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This content includes Business Accounting study material covering topics like calculation of missing figures, journal entries, trial balance, financial ratios, payback period, and net present value. It is relevant to students pursuing business courses in various colleges and universities.

BUSINESS
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1....................................................................................................................................3
Question 2 All the transaction are summarized into ledger.........................................................3
Question 3....................................................................................................................................6
Question 4....................................................................................................................................6
Question 5....................................................................................................................................8
Question 6....................................................................................................................................9
Question 7..................................................................................................................................10
Question 8..................................................................................................................................12
Question 9..................................................................................................................................13
Question: 10...............................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES................................................................................................................................1

MAIN BODY
Question 1
1. Calculation of missing figures
1 Assets liabilities capital
€ € €
20000 0 20000
15000 5000 10000
16400 7550 8850
14100 3850 10250
25380 18430 6950
All the missing figure is calculated with the help of accounting equation that is Total
assets = total liabilities + capital. In the above table highlighted part is the missing number.
2. journal entries
Dual aspect of accounting
(a) bank Dr 8000
capital Cr 8000
[being business started}
(b) Computer Dr 4000
Bank Cr 4000
[being computer purchased]
(c) bank Dr 3000
Loan Cr 3000
[being loan obtain]
(d) van Dr 6000
Bank Cr 6000
[being van purchased]
(e) cash Dr 250
Abela Cr 250

[being cash received]
Question 2
All the transaction are summarized into ledger
Bank A/C
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
01/01/21 To capital 25000 02/01/21 By rent 2000
By balance c/f 23000
25000 25000
01/02/21 To balance b/d 23000
Capital A/C
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
31/01/21 To balance c/f 25000 01/01/21 By bank 25000
25000 25000
01/02/21 To balance b/d 25000
Rent A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
02/01/21 To Bank 2000 31/01/21 By balance c/f 2000
2000 2000
01/02/21 To balance b/d 2000
Linda A/C
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
30/01/21 To purchase return 2000 03/01/21 By purchase 5000
31/01/21 To balance C/f 3000
5000 5000

01/02/21 By balance b/d 3000
Motor car A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
04/01/21 To Savoy motor 4000 31/01/21 By balance c/f 4000
4000 4000
01/02/21 To balance b/d 4000
Savoy motor A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
31/01/21 To balance C/f 4000 04/01/21 By Motor car 4000
4000 4000
01/02/21 By balance b/d 4000
Purchase A/c
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
03/01/21 To Linda 5000 31/01/21 By balance c/f 8000
05/01/21 To Sydney 3000
8000 8000
01/02/21 To balance b/d 8000
Sydney A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
31/01/21 To balance C/f 3000 05/01/21 By purchase 3000
3000 3000

01/02/21 By balance b/d 3000
Cash A/c
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
10/01/21 To sales 6000 31/01/21 By balance c/f 6000
6000 6000
01/02/21 To balance b/d 6000
Sales A/c
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
31/01/21 By balance c/f 14000 10/01/21 By cash 6000
18/01/21 By Ann 8000
14000 14000
01/02/21 To balance b/d 14000
Ann A/c
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
18/01/21 To sales 8000 31/01/21 By balance c/f 8000
8000 8000
01/02/21 To balance b/d 8000
Purchase Return A/c
DATE PARTICULAR AMOUNT DATE
PARTICULA
R AMOUNT
31/10/21 To balance C/f 2000 30/01/21 By Linda 2000

2000 2000
01/02/21 By balance b/d 2000
Question 3
Trial balance as at 31 December 2020
particular Debit Credit
capital 139200
Purchases 108600
sales 146400
Machinery 135800
Drawings 9400
Bank overdraft 6200
Sales return 800
Purchase return 300
Wages and salaries 9800
Water and electricity 1800
Motor vehicles 25900
Trade receivables 15900
Trade payable 19600
Rent payable 3700
Suspense account 7400
Total 315400 315400
Question 4
Income statement
sales 204000
(-) sales return -3600
(-) carriage outward -3724
Net sales 196676
Cost of sales

