Assignment Code: ECO-02/TMA/2021-22

Course Code: ECO-02

Assignment Name: ACCOUNTANCY-I

Year: 2021-2022

Verification Status: Verified by Professor

Marks: 100

Q1) What is Bank Reconciliation Statement? How is it prepared? Explain the advantages of preparing a Bank Reconciliation Statement.

Ans) A bank reconciliation statement reconciles an entity's bank account with its financial records by summarising banking and commercial activity. The statement details the deposits, withdrawals, and other transactions that have occurred in a bank account over a given time period.

Preparation

You might be questioning why bank transactions recorded in the books of accounts do not match the bank statement, given the description of a bank reconciliation statement.

There are numerous reasons for this, and some of the more prevalent are given below:

1. Cheques have been issued but have not yet been cleared by the bank.

2. Dates on which a check was deposited and when it was credited

3. The date on which a check is issued for payment and the date on which it is debited are not the same.

4. Cheques are not given to the bank for clearing when they are issued or received.

5. Interests, fees, and other charges incurred by the bank are not accounted for. The reason for this is that you won't know until you reconcile.

6. Banks may also make errors while debiting or crediting transactions.

7. You, too, can make mistakes in accounting bank transactions in books of accounts and so on, just as banks.

The closing bank amount in your books of accounts and the real bank balance as per bank will not match for the reasons stated above. This means that the bank balance you think you have in your account is not the one that is actually available. Making decisions based on the book balance can place you in an awkward predicament. Bank reconciliation statements are created to avert such problems. This statement simply matches the bank transactions in the company books with the bank statement, ensuring that the bank balance in the books of accounts is always accurate.

The process of recognising transactions individually and matching them to the bank statement so that the bank's closing balance in books matches the bank statement is known as bank reconciliation statement (BRS). In the case of one that isn't matched, appropriate adjustments or corrections will be made in the book to make it match.

Advantages

1. Using the manual and traditional approach of bank reconciliation, comparing the two statements with a big list of transactions is stressful and error-prone.

2. The only way to avoid this is to use accounting software to 'automate' the bank reconciliation procedure. In day-to-day operations, it saves time and effort. More significantly, you get precise, near-real-time bank balance information in your books of accounts.

3. Automating bank reconciliation simply entails employing accounting software to record all business activities, including bank transactions, so that bank reconciliation statements may be generated automatically. Accounting software can also assist you in reconciling bank statements instantly and with minimal effort.

The following are some of the advantages of employing accounting software to automate the bank reconciliation procedure:

1. Easy to Reconcile: Using accounting software will assist you in automatically preparing a bank reconciliation statement and reconciling with less effort.

2. Saves Time and Efforts: Whether there are 50 or 500 transactions to reconcile, the effort and time required is the same. Because it is automatically reconciled, you will save a lot of time and work in reconciling bank transactions.

3. Detecting Unaccounted Transactions is Easier: Learn about new (unaccounted) transactions, such as bank charges or bank interests, and simply account for and reconcile them.

   
   

Q2) Give journal entries for the following adjustments and also explain the accounting

treatment of these adjustments while preparing the Final Accounts of an Enterprise?

(i) Prepaid Expenses Rs. 5000

Ans)

The prepaid portion of the expense (unexpired) is reduced from the total expense in the profit & loss account. The prepaid expense is shown on the assets side of the balance sheet under the head “Current Assets”.

(ii) Interest on Drawings Rs. 1000

Ans)

It is credited to the Profit & Loss Account.. It is added to the Drawings and then deducted from Capital, in Balance Sheet (liability side).

(iii) Provision for doubtful debts Rs. 3000

Ans)

The Provision for Bad and Doubtful Debts will appear in the Balance Sheet. Next year, the actual amount of bad debts will be debited not to the Profit and Loss Account but to the Provision for Bad and Doubtful Debts Account which will then stand reduced.

(iv) Loss of Goods by theft Rs. 6,000

Ans)

Loss of goods due to the theft is known as an abnormal loss of goods. If such goods were insured by the firm, then an insurance claim may be received in full or part from the insurance company.

Effect of this adjustment on final accounts will be as follows:

1. Cost of goods lost/destroyed is either deducted from purchases or shown on the credit side of Trading A/c.

2. Net loss, i.e., gross loss less insurance claim accepted, if any, shall be shown on the debit side of profit and loss A/c.

3. Insurance claim accepted will be shown on the assets side of the Balance Sheet.

(v) Abnormal Loss of Stock Rs. 5000

Ans)

Abnormal loss stock is also an asset whose value is degraded . The organisation would make efforts to liquidate the assets in a number of ways like selling the salvaged stocks, get insurance realisation etc.

Q3) (a) Names the items which are recorded at the invoice price in the consignment account. Give journal entries passed for the adjustment of loading in respect of each item.

Ans) Items which are recorded:

Loading is usually involved in all such items which are recorded at the invoice: price in the Consignment Account. These items are:

1. Opening Stock

2. Goods Sent on Consignment

3. Goods Returned by the Consignee

4. Closing Stock.

Adjustment Entries of Loading

Your probably aware that profit is the difference between the selling and cost prices. 1n.In the previous Consignment Account, the goods shipped on consignment and other connected things were listed at cost. As a result, calculating the profit was a breeze for you. However, when products shipped on consignment and other associated things are presented in the Consignment Account at invoice pricing, it is required to alter the loading in the Consignment Account so that the invoice price is hired down to the cost level. The profit figure will be wrong if this adjustment is not made. There's also a chance the Consignment Account will show a loss because the difference between the selling price and the invoice price is usually minimal, and it won't be enough to cover all expenses.

