Accounting: Introduction, Business Transactions, Financial Statements, Principles

ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SCENARIO- 1.................................................................................................................................1
Question- 1...................................................................................................................................1
Question- 2...................................................................................................................................2
Question- 3...................................................................................................................................6
Question- 4...................................................................................................................................7
Question- 5...................................................................................................................................9
Question- 6.................................................................................................................................10
Question- 7.................................................................................................................................11
SCENARIO- 2...............................................................................................................................13
Question- 1.................................................................................................................................13
Question- 2.................................................................................................................................14
Question- 3.................................................................................................................................14
Question- 4.................................................................................................................................14
Question- 5.................................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Accounting is one of the major functions in the business which helps in recording,
classifying, summarizing the financial transactions of the business in the books of accounts.
Through these the financial statements of the business are prepared which disclose the financial
positions of the company based on which various decisions are taken by the users of the financial
information. In the current project various questions have been provided which shall build the
conceptual understanding of accounting, book keeping and preparation of the financial
statements. It shall also reflect that post the preparation of these statements it can be also be
analysed that there are several variations or corrections which can be undertaken through the
preparation of reconciliation statements.
SCENARIO- 1
Question- 1
A business transaction refers to any kind of business activity that shall have an impact on
the financial statements of the business. There can be different business transaction that are
occurred n the routine operations which can be classified based on the institutional relationship,
exchange of cash, objective etc. Based on the institutional relationship the business transactions
can either be external or internal, the external transactions can be entered with any party lying
outside the organization like purchase and sale of goods with the third party. The internal are the
ones which re processed within the organization like depreciation, computation of the salary. The
another form of transactions can be either cash transactions which are executed with the help of
cash and the other are credit transactions where the future payments are promised to the
company (Yuan, Macve and Ma, 2017). The business transactions are also divided on the basis
of personal or business purposes.
The single entry and double entry book keeping are the two different methods of
recording the business transactions in the books of accounts. The single entry system shall be
recording only one aspect of the transaction which can ether be debit or credit in nature. This is
an incomplete form of accounting which does not support checking the arithmetical accuracy. On
the contrary the double entry system of book keeping which is currently prevailing records both
the aspects of the business transaction. This is based on the golden rule that every debit has an
equal and opposite credit. So for every transaction two or more business accounts are impacted.
1

The trial balance is the statement that is prepared under the primary books of accounts
recording the balances of the general ledger account that are prepared by the company. It records
all the debit and credit balances pertaining to the company financial statements. The major
importance of preparing trial balances that it shall help in verifying the arithmetic accuracy of the
business transactions. This is undertaken by equalizing and matching both the debit and credit
side of trial balance. This shall also approve the double entry system of accounting.
Question- 2
1) Journal entries
Date Particulars L.F. Debit Credit
01/06/16 Cash account dr. 65000
To Capital account 65000
(Being capital invested in the company)
02/06/16 Purchase account dr. 8000
To trade payables account 8000
(Being goods purchased for credit)
07/06/16 Cash account dr. 4000
To Sales account 4000
(Being goods sold for cash)
08/06/16 Trade payables account dr. 4000
To Bank account 4000
(Being cheque issued to pay tje creditors)
14/06/16 Prepaid Insurance account dr. 75
To Bank account 75
(Being insurance expenses paid in advance)
15/06/16 Trade receivables account dr. 12000
To Sales account 12000
(Being goods sold on credit)
16/06/16 Purchase account dr. 10000
To trade payables account 10000
(Being goods purchased for credit)
18/06/16 Computer equipment account dr. 300
To Cash account 300
(Being computer equipment purchased for
cash)
2