities. Abishnavi downloadd machinery from Mr Prasath for Rs It shows the relationship between assets of the business and capital. The equation is fundamental in the sense that it gives a foundation to the double entry book-keeping system. Based on the bifurcation of equity.
When a business is started. These equities may also be called internal equity and external equity. Later on. Cash Rs We can understand the above Equations with the following examples. Amount due to Mr Prasath Rs The properties owned by a business are called assets and the rights to properties are known as liabilities or equities of the business. This equation holds good for all transaction and events and at all periods of time since every transaction and events has two aspects.
To understanding the accounting equation clearly Accounting Equation is Assets Amount due to Mr Muralidharan Rs Check your Progress 1 What do you understand about internal equity and external equity?
Abishnavi downloadd machinery for Rs If there is decrease in assets. When liabilities are increase. Capital on the beginning of the year is Rs When capital is increased. Building on the beginning of the year is Rs If there is increase in assets. In both capital and liabilities accounts the credit is made for increase in it and debit is made for decrease in it If both assets and liabilities are decrease or increase correspondingly with same amount these transactions does alter the total amount of accounting equation Equities are the rights to properties The asset account is debited for increase in the value of an asset and it is credited for any decrease in it Assets are the properties owned by business.
If there is one asset decreases and another asset increases or one liability decreases and another one liability increases due to a transaction it does not alter the total amount of accounting equation What are the difference between the rules of accounting and accounting equations?
For example Check your Progress 3 Some of the business transactions alter the total amount of accounting equation and some other does not This does not change the accounting equation.. List out some example for the above statement Note: This transaction also does not alter the total figures in the accounting equation.
This transaction alters the total figures in the accounting equation For example. Increase in assets account is effected by debiting and decrease in assets account is effected by crediting them. Check 3 The following transactions not alter the total figures in the accounting equation. Check2 1. Advanced accountancy -.
Increase in capital is recorded by crediting in capital account and decrease in capital account is recorded by debiting them. Double Entry Book Keeping -. S Grewal 3. The following transactions alter the total figures in the accounting equation. This does not change the accounting equation. Increase in liabilities is recorded by crediting and decrease in liabilities account is recorded by debiting them.
Jain and Narang 2. In this lesson we have a brief study about various type of account and its rules. Impersonal accounts can be further. Hence we discuss here the different types account. It is necessary to maintain record for all the dealings. Here we discuss the different types of account and rules of accounting. Practically every business deals with other persons. Accounts can be divided into two namely 1 personal accounts 2 Impersonal Accounts.
Co-operative society account. Personal accounts are of the following types: To record credit transactions. B o th males and females are included in it. When accounts are of a similar nature and their number is large. Income and Gain Expense and loss 4. The following chart will show the various types of accounts: Real accounts can be further classified into tangible and intangible. This proprietor is represented by capital account for that entire he invests in business and by drawings accounts for all that which he withdraws from business In each transaction..
Furniture and Stock etc A separate account i s maintained for each head or expense or loss and gain or income.. Rent account Commission account. These accounts represent assets and properties which cannot be seen This watermark does not appear in the registered version..
Debit the account that receives the benefit and credit the account that gives the benefit. Each transaction must have two aspects. One account gives benefit and the other account receiving benefit. Cash Machinery It relates to the items which exist in name only Hence we discuss here the accounting rules for different types account.
Trademarks and Copyrights etc. Wages account A separate account is maintained for each asset e. The account that gets benefit is debited and the account that gives benefit is credited These accounts are also known as fictitious accounts as they do not represent any tangible asset Interest received account are some examples of nominal account Check your Progress 1 Give two examples each for artificial persons These accounts represent assets and properties which can be seen..
But for convenience Accounts relating to income. Goods downloadd from Nithilan: Here benefit goods is given by Nithilan. He is a giver and hence his account should be credited. Here benefit Building is given to Jayabharathi. Goods sold to Abishnavi. Nominal accounts: Debit the receiver Credit the giver: Debit what comes in Credit what goes out: Debit all expenses and losses Credit all incomes and gains N.
She is a receiver and hence her account should be debited. Debit what comes in a. Motor car downloadd from Shanthi: Here benefit Motor car is given by Shanthi.
She is a giver and hence her account should be credited 4. Credit the giver c. Personal accounts 2. Real accounts 3. Furniture account should be debited. Samy started business with cash Rs Building sold to Jayabharathi. Examples 1. Here benefit goods is given to Abishnavi.
