BBA Bookkeeping Discuss Briefly Profit & loss Balance sheet
BBA Bookkeeping Discuss Briefly Profit & loss Balance sheet:- All BBA 1st semester students we are providing the study material and question paper of BBA . and in this article, you can find a few year question papers. If we talk about BBA then Bookkeeping and Accounting are one of the most important topics. Bookkeeping is common to all semesters Here we are presenting BBA Bookkeeping and Accounting Study Material and Notes for all Semesters.
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BBA study in bookkeeping and accounting, financial planning, economics, business organization, and other similar areas of operation in any business organization. full BBA course three-year degree course consists of six semesters. the basic eligibility criterion for a BBA degree is qualifying 10+2 or equivalent examination in any stream from a recognized board of the country.
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Discuss Briefly Profit & loss Balance sheet
BBA Bookkeeping Discuss Briefly Profit & loss Balance sheet:-
Q.1. What is the error not disclosed by the trial balance even on its agreement? Discuss briefly.
Ans. Following errors are not disclosed by a trial balance even when it tallies. These are also known as limitations of trial balance :
- Errors of Principle: Sometimes errors are made due to insufficient knowledge of accounting principles, Hence when errors are created due to violation of accounting principles, rules and regulations, then such errors are termed as errors of principles, e.g. if a cloth merchant purchases machinery here machinery account is to be debited, but if purchases account has been debited even then trial balance will tally but there remains a mistake of principle. It means that a clear distinction must to be made between capital and revenue expenditure capital and revenue receipts and capital and revenue losses. If it is not done, it is regarded as an error of principle.
- Errors of Omission: When no entry is made for a transaction in journal or in its subsidiary books or posting in ledger then also trial balance will tally. Such errors are known as errors of omission. Such errors are not disclosed by trial balance from being tallied.
- Errors of Duplication: If an entry is made twice in journal and its posting is also made twice, th trial balance will tally, but such errors will not be disclosed.
- Compensatory Errors: If one account in the ledger is debited with ₹ 300 less and other account in ledger is credited with ₹ 300 less then also trial balance will tally. Such Errors are called compensatory errors and they are not disclosed by trial balance.
Errors Disclosed by Trial Balance (Profit Loss Balance Sheet)
When there are some errors, then trial balance will not tally. Following errors are are disclosed by the trial balance :
- While posting from journal to ledger, omission of posting of some account is made, e.g. furniture purchase for cash ₹ 5000. In this case ₹ 500 are recorded in the debit side of furniture account but not recorded in the credit side of cash account.
- Balance of cash book is not recorded in trial balance.
- Sometimes total of one subsidiary books like sales book is posted in the account of other subsidiary book like purchases book.
- Some errors are committed at the time of balancing a ledger account.
- Errors is made in totaling the trial balance.
- Errors is made at the time of preparing lists of debtors and creditors.
- While making posting ledger wrong amount is recorded in one account, e.g. instead of posting ₹ 105 in the debit side of and account ₹ 150 have been posted.
- Some balance of ledger accounts have not been recorded in trial balance.
BBA 1st Semester Study Material
Q.2. What is the accounting equation?
Ans. Accounting equation based on ‘Duality concept’ which explains that at any point in time the assets of any business enterprise are equal in monetary terms to its equities, both internal and external. Internal equities are the amount contributed by the proprietor as capital and amount of profit retained in the business External equities are liabilities (amount payable to outsiders). In the later discussions, internal equities will be termed as ‘Equity’ and external equities as ‘Liabilities’.
Assets = Equity + Liabilities
Meaning Journal Entry Branch Account Bookkeeping
Q.1. Explain the meaning of the term journal and state its significance. Discuss the different rules for journalizing the transaction with a suitable example.
Ans. Journal: The word journal has been derived from the French word JOUR meaning daily records. Journal is a book of primer record for small firms.
According to Prof. Cartov, “The journal is originally used as a book of prime entry in which transactions are copied in order of date from a memorandum or waste book. The entries as they are copied are classified into and credits, so as to facilitate them being correctly posted, afterward in the ledger”
Business transactions of financial nature are studied and classified as assets, liabilities, Capital, revenue, and Expenses and accordingly debited or credited in the journal entry are passed in the following form:
Example of Journal Entry— (BBA Study Material Notes )
The journal is subdivided into five columns. These columns as per the above format are Date, Particular, L.F., Amount (debit). Amount (Credit) and narration.
