NAME G.

KAVYA SHRI
PROGRAM MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER I
COURSE CODE & NAME DMBA104- FINANCIAL AND MANAGEMENT
ACCOUNTING
ROLL NO. 2314514198

Q1 Explain different types of accounting concepts in detail.

Fundamental principles that lay the groundwork for the accounting process are known as
accounting concepts. They play a crucial role in guiding the preparation and interpretation of
financial statements, ensuring a consistent and reliable approach. The detailed explanation of
several accounting concepts is as follows:

1. **Entity Concept:**
- **Explanation:** Treating the business as a distinct entity separate from its owners or
other entities is the essence of this concept. Business financial transactions are independently
recorded and reported, detached from the personal dealings of owners.
- **Implications:** Financial statements present the business's performance and position as
an independent entity, aiding in analysis and decision-making.

2. **Going Concern Concept:**

- **Explanation:** This concept assumes the perpetual operation of a business unless
evidence suggests otherwise. It implies the entity won't be compelled to liquidate or curtail
operations shortly.
- **Implications:** Assets and liabilities are recorded with the anticipation of continuous
operations, and financial statements adopt a long-term perspective.

3. **Money Measurement Concept:**

- **Explanation:** Financial transactions are expressed in monetary terms, the universal
unit of measurement. Only events with a monetary value are acknowledged in financial
statements.
- **Implications:** Non-monetary aspects like employee satisfaction or brand reputation
aren't recorded, leading to some limitations in portraying the complete business picture.

4. **Cost Concept:**
 - **Explanation:** Assets are recorded at their acquisition cost, forming the basis for
subsequent accounting. This cost encompasses all expenses needed to acquire and prepare an
asset for its intended use.
- **Implications:** The historical cost is used to value assets on the balance sheet,
providing objectivity and reliability, though it may not reflect their current market values.

5. **Dual Aspect Concept:**

- **Explanation:** Every transaction has two sides – a debit and a credit. The accounting
equation (Assets = Liabilities + Equity) must maintain balance after each transaction.
- **Implications:** Ensures accuracy and integrity in recording transactions, allowing
verification of accounting entries.

6. **Matching Concept:**
- **Explanation:** Expenses should align with the revenues they generate during a specific
accounting period. This ensures a more accurate representation of business profitability.
- **Implications:** Guides the recognition of expenses, preventing the distortion of
financial results.

7. **Accrual Concept:**
- **Explanation:** Recognition of revenue and expenses occurs when earned or incurred,
irrespective of when cash is exchanged. Aiming for a more accurate depiction of financial
position and performance.
- **Implications:** Adjusting entries are made at the period-end, reflecting accruals and
deferrals, ensuring alignment with the accrual basis.

8. **Consistency Concept:**
- **Explanation:** Once an accounting method or principle is chosen, consistency in its
application across periods is crucial. This ensures comparability of financial statements over
time.
- **Implications:** Changes in accounting policies are acceptable but require disclosure
and explanation in financial statements.

9. **Materiality Concept:**
- **Explanation:** Information is material if its omission or misstatement could impact
economic decisions. Materiality is considered in assessing the relevance of information.
 - **Implications:** Focuses on reporting significant and relevant information, avoiding
unnecessary detail that may distract users.

10. **Conservatism Concept:**

- **Explanation:** Faced with uncertainty, accountants should err on the side of caution.
Anticipated losses should be recognized promptly, while gains are recognized only when
realized.
- **Implications:** Provides a conservative view of a company's financial position,
avoiding the overstatement of assets and income.

Understanding and applying these accounting concepts is imperative for upholding the
integrity and reliability of financial reporting, collectively contributing to accurate financial
statements representing a business's position and performance.

Q2 Write a detailed note on different types of subsidiary books and their importance in
recording accounting transactions. Also demonstrate specimen of any 2 types of
subsidiary books.
### Subsidiary Books in Accounting and Their Importance:

Subsidiary books, also known as special journals, are a systematic way of recording specific
types of transactions in accounting. They provide a detailed and organized approach to
recording various transactions, making the overall accounting process more efficient. Here
are some common types of subsidiary books and their importance:

1. **Cash Book:**
- **Importance:**
- Records all cash transactions, both receipts, and payments.
- Facilitates the reconciliation of cash balances and bank statements.
- Helps in monitoring cash flow and liquidity.
- **Specimen:**

```
+------------------+-------------------+------------------+------------------+
| Date | Particulars | Cash Received | Cash Paid |
 +------------------+-------------------+------------------+------------------+
| 2023-01-01 | Sales | 5,000 | |
| 2023-01-03 | Purchase | | 3,000 |
| 2023-01-05 | Rent Received | 1,000 | |
| 2023-01-10 | Salary Payment | | 2,500 |
+------------------+-------------------+------------------+------------------+
```

2. **Sales Journal:**
- **Importance:**
- Records all credit sales transactions.
- Provides a detailed breakdown of sales by customer.
- Assists in calculating total sales and outstanding receivables.
- **Specimen:**

```
+------------------+-------------------+------------------+
| Date | Invoice Number | Customer |
+------------------+-------------------+------------------+
| 2023-01-02 | INV-001 | ABC Ltd. |
| 2023-01-05 | INV-002 | XYZ Inc. |
| 2023-01-08 | INV-003 | LMN Corp. |
+------------------+-------------------+------------------+
```