Furniture downloadd for Rs Hence the account is debited. Examples 1 Debit the receiver a. The personal account which receives the benefit is debited while the personal account which gives the benefit is credited. When an asset is downloadd. When an asset is sold out. Cash to the extent of Rs Hence salaries account should be debited b Hence rent account should be debited Debit all expenses and losses a Examples Nominal accounts When an expense is incurred or loss suffered.
Paid salaries Rs Check your Progress 2 Give two transactions for each type of accounts Note: Credit all incomes and Gains c Received interest on loan Rs 2. Land sold for Rs Paid rent Rs Received commission Rs Credit what goes out c.. Paid cash to Muthuvelayutham Rs When any income is earned or gain made Real accounts i Machinery downloadd for Rs 2.
Explain the Rules for Debit and Credit with examples. Government Tangible assets 1. Trade mark Check 2 1. Mention which account should be credited for the following transactions i Cash received from kolanchi ii download of car for cash iii Building sold to Narayanasamy iv Payment of salaries v Rent received 3.
Goodwill 2. Bank 2. Machinery Intangible assets 1. Building 2. Mention which account should be debited for the following transactions i Cash paid to Mani ii download of Land iii Sale of Building iv Payment of rent v Commission received 2.
How are accounts classified? What is the basis for such classifications? Nominal accounts i paid rent Rs ii received commission Rs 5. Personal accounts i Capital contributed by Samysivam Rs Formation of the accounting standards board 5. Scope and functions of accounting standards board 5. Audited financial statements 5. Scope of accounting standards 5. Compliance with the accounting standards 5. Here we discuss various accounting standards. After going through this lesson, you will able to 1.
To make the language convey the same meaning to all people, accountants all over the world have developed certain rules. In this section, we discuss the prefaces to the statements of accounting standards. While formulating the accounting standards, ASB will take into consideration the applicable laws, customs, usages and business environment.
While formulating the Accounting Standards, ASB will give due consideration to International Accounting Standards, issued by IASC and try to integrate them, to the extent possible, in the light of the conditions and practices prevailing in India.
ASB has also been entrusted with the responsibility of propagating the Accounting Standards and persuading the concerned parties to adopt them in the preparation and presentation of financial statements. ASB will issue guidance notes on the Accounting Standards and give clarifications on issue arising there from.
ASB will also review the Accounting Standards at periodical intervals. Audited Financial Statements i For discharging the above functions, ASB will keep in view the purpose and limitations of published financial statements and the attest function of the auditors.
ASB will enumerate and describe the basic concept to which accounting principles should be oriented and state the accounting principles to which the practices and the procedures should conform. ASB will examine the various current alternative practices in vogue and identify such alternatives which should be preferred.
Reference to financial statements in the Preface and in the standard tilled from time to time will be construed to refer to General Purpose Financial Statements. Scope of Accounting Standards i Efforts will be made to issue Accounting Standards which are in conformity with the provisions of the applicable laws, usage and business environment of our country.
However, if due to subsequent amendments in law, a particular Accounting Standard is found to be not in conformity with such law, the provisions of the said law will prevail and the financial statements should be prepared in conformity with inch law.
Such disclosure may be by way of appropriate notes explaining the treatment of particular items. Such explanatory notes will be only in the nature of classification and, therefore, need not be treated as adverse comments on the related financial statements.
Any limitations with regard to the applicability of a specific Standard will be made clear by the Institute form time to time.
The date from which a particular Standard will come into effect, as well as the class of enterprise to which it will apply, will also be specified by the Institute. However, no standard will have retrospective application, unless otherwise stated. The endeavour would be to confine Accounting Standards to essentials and not to make them so complex that they cannot be applied effectively on a nation-wide basis.
In the years to come, it is to be expected that Accounting Standards will undergo revision and a greater degree of sophistication may then be appropriate. In the formation of Study Groups, provision will be made for wide participation by the members of the Institute and others. A Statement of concepts and fundamental accounting principles relating to the Standard.
Definitions of the terms used in the Standard. The manner in which the accounting principles have been applied for formulating the Standard. The presentation and disclosure requirements in complying with the Standard. Class of enterprises to which the Standard will apply. Date from which the standard will be effective. After taking into consideration the comments received, the draft of the proposed Standards will be finalised by ASB and submitted to the Council of the Institute.
Check your Progress 1 Give any five areas in which differing accounting policies are encountered.. The Accounting Standard on the relevant subject will then be issued under the authority of the Council This is another purely mechanical step In the event of any deviation from the Standards.. Next comes the purely mechanical step of journalizing original entries-recording the results of the transaction analysis in the journal Posting is the process of recording changes in the ledger accounts exactly as specified by the journal entries This requires knowledge of accounting concepts as well as judgment At the end of the accounting period..