- Date: The date of the transaction is written.
- Particulars: The names of accounts to be debited and credited are written.
- Ledger Folio: The page number of the ledger where the account is posted is written.
- Debit Amount: The amount to be debited is written.
- Credit Amount: The Amount to be credited is written.
Rules of Dr. and Cr.
- Personal A/c: Debit the Receiver
Credit the Giver.
- Read A/c: Debit what comes in
Credit what goes out.
- Nominal A/c: Debit all the Expenses and losses
Credit all the gains and income.
Advantages: The following are the main advantages of the journal:
- Reduce the Possibility of Errors: Since the amount to be debited and credit are written simultaneously against each transaction, so the possibility of occurrence of error is reduced.
- Facilitates Cross Checking of Account: If the trial balance does not agree, journal facilitates. Checking of ledger entries. Thus accounts can be tailed easily.
- Facilitates Posting into Ledger: Since complete transaction in the form of debit and credit is given so there is no possibility of committing any mistake while posting journal entry into ledger.
- Provides Date-wise Record: Since transactions in the journal are recorded in chronological order or there is no possibility of any transaction to be left out recording.
Explain Branches of Accounting (BBA Notes Bookkeeping)
Account has Three main Branches :
- Bookkeeping and Financial Accounting: Which is concerned with recording and processing all transactions with outsiders and events affecting the financial position of the firm. This leads to the preparation of the annual profit and loss account (or similar statement) and the balance sheet.
- Cost Accounting: It seeks to ascertain the cost of each product of the job produced or undertaken by the firm. In financial accounting, expenditure incurred is recording a such but, in cost accounting, it will be analyzed jobwise or product-wise. Unlike financial accounting, cost accounting has to depend a great deal on estimation.
- Management Accounting: It has the objective of collecting, systematically, and regularly all such information as will help management in discharging its functions of planning control. Decision-making etc. It draws both on financial accounting and cost accounting.
Rules of Accounting Equations
- Capital: When capital is increased, it is credited and when some portion of capital is withdrawn i.e. drawings are made, it is debited.
- Assets: If there is an increase in assets, this increase is debited in assets account. If there decrease in assets, this decrease is credited in assets account.
- Revenue Income: The owner’s equity is increased by the amount of revenue income.
- Revenue Expenses: The owner’s equity is increased by the number of revenue expenses.
- Capital: When capital is increased, it is credited and when some portion of capital is drawn i.e. drawing are made, it is debited.
- If assets are increased, liabilities are also increased, as furniture is purchased on credit. Here, furniture is increased and the amount of creditors is also increased.
- If an asset is increased, liabilities are also decreased, as cash paid to creditors. Here, cash is decreased and the amount of creditors is also decreased.
- In the accounting equation, assets are equal to equities whether these equities are the owner’s equity or outsider’s equity owner’s equity and partly outsider’s equity.
- When one asset is decreased, other assets are increased, e.g. the sale of furniture for cash. Here, furniture is decreased and cash is increased.
- Sometimes when one asset is increased and other assets are decreased e.g. purchase of furniture for cash. Here, furniture is increased and cash is decreased.
Merits of Double Entry System
Merits of the double-entry systems are the same which have been described earlier under the heading of “Merits of Bookkeeping and Accounting”.
Demerits of Double Entry System (BBA Study Material)
The main demerit of this system is that it is difficult to apply the rule of debit and credit. Many transactions are such in which out of the two aspects of a transaction in one aspect, one rule applies which in another aspect other rule applies.
Thus, it is not only difficult but teasing also to apply two different rules in the same transaction, if the transaction contains such two aspects which are governed by different rules, a minor mistake in it makes the accountancy record defective. In order to have command over the rules of double-entry, proper familiarity with the subject, practical knowledge, and training is necessary. Discuss Briefly Profit & loss Balance sheet
Bookkeeping Profit and Loss Final Account
This account is prepared to final out gross profit or gross loss on the basis of purchases and sales. From the sales of a specific period (mostly of one year), the cost of sales (of the same period) is deducted and the balance is treated as gross profit.
Cost of goods sold or cost of sales = Opening stock + Purchases + All direct Exp.
The trading account is a nominal account and is closed by transferred gross profit or loss to profit and loss account.
