‘Is it possible to prepare the profit and loss account and the balance sheet from the incomplete book of accounts kept by a trader’? Do you agree? Explain.
The profit and loss account and the balance sheet can be prepared from the incomplete book of accounts through Conversion method. According to this method, incomplete records are converted into double entry records. In case of incomplete records, details of some transactions are easily available like cash sales, cash purchases, creditors, debtors; however, there are a number of transactions, the details of which may not be available directly. Yet, these details can be found out indirectly or logically. Some of the important items that are vital for preparing balance sheet are given below,
a. Opening capital
b. Closing capital
c. Credit purchases
d. Cash purchases
e. Credit sales
f. Cash sales
g. Payment from debtors
h. Payment to creditors
i. Opening stock
j. Closing stock
Below are given are the steps included in the conversion method in a chronological order:
a. If opening capital is not given, then the first step is to prepare an opening statement of affairs that gives the opening capital.
b. The second step is to prepare a cash book that gives the opening or the closing cash and bank balancer.
c. The next step is to prepare a total debtors account. It is prepared in order to find one of the missing figures, such as credit sales, opening debtors, closing debtors and cash received from debtors.
d. The subsequent step is to prepare a total creditors account to ascertain one of the missing figures, such as credit sales, opening creditors, closing creditors and cash paid to the creditors.
e. The last step is to prepare final accounts. On the basis of the missing figures ascertained in each of the above steps, along with other mentioned information, Trading and profit and loss account and balance sheet can be prepared.
Credit purchase, during the year is ascertained by preparing :
(a) Total creditors account (b) Total debtors account
(c) Cash account (d) Opening statement of affairs
What are the possible reasons for keeping incomplete records?
Explain how the following may be ascertained from incomplete records:
(a) Opening capital and closing capital
(b) Credit sales and credit purchases
(c) Payments to creditors and collection from debtors
(d) Closing balance of cash.
State the meaning of incomplete records?
Tick the correct answer :
Incomplete record mechanism of book keeping is :
(a) Scientific (b) Unscientific
(c) Unsystematic (d) both (b) and (c)
Distinguish between statement of affairs and balance sheet.
Opening capital is ascertained by preparing :
(a) Total debtors account (b) Total creditors account
(c) Cash account (d) Opening statement of affairs
Write the correct word(s) :
1. Credit sales can be ascertained as the balancing figure in the .......... account.
2. Excess of .......... over ......... represents loss sustained during the period.
3. To ascertain the profit, closing capital is to be adjusted by deducting .......... and adding ..........
4. Incomplete records are generally used by ..........
If opening capital is Rs. 60,000, drawings Rs. 5,000, capital introduced during the period Rs. 10,000, closing capital Rs. 90,000. The value of profit earned during the period will be :
(a) Rs. 20,000 (b) Rs. 25,000
(c) Rs. 30,000 (d) Rs. 40,000
What is meant by a ‘statement of affairs’? How can the profit or loss of a trader be ascertained with the help of a statement of affairs?
Name any two types of commonly used negotiable instruments.
Why is it necessary to record the adjusting entries in the preparation of final accounts?
What is ‘Depreciation’?
Briefly state how the cash book is both journal and a ledger.
State the meaning of a trial balance?
State the four basic requirements of a database applications.
Define accounting.
State the different elements of a computer system.
Why is it necessary for accountants to assume that business entity will remain a going concern?
State the need for the preparation of bank reconciliation statement?
Passbook is a copy of:
(a) Copy of customer Account (b) Bank column of cash book
(c) Cash column of cash book (d) Copy of receipts and payments
Give the meaning of rebate.
Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.
Indicate against each amount wheather it is a debit or a credit balance, and prepare a trial balance as at March 31, 2014 based on the following balances:
Accounts Title Amount ₹
Capital 1,00,000
Drawings 16,000
Machinery 20,000
Sales 2,00,000
Purchases 2,10,000
Sales return 20,000
Purchases return 30,000
Wages 40,000
Goodwill 60,000
Interest received 15,000
Discount allowed 6,000
Bank overdraft 22,000
Bank loan 90,000
Debtors :
Nathu 55,000
Roopa 20,000
Creditors :
Reena 35,000
Ganesh 25,000
Cash 54,000
Stock on April 01, 2013 16,000
What is petty cash book? Write the advantages of petty cash book?
If the rent received in advance Rs. 2,000. The adjustment entry will be :
(a) Debit profit and loss account and Credit rent account.
(b) Debit rent account Credit rent received in advance account.
(c) Debit rent received in advance account and Credit rent account.
(d) None of these.
Double entry accounting requires that :
(i) All transactions that create debits to asset accounts must create credits to liability or capital accounts;
(ii) A transaction that requires a debit to a liability account require a credit to an asset account;
(iii) Every transaction must be recorded with equal debits equal total credits.
While calculating operating profit, the following are not taken into account.
(i) Normal transactions
(ii) Abnormal items
(iii) Expenses of a purely financial nature
(iv) (ii) & (iii)
(v) (i) & (iii)
Describe the informational needs of external users.
What is retirement of a bill of exchange?