Opening inventory 18000
Purchases 120000
(-) purchase return -4440
(+) carriage inward 5000
(+) Wages 36800
(-) closing stock -20000 155360
Gross profit 41316
(-) expenses
Discount allowed -5020
electricity -7000
Rent -7500
Sundry expenses -1143
Bad debts -125
Depreciation on furniture and fitting -900
Depreciation office furniture -200 21888
(+) income
Discount receivable 3160 3160
Net profit 22588
Balance sheet
Non current assets
Fixture and fitting 9000
(-) depreciation 900 8100
Office furniture 2000
(-) depreciation 200 1800
Current assets
Trade receivable 2500
(-) bad debts -125 2375
Rent prepaid 500 500
Bank 2496 2496

Stock 18000 18000
Total assets 33271
Equities and liabilities
capital 30000
(-)Drawings -22527
(+)Net profit 22588 30061
Current liabilities
Trade payable 2660
Electricity owing 550 3210
Total liabilities 33271
Notes:
1) inventory as on 31 December is valued as closing stock which is shown in balance sheet
as an inventory and less while calculating cost of sales in income statement.
2) Goods take out for personal use which has two effect one is reduces from inventory and
another is added in drawing. So amount of drawing will be increased.
3) Electricity owing is liabilities which is outstanding. It's effect will be shown in income
statement as an expenses and in balance sheet as an outstanding expense.
4) Depreciation will be changed on fixed assets @ 10% and it's effect will be included in
income statement as depreciation on expense side on the other note it will be reduces
from assets in balance sheet.
5) 5% debtors allowances will be created. It will be shown in income statement as an
expense. This amount will be reduces from debtors account.
Question 5
Question Transaction Capital amount Revenue amount

expenditure expenditure
a
€30,000 cost for building
an extension to the factory,
which includes €1,000 for
repairs to the existing
factory Cost of building 29000 repair 1000
b
A plot of land has been
bought for €20,000, the
legal costs are €750. Purchase land 20750
c
The business’ own
employees are used to
install a new air
conditioning system:
wages €1,000, materials
€1,500. Wages + material 2500
d
Own employees used to
repair and redecorate the
premises: wages €500,
materials €750.
Wages +
material 1250
e
Purchase of a new machine
€10,000, payment for
installation and setting up
€250. machinery 10250
Capital expenditure is incurred by company to acquire assets or improve the existing assets.
Revenue expenditure is incurred in order to meet day to day operating expenses.
Question 6
(a) Purchase ledger control account
Purchase ledger control account

dr cr
particular amount particular amount
Balance b/d 250 Balance b/d 22200
cash 53800 purchase 65500
Purchase return 950 Balance c/d 550
Discount received 1750
Sales ledger 350
Balance c/d 31150
88250 88250
(b) Sales ledger control account
Sales ledger control account
Dr cr
particular amount particular amount
To balance b/d 32600 By balance b/d 450
Credit sales 99600 Cash/ cheque from debtors 54200
Dishonoured cheque 200 Discount allowed 2200
Balance c/d 300 Purchase ledger 350
Bad debts 3200
Sales return 1800
Balance c/d 70500
132700 132700
Balance b/d 70500 Balance b/d 300
Question 7
(a) Financial ratios
no ratio formula calculation
1 Gross profit ratio (gross profit *100)/ net 30.00%

sales
Gross profit 105000
Net sales 350000
2 Net profit percentage
(net profit *100)/ net
sales 13.10%
Net profit 45850
Net sales 350000
3 Current ratio
Current 'Assets'/
current 'Liabilities' 1.87:1
Current assets 88000
Current liabilities 47150
4 Liquid ratio
Liquid assets / current
liabilities 0.46:1
Liquid assets
Current assets –
inventory 21500
Current liabilities 47150
5 Inventory turnover ratio
Cost of goods sold/
inventory 3.68 times
Cost of goods sold 245000
inventory 66500
6 Non current assets to sales Net sales x 100 / non 218.75%

current assets
Net sales 350000
Non current assets 160000
7 Return on Total Assets EBIT / Total assets 21.39%
EBIT 53050
Total assets 248000
8 Return on Net Assets (ROCE)
EBIT x 100 / Capital
employed 26.41%
Earning before interest and tax 53050
Capital employed
Total assets- current
liabilities 200850
9 Receivables’ Collection Period
(Account receivable x
365) /net sales 22 days
Account receivable 21500
Net sales 350000
10 Payables’ Payment Period
(Account payable x
365) / net purchase 27 days
Accountable payable 21000
Net purchase 280000
(b) Business performance analysis
From the above analysis it has been interpreted that business has performed well and has
a potential to grow more in near future. Gross profit ratio of the business is 30% which is same