A manufacturer purchases raw materials and sells it after converting it into the finished product. He has to incur many expenses in doing so, for the purpose of finding and cost of manufacture, he prepares manufacture account. Opening and closing stock in the case of manufacturing, he may be three types namely, raw material, work-in-progress and finished goods. Discuss Briefly Profit & loss Balance sheet
Profit and Loss Account
The profit and loss account is prepared to find out net profit and net loss. All those expenses and losses, incomes, and gains are not recorded in the trading account but they are recorded in profit and loss account.
Classification of Assets
- Fixed Assets: These assets refer to the assets of permanent character. They are acquired with a view that they will help in business year after year. Any asset which is acquired for permanent use is a fixed assets. Examples are land, building, etc. but these are not fixed assets for those who acquire them for selling and not for permanent use e.g. if a person’s business is to purchase and sell machinery, then the machinery is not a fixed asset for him. Discuss Briefly Profit & loss Balance sheet
Fixed assets may be tangible or intangible. Tangible assets are those which have existed, i.e. they can be seen, touched, and felt like buildings and machinery, etc. while intangible assets are such which cannot be seen, touched through they have a definite value, like goodwill etc. According to schedule VI of the Companies Act, 1956 these tangible and intangible assets have been treated as fixed assets and in the list of fixed assets of this schedule, goodwill occupies the first position. Discuss Briefly Profit & loss Balance sheet
- Current Assets : Current assets include cash or such other assets which can be converted into cash or cash can be realized from them within the period of one year, but if the operating cycle of the business is less than one year, they can be realized in cash during this shorter period. Example of current assets is stock, debtors, and B/R/A/etc.
- Wasting Assets: The assets which are exhausted completely by use and cannot be replaced in the normal way or regarded as wasting assets e.g. mines. If there is a coal mine, the whole of the coal of this mine has been taken out, then fresh coal cannot be created, therefore the mine is treated as wasting assets.
- Fictitious Assets: The assets which are really speaking not assets but shown in the assets side are called fictitious assets, e.g. underwriting commission, brokerage discount one issue of a share, interest paid out of capital during construction, development expenditure not adjusted, preliminary expenses, etc. All these expenses have debit balances and they are written off through profit and loss account gradually during some years, hence the unamortised amount of these expenses appear in the balance sheet.
- Contingent Assets: An asset whose existence and ownership depend on the happening or non-happening of a specific event, e.g. a right to use for infringement ofa trade-mark or a suit for claiming a certain amount. If this suit is won, the amount will be received. Thus, the right to have or claim some property on the happening of an even is a contingent asset. These assets are not shown inthe balance sheet because one of the conventions of accountancy is that provision for future losses is made but no consideration is made for uncertain future property or income. Discuss Briefly Profit & loss Balance sheet
Bookkeeping Profit and Loss Final Account
Liabilities: Liabilities are the amounts that a business entity has to pay. Liabilities may be internal or external. All amounts which a business entity has to pay to proprietors or owners are internal liabilities, these liabilities include capital and undistributed profits.
Classification of Liabilities
- Fixed Liabilities: All long-term liabilities are treated as fixed liabilities whether they are payable by an enterprise to the proprietor or to an outsider, namely capital, long-term loans, and debentures, etc.
- Current Liabilities: All short-term liabilities, i.e. the amount which is payable within one year are termed as current liabilities, namely creditors, bills payable, etc.
- Contingent Liabilities: The liabilities, which are not the real liabilities of the business on the date of the balance sheet but may become liabilities in the future on happening of an uncertain event, are called contingent liabilities. For example, A guarantee is given for paying a loan on default of the principal debtor.
All such transactions are related to the accounting period of final accounts but are not included in the trial balance of that period as their records have not taken place. Are adjustments. The transaction whose incomplete records have taken place or the transaction Entries for adjustments are made at the time of preparing final accounts. Important adjustments are depreciation, outstanding expenses, etc. provision for bad doubtful debts, prepaid expenses, income received in advance etc. Discuss Briefly Profit & loss Balance sheet
Final Account with Adjustment
In order to ensure that the final accounts of a firm depict its correct position, it is necessary that all expenses and incomes related to the year for which accounts are being prepared are taken into consideration, it is, therefore, necessary that :
- All expenses related to the current year, whether paid or not are included.