These should be read in the context of the preface to the Statements of Accounting Standards given above.. Texts of Some Indian Accounting Standards are given below These are journalized and posted in the same way as original entries Once an awareness about these requirements is ensured steps will be taken This is the process of deciding which account or accounts should be debited IAS 5 Information to be disclosed in financial statements.
IAS 21 Accounting for effects of changes in foreign exchange rates. Smooth flow of international investment is also facilitated. This helps in meaningful understanding and exchange of economic and financial information. The national level the Institute of Chartered Accountants has taken initiative and several accounting standard have been developed.
IAS 2 Valuation and presentation of inventories in the context of historical cost system. The following are the accounting standards laid down by the committee till now: IAS 1 Disclosure of Accounting policies.
IAS 20 Accounting for Government grants and disclosure of government assistance. The committee operates from its head office situated at London. The accounting standards issued by the ASB so far are as follows: Accounting for investment in associates Financial Reporting in Hyper inflationary economies Disclosure in the Financial statements of banks and similar financial institutions IAS 31 Financial reporting of interests in joint ventures IAS 32 Financial Instruments: The objective of ASB is to formulate uniformity in terminology.
Efforts will be made to issue Accounting Standards which are in conformity with the provisions of the applicable laws. While formulating the accounting standards. Standardized accounting practices. ASB will take into consideration the applicable laws. ASB will clarify the phrases commonly used in such financial statements and suggests improvements in the terminology wherever necessary. Check 2 The main objective of the committee is to formulate and publish in the public interest.
Methods of depreciation. Enumerate the latest provisions of AS 5 3. Valuation or translation of foreign currency item. Briefly enumerate the provision of Indian Accounting Standard 3. Treatment of retirement benefits. Treatment of expenditure during construction. Describe briefly accounting policies and fundamental accounting assumptions as given in Accounting Standard 1 5. Treatment of Goodwill 5. Business Entity Concept 6. Consistency 6.
Dual Aspect Concept 6. Periodicity Concept 6. Matching Concept 6. Accrual Concept 6. Objective Evidence Concept 6. Going Concern Concept 6. Conservatism 6. Disclosure 6. Here we discuss the different types of accounting concepts-conventions. Realisation Concept 6.
Historical Cost Concept 6. Money Measurement Concept 6. This concept can be expressed through an accounting equation. Though accounting principles are denoted by various terms such as concepts. The following are the common accounting concepts adopted by many business concerns.
It is worth mentioning here that the business entity concept as applied in accounting for sole trading units is different from the legal concept. The equation clearly shows that the business itself owns the assets and in turn owes to various claimants. The expenses. Business Entity Concept 2. Rules governing the formation of accounting axioms and the principles derived from them have arisen from common experiences.
Dual Aspect Concept 5. The accounting principle is considered to be relevant and useful to the extent that it increases the utility of the records to its readers. Business Entity Concept A business unit is an organization of persons established to accomplish an economic goal. It is considered to be feasible to the extent that it is practicable with the least complication or cost.
The purpose of statement of affairs is to find out capital. Capital account is not maintained, excess of assets over liabilities is treated as capital. Value of assets and liabilities in a statement of affairs are prepared on the basis of estimates, except the figures of debtors, creditors, cash and bank.
It is difficult to trace out omission of assets or liabilities in a statement of affairs. It is highly flexible accounting to the capabilities of individuals maintaining the records. Check your Progress 1 List four defects of single entry system. Note: a Write your answer in the space given below. In single entry system the nominal accounts are not maintained and hence trading results cannot be known by preparing final accounts. But all businessmen wish to know the amount of profit or loss during any year.
In this section, we attempt to make a brief survey the methods of ascertainment of profit or loss by single entry system. There are two methods of ascertaining profit or loss under the single entry system, they are: a Comparison method or Net worth Method or statement of affair method b Conversion Method.
The closing capital is taken; drawings should be added to this; from this total the additional capital if any introduced should be subtracted; from this total the opening capital should be subtracted.
The answer so obtained will be the profit or loss before adjustment earned during the year. Statement of profit is prepared as follows: 2. He gives you the following information. Solution: To find out the amount of capital, we want to prepare a statement with the help of given assets and liabilities.
First identify which are the items are assets and which are liabilities from the given things. She gives you the following information. Further capital introduced by her 3, Calculate the amount of profit or loss for the year Solution: Capital at the end 8, Add: Drawings 1, , Less: Capital introduced during the year 2, , Less: Profit made during the year 2, Capital at the beginning.