as industry ratio. Further, net profit percentage of an entity is 13.10% which is lower than
industry ratio. Due to high non operating expenses, the net profit of the business is decrease.
Moreover, current ratio of an organization is lower than industry ratio. But it is quit good,
business has enough current assets to meet the short term obligations. In addition to this,
business has enough cash and cash equivalent to meet current liabilities. Business is efficiently
utilizing their inventories but it is required to put more emphasis on inventory management and
their techniques. Further, with the help of return on total assets, it can be identified that business
is efficiently utilizing their assets to convert into cash. Therefore, it can be said that business has
performed quit well.
Question 8
(a) Payback period calculation
year Cash flow Cumulative frequency
0 -120000
1 40000 40000
2 40000 80000
3 60000 140000
4 30000 170000
2.67
2+((120000-80000)/60000) 2.67 years
So pay back period is 2.67 years. It means business will recover their initial investment in 2.67
years.
(b) Net present value calculation(NPV)
Net present value
year Cash flow Present value factor
Present value of cash
flow
0 -120000
1 40000 0.909 36363.64
2 40000 0.826 33057.85
3 60000 0.751 45078.89

4 30000 0.683 20490.40
134990.78
NPV = Present value of cash flow – initial investment
=134990.78 - 120000
=14990.78
NPV is positive which means company can invest in this project it has positive return in near
future. From this project business is getting favourable outcome in terms of cash-flow.
Question 9
a) Reasons for which the company's are employing a team of accountant are as follows:
 Such a team of accountant helps a concern in preparing & maintaining financial reports
for the period under consideration. Also, they aid in preparing and filing tax returns and
ensuring that the taxes will be paid on time and in appropriate manner.
 Accountant helps in evaluating operations in terms of financial aspects and accordingly
suggests appropriate practices that should be adopted by the management to ensure
efficiency and effectiveness in the business (Papanikos, 2021). This is possible through
identification of issues and accordingly suggesting strategic solutions to improvise
financial structure of the company.
 It is possible for businesses to avoid dreaded audit with the help and counsel of
accountant.
 Accountant gives much of the efforts and time in trying to manage finances of the
business which helps in reducing enough costs of a concern.
 The biggest reason for which businesses hire accountant is that the core management and
owner can focus on business's goals along with tactical business advisory from these
accountants on various financial matters.
b) Reasons for which limited liability company need to engage a firm of external auditors
are as follows:
 For the purpose of taxation, the company itself is not liable to pay tax, however its
liability in this regard passes to its members, who are liable to pay tax while filing their
individual returns (Azudin and Mansor, 2018). In this way, the external auditors are
compulsorily required to audit the company's financial statements. So that, there will be

no issues in deciding who is liable for how much and also there will be no elimination or
concealment of income from paying taxes.
 It is possible to determine the areas where accounting practices are not in compliance
with the Internal Revenue Service Regulations.
 As external audits facilitates unbiased glimpse of the accounting practices of the LLC, it
would become possible to enhance the weight of the financial statements if these are
vetted by external auditors (Osadcha and et.al., 2018).
 The judgement of external auditors are free from any personal relationship factor
clouding their judgement, and therefore it facilitates examination of bookkeeping records
without any alteration.
c) Reasons for which non- accountant study accounting are as follows:
 Individuals forming management of the company may have a knowledge of accounting
or even may not have the same. However, in order to make an informed decisions, it is
necessary to be equipped with the understanding of financial reports and this could be
possible only through having foundation level knowledge of accounting practices and
processes.
 As non-accountant also take various decisions in a day to day business operations
because may of the decisions are based on accounting information, so it is necessary to
have a basic knowledge of accounting (Putra, 2019).
 All the information of accounting nature are based on some rules, conventions or
principles, so to understand accounting information, the knowledge of these rules and
principles is necessary.
d) Reasons for which it is statutory obligatory to prepare management accounts for any
kind of any entity are as follows:
 Management accounts allows for preparation of budgetary reports on the basis of which
various managerial decisions are made, so it is generally required to be produced as an
evidence in front of statutory body and accordingly, management accounts are required to
be prepared necessarily.
 There are various statutory reports that is being prepared under management accounting
and are also considered to be necessary from statutory perspectives.