- All incomes related to the current year, whether received or not, are included.
- All expenses related to the succeeding year are excluded.
- All incomes related to the succeeding year are excluded.
All the above items which need to be brought into the books of accounts at the time of preparation that accounts are called adjustments. Journal entries passed to give effects to the required adjustments are known as adjustment entries.
Some important entries of given items are :
It is the value of goods on the closing date of the accounting period. Stock is the value at cost price or market price, which even is lower. Closing stock in case of manufacturing concerns is also classified as raw material, work in progress, and finished goods.
In adjustment, it was shown in two places, i.e. the credit side of the trading account and the assets of the balance sheet.
Bookkeeping LIFO FIFO Method
It is the simplest method of charging depreciation. The original cost of assets is divided by the estimated life period of the assets.
For e.g. if the value of assets is ₹ 50,000 and its useful life is estimated to be 10 years, the amount of depreciation to be charged every year will be 5,000, i.e. 50,000/10. It will be fixed at ₹ 5,000 every year.
In certain cases, we are also given the scrap value or residual value of the assets. The term residual or scrap value means the amount realized from the sale of obsolete assets.
In these cases, we use the following formula for the calculation of depreciation :
Annual depreciation =
Under SLM (straight-line method) depreciation may also be determined by applying a fixed rate to the original cost of the assets.
Rate of Depreciation =
Disadvantages of Straight Line Method
The straight-line method suffers from the following weakness :
- No provision for replacement: The amount charged is depreciation is retained in the business and used in routine affairs. The firm has to bother with making arrangements of funds for the replacement of assets although depreciation has been charged every year.
- Loss of interest: The amount of depreciation charged every year is not invested outside the firm, so no interest is received. In certain methods of depreciation, the amount of depreciation is invested outside the business insecurities, and interest is charged.
- Illogical method: It seems illogical to charge depreciation on the original cost of the assets every year when the balance of the assets is declining year after year.
The amount spent on the purchase of assets has an opportunity cost i.e. if that amount had been invested in some other form, it would have earned interest at a certain rate.
The SLM and DBM method ignores such cost. Generally, depreciation does not take such loss of interest into account. But in some cases, it is considered desirable to include it.
e.g. when some property is taken on the lease we have to pay a lump sum amount at the initial stage and then a nominal amount as rent every year.
The amount paid at the initial stage is a sort of advance payment of rent. It is treated as the cost of the lease and written off during the lease period by way of providing depreciation. In such a situation, the loss of interest on advance payment must be treated as a part of the cost of using the assets.
The method by which the interest is also included in the amount of depreciation is known as annuity method.
Merits and Demerits of Annuity Method
This method is to a great extent scientific as it takes care of the fact that businesses besides losing the original cost of assets, also lose interest that would have been earned in case of the same amount had been invested in some other form of investment.
But the main defect is that total charges of depreciation and repaid put together do not remain fairly uniform year to year as in the DBM.
(FIFO) Method First in First Out
In this method, it is assumed that the material/goods first received are the first to be issued or sold. After the first lot or batch of goods purchased is exhausted, the next lot is taken up for sale.
Advantages of the FIFO Method
- This method is simple to understand and easy to operate.
- It is a logical method because it takes into consideration the normal procedure of utilizing first that item of stock that is received first.
- This method is very useful when prices are falling because the cost of goods sold will be high on account of using the earliest lot which is costly.
- It is simple to operate especially when the price level is minimum.
(LIFO) Last in First Out Method
According to this method, the current cost of applied to current sales. Material goods issued to production/sold to customers are valued at the costs of the latest purchases. The inventory, therefore, is valued at the cost of the remaining goods of earlier purchases. The actual issue of material/sale of finished goods may not follow the principle of last in first out. Discuss Briefly Profit & loss Balance sheet
FIFO Method Advantages
- It keeps the value of issues close to the current market prices.
- No unrealized profit and loss is made by using this method.
- Current costs are correlated with current sales and therefore the management gets a more accurate picture of the business profit and loss.
- It helps in reducing taxation liability in times of rising prices. During inflation, the higher cost of goods sold in charge against sales on the basis of most recent purchases, while the closing stock is valued at a lower cost on the basis of most recent purchases, while the closing stock is valued at a lower cost on the basis of old purchases. The net result is a reduction in income for tax purposes.