The difference between the actual profit and the profit after adjustments is depicted in the graph. The profit thus calculated will be the difference between sales and invoice price. The profit will be Rs. 2,000 if no adjustments are done, however the actual profit is Rs. 5,000, as shown in the figure. As a result, to compute the real profit earned on any consignment, all of the items indicated at invoice price must be reduced to cost by adjusting the amount of loading on each of them. Let's look at each of the loading-related components one by one and see how the necessary modifications are done.

Opening Stock : If the stock is shown at invoice price, the difference between the invoice price and the cost price or the stock will be shown on the credit side of the Consignment Account as sine the following journal entry.

Stock Reserve A/c                                                                  Dr

         To Consignment A/c

(Being unloading on opening stock)

Goods Sent on Consignment : Consignment goods appear on the debit side of the Consignment Account. The difference between the invoice price and the cost price in respect of goods shipped on consignment shall be indicated on the credit side of the Consignment Account by passing the following journal entry to neutralise the effect of invoice price.

Goods Sent on Consignment A/c                                             Dr.

           To Consignment A/c

(Being unloading on goods sent on consignment)

Goods Returned by the Consignee : Because the return of goods is recorded on the credit side of the Consignment Account, the loading adjustment will be done on the debit side of the account using the following journal entry.

Consignment A/c                                                                   Dr.

            To Goods Sent on Consignment A/c

(Being loading on goods returned)

Closing Stock : Because closing stock is recorded on the credit side of the Consignment Account, the loading adjustment will be done on the debit side using the following journal entry.

Consignment A/c                                                                    Dr.

              To Stock Reserve A/c

(Being unloading on closing stock)

As a result, you'll see that the Loading adjustment entry in the Consignment Account is on the opposite side of the original entry. The closing stock, for example, is indicated on the credit side of the Consignment Account, whilst the adjustment is shown on the debit side. This is how the effect of loading in the Consignment Account is mutualized and the invoice price is reduced to cost level. It's important to remember that the loading adjustment should only be done in the Consignor's records. The consignee makes no entries for the products that require loading. As a result, no adjustments are required in his publications.

(b) “Joint Venture is a temporary partnership”. Comment and explain how it is different from Partnership.

Ans) A joint venture is a temporary cooperation formed by two companies to benefit from each other's costs, risks, and rewards. A joint venture agreement might help you expand your firm faster by giving you access to scarce expertise or allowing you to enter new markets. A joint venture agreement might also assist you in establishing your company in an export market where your partner is well-established.

Though a joint venture has the appearance of a temporary partnership, it is not a partnership in the strict legal sense. Some business is carried on by two or more people in a joint venture or partnership, and the profits are shared by all of them. However, there are several key distinctions between the two. The following are the details:

Q4) What do you mean by conversion method? Describe the steps that are required to convert the accounts kept under single entry system into double entry system.

Ans) The Debtors' Ledger and Creditors' Ledger are frequently kept along with the Cash Book in a single-entry system. Even though the records are inadequate, they provide enough information for the Trading and Profit & Loss Account to be prepared. As a result, the Conversion Method is used to calculate profits, which entails preparing correct final accounts after calculating the missing values.

The full conversion procedure entails the conversion of single-entry records into complete double-entry records. You may be aware that most businesses that use a single-entry accounting system have a Cash Book in addition to the personal accounts of their customers and suppliers. To convert them to double entry records, you must first open all of the relevant real and nominal accounts in the ledger and make the necessary postings.

This entails a number of steps, which are as follows:

1. Prepare the Statement of Affairs first, and then open all of the real and personal accounts that do not appear in the ledger that is kept under the single-entry method. This could include the creation of all real accounts as well as personal accounts such as Capital, Drawings, Loan, Outstanding Expenses, Outstanding Incomes, Prepaid Expenses, and so on. Passing an opening diary entry is one way to achieve that.

2. Complete costings into all real and personal accounts opened above from the Cash Book.

3. Open all of the incomes' accounts in the ledger and make postings on the debit side of the Cash Book.

4. Open all expense accounts in the * ledger and make postings there on the credit side of the Cash Bank.

5. Complete a thorough investigation of the customers' accounts and double input in accounts such as Sales, Sales Returns, Bad Debts, Bills Receivable, and so on.

6. Similarly, conduct a thorough review of suppliers' accounts and complete duplicate entry in accounts such as Purchases, Purchase Returns, Bills Payable, and so on.

7. Examine all vouchers and paperwork to see if there are any more items that need to be entered into the books. For example, an old piece of furniture may have been sold, resulting in a profit or loss, which must be recorded in books.

8. Prepare a Trial Balance and double-check that the double entry is correct in every way.

Q5) Differentiate between the following:

(a) Receipts and Payments Account and Cash Book?

Ans)

(b) Income & Expenditure Account and Profit & Loss Account

Ans)