 Also, management accounts facilitates tracking of the financial health of the entity and
also helps in mitigating operational and legal risks associated with any regulatory non-
compliance. Therefore, it is always suggested preparing management accounts to ensure
stability of financial health of the business (Kimmel, Weygandt and Kieso, 2018).
e) The nature and purpose accounts are as follows:
There are three different types of accounts that has been prepared in accounting such as
real, personal and nominal accounts. Real accounts are again categorized into intangible and
tangible real accounts. These accounts are based on quantitative information which is of financial
nature and this information is of great use in making economic decisions and making choices out
various alternatives available. Accounts represent the end result of accounting cycle which
begins from recording of transaction.
The purpose for which accounts are prepared is that it provides a framework through collection,
recording and preparation of financial data becomes possible (Richardson and Shan, 2019).
These acts provides for scope of obtaining enough financial information to make informed
managerial decisions along with its implementation and evaluation from time to time.
Another purpose for which accounts are prepared is to evaluate business performance and
financial position in terms of profitability.
Question: 10
a) Depreciation: Depreciation can be defined as the reduction in the value of the assets on the
basis of its utilization over the life of the asset. With the help of the process of depreciation, the
total cost of something that has been used in the business gets reduced (Fordham and Hamilton,
2019). The time or number of years during which the depreciation needs to be charged is
determined through the useful life of an asset. It is charged in the profit and loss account as a
non-cash expense.
b) Allowance for bad and doubtful debts: It indicates the amount of receivables of the business
that has become uncollectible. It is recorded in the business balance, however, the debts that has
actually become bad, then the amount equivalent to bad debts must be charged as an expense in
the income statement. The amount of such allowance must be reduced from the total receivables
to reflect only those debtors that are expected to be paid at the time when it becomes due.

c) Debentures: Debentures indicates the loan agreement between the lender and the borrower,
where the former gets security over the latter's assets (Al-dmour and et.al., 2017). It is a medium
through which mid or long term amount can be borrowed by large corporations as against the
fixed rate of interest charged by the lender and paid by the borrower. In many cases, debentures
are not issued with collateral as investors are likely to rely upon the reputation and
creditworthiness of the issuing company in getting back their principal and interest amount.
d) Preference shares: It is also known as preferred stock forming part of the large capital of the
company, where the preference is being given to preference shareholders at time of dividend
distribution over the ordinary shareholders. Also, in the event of bankruptcy and winding up of a
concern, preference shareholders are the one who paid before ordinary shareholders out of the
assets of the company (Kimmel, Weygandt and Kieso, 2018). It is a hybrid form of equity where
the characteristics of debt instruments are also involved in terms of guaranteed or fixed dividend
payment. In this way, it is a hybrid instrument consisting properties of both equity and debt
instrument.
e) Ordinary shares: It is a type of share that gives its holders the right to vote in the equivalent to
their holdings. These shares can be bought and sold on stock exchanges. However, in case of
ordinary shareholders there is no guarantee of dividend payments. Generally these shares are
issued to employees and founders of the company. There are many features of ordinary shares
which describes its properties such as gains, voting rights and limited liability of the
shareholders.

REFERENCES
Books and journals
Papanikos, G. T., 2021. Business: Accounting, Finance, Management & Marketing.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review, 23(3), pp.222-226.
Osadcha, O. O., and et.al., 2018. Implementation of accounting processes as an alternative
method for organizing accounting. Financial and credit activity: problems of theory and
practice, 4(27), pp.193-200.
Putra, Y. M., 2019. Analysis of Factors Affecting the Interests of SMEs Using Accounting
Applications. Journal of Economics and Business, 2(3), pp.818-826.
Kimmel, P. D., Weygandt, J. J. and Kieso, D. E., 2018. Financial accounting: Tools for business
decision making. John Wiley & Sons.
Richardson, V. J. and Shan, Y., 2019. Data analytics in the accounting curriculum. In Advances
in Accounting Education: Teaching and Curriculum Innovations. Emerald Publishing
Limited.
Fordham, D. R. and Hamilton, C. W., 2019. Accounting information technology in small
businesses: An inquiry. Journal of Information Systems, 33(2), pp.63-75.
Al-dmour, A., and et.al., 2017. Accounting information system and its role on business
performance: A theoretical study. Journal of Management and Strategy, 8(4), pp.79-87.
Kimmel, P. D., Weygandt, J. J. and Kieso, D. E., 2018. Accounting: Tools for business decision
making. John Wiley & Sons.
Online references
A, B., 2018. [Online]. Available through <>
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