It does not show sales, downloads, gross profit, operating expenses etc. So is not possible to make a meaningful analysis of the financial statements and initiate effective steps to improve the financial position of the business.
Once the books are converted, all future transactions can be recorded as per double entry system. Conversion to double entry system enables a business to avoid the harassment of taxation authorities and ensures better management of the business.
A statement of affairs at the beginning of the year should be prepared. The balance in the statement represents opening capital.
Single or double column cash book should be prepared to find out missing items like opening cash, closing cash, cash sales, cash download, additional capital and drawings etc. Any shortage on the debit side can be cash sales or additional capital introduced or opening cash. Shortage on the credit site can be cash download or drawings or sundry expenses or closing cash balance. Impersonal accounts like total debtors account ,total creditors account , Bills receivables account and Bills payable account should be prepared.
Appropriate journal entry should be passed in respect of assets and liabilities included in the opening statement of affairs. Real and nominal accounts must be written from the information recorded in the cash book, total debtors account, total creditors account, etc. The double effect of every entry must be posted to the ledger, opening new accounts wherever necessary. From all the accounts balance in the ledger and any other additional details trading account, profit and loss account and balance sheet must be prepared.
According to this system, every transaction has two aspects. For every transaction, one account is to be debited and another account is to be credited in order to have a complete record of the transaction. Therefore every transaction affects two accounts in opposite direction.
By preparing balance sheet the financial position of the business can be ascertained. This is done with the help of Real and personal accounts. Check your Progress 3 How does statement of affairs differ from balance sheet- Explain Note: a Write your answer in the space given below.
These steps can be broadly categorized into five stages. Hence, we present here a brief account of different stages in double entry system. First stage: when a transaction takes place, it is recorded in journal book. Second stage: All entries in the journal book should be posted to the appropriate ledger account to find out the total effect of all such transactions in a particular account.
Fourth stage: Final accounts that is Trading account, profit and loss account and balance sheet are prepared from trial balance.
Fifth stage: Analysis and interpretation of final accounts are made in order to have true and fair idea about the concern. Personal account and cash account alone are maintained. It involves less clerical labour. Only one aspect of a transaction is recorded. There may be debit without a corresponding credit and vice versa. Trading account, Profit and loss account and Balance sheet cannot be prepared as it has incomplete record. I t is an imperfect way of bookkeeping.
Approximate net profit can be indirectly calculated. As the ledger does not contain all accounts, trial balance cannot be prepared. Tax authorities do not accept it as such Internal check is not possible Balance sheet cannot prepare. So, financial position is difficult to ascertain. The Accounting records are not acceptable as evidence. It is suitable for small businessmen.
Double entry system Personal account, real account and nominal accounts are maintained properly. It involves more clerical labour. Two aspect of a transaction are recorded. For every debit there is a corresponding equal credit.
They can be prepared. It is a perfect and scientific system. Accurate net profit can be calculated directly. To test the arithmetical accuracy a trial balance can be prepared. Tax authorities accept this method. It is possible in this system.
Reliable financial position can be found through balance sheet. In case of disputes, accounting records can be produced in courts of law It is suitable for any type of businessmen. If the Debit and Credit, aspects of a transaction are recorded, such system is known as the Double entry system. Any method of maintaining accounts which does not conform to strict principles of double entry system, which is known as single entry system.
Under single entry methods, we can ascertain the amount of profit or loss of a concern by either comparison method or conversion Method. Single entry system is suitable for sole trader, partnership firms and professionals. In this system ignore nominal accounts and it is highly flexible accounting to the capabilities of individuals maintaining the records.
Single entry system is not a scientific method of accounting. Therefore Trading and profit and loss account and balance sheet cannot be prepared in a scientific manner. Frauds can be committed easily 5. Under the double entry system the business enables to ascertain the result of its operation and financial position for any given period. Double entry system is helpful to businessmen for ascertain the amounts due to his creditors, amounts due from his debtors and also to satisfy the tax authorities.
Five steps involved in converting single entry system into double entry system. In many ways single entry system differ from double entry system 2. What is Double entry system of book keeping? Explain its advantages. Explain single entry system. How does it differ from double entry system? Briefly describe the procedure to be adopted in the conversion of single entry to double entry system 2.
Comparison of business from tear to year is not possible. Errors happened cannot be traced out easily. Counter check is not at all possible, as in double entry system 4. Check 3 1. Balance sheet is prepared on the basis of those books which are maintained in double entry.