3. **Purchases Journal:**
- **Importance:**
- Records all credit purchases transactions.
- Helps in categorizing purchases by supplier.
- Assists in calculating total purchases and outstanding payables.
 - **Specimen:**

```
+------------------+-------------------+------------------+
| Date | Invoice Number | Supplier |
+------------------+-------------------+------------------+
| 2023-01-03 | INV-004 | ABC Suppliers |
| 2023-01-06 | INV-005 | XYZ Distrib. |
| 2023-01-09 | INV-006 | LMN Imports |
+------------------+-------------------+------------------+
```

4. **Purchase Returns Journal:**

- **Importance:**
- Records all returns of purchased goods.
- Helps in adjusting inventory and accounts payable.
- Assists in analyzing the reasons for product returns.
- **Specimen:**

```
+------------------+-------------------+------------------+
| Date | Invoice Number | Supplier |
+------------------+-------------------+------------------+
| 2023-01-04 | INV-004 | ABC Suppliers |
| 2023-01-07 | INV-005 | XYZ Distrib. |
| 2023-01-11 | INV-006 | LMN Imports |
+------------------+-------------------+------------------+
```

5. **Journal Proper:**
 - **Importance:**
- Records non-routine transactions not covered by other subsidiary books.
- Captures transactions like adjustments, accruals, and corrections.
- Ensures a comprehensive recording of all financial events.
- **Specimen:**

```
+------------------+-------------------+------------------+
| Date | Particulars | Debit | Credit |
+------------------+-------------------+------------------+------------------+
| 2023-01-15 | Depreciation | 1,000 | |
| 2023-01-20 | Accrued Expenses | | 2,500 |
| 2023-01-25 | Correction Entry | 500 | |
+------------------+-------------------+------------------+------------------+
```

Subsidiary books streamline the recording process, allowing for better organization, analysis,
and understanding of financial transactions. They enhance accuracy, save time, and provide
detailed insights into specific aspects of a business's financial activities.

Q3 For the following balances extracted from a trial balance, prepare a trading
account.

Particulars Amount in Rs.

Stock on 1-1-2022 70700
Returns inwards 3000
Returns outwards 3000
Purchases 102000
Debtors 56000
Creditors 45000
Carriage inwards 5000
Carriage outwards 4000
Import duty on materials received 6000
from abroad
Clearing charges 7000
 Rent of business shop 12000
Royalty paid to extract materials 10000
Fire insurance on stock 2000
Wages paid to workers 8000
Office salaries 10000
Cash discount 1000
Gas, electricity, and water 4000
Sales 250000

To prepare a trading account, we need to calculate the cost of goods sold (COGS) by
considering the opening stock, purchases, and various expenses related to the purchases. The
formula for calculating COGS is:

{Cost of Goods Sold (COGS) = {Opening Stock} + text{Purchases} + {Additional Costs

(Carriage Inwards, Import Duty, Clearing Charges)} - {Returns Inwards} - {Closing Stock}

Let's calculate the COGS and then prepare the trading account:

1. Calculate Closing Stock:

{Closing Stock} = {Stock on 1-1-2022} - {Returns Outwards}
{Closing Stock} = 70700 - 3000 = 67700

2. Calculate COGS:
{COGS} = 70700 + 102000 + (5000 + 6000 + 7000) - 3000 - 67700
{COGS} = 81000

3. Prepare Trading Account:

```
Trading Account for the year ended 31-12-2022

Particulars Amount (Rs.) Particulars Amount (Rs.)

-------------------------------------------------------------------------------
Opening Stock 70,700 Sales 250,000
Add: Purchases 102,000 Less: Returns Outwards 3,000
Add: Additional Costs Cash Discount 1,000
(Carriage Inwards, Import Duty, -----------------------------
Clearing Charges) 18,000 Net Sales 246,000
------------ ------------
190,700 190,700
--------- ---------
Less: Returns Inwards 3,000 Cost of Goods Sold 81,000
--------- --------
Closing Stock 67,700 Gross Profit 165,000
--------- --------
```

This completes the preparation of the trading account. The Gross Profit calculated (Sales -
COGS) represents the profit before deducting other operating expenses.

Assign 2

Q1

To calculate the cash flow from operating activities using the indirect method, you need to
make adjustments to the net loss for non-cash items and changes in working capital. The
formula is as follows:

{Cash Flow from Operating Activities} = {Net Loss} + {Non-cash Expenses} + {Decrease
in Working Capital}

Let's go step by step:

1. Adjust the Net Loss:
{Net Loss} = Rs.38,000

2. Add Back Non-Cash Expenses:

Non-cash expenses typically include items like depreciation and provision for doubtful
debts. In this case, there is a provision for doubtful debts in 2018, so we need to add that
back:
Non-cash Expenses} = {Provision for Doubtful Debts in 2018} = Rs.1,200

3. Adjust for Changes in Working Capital:

{Working Capital} = {Current Assets} - {Current Liabilities}
{Change in Working Capital} = {Working Capital in 2019} - {Working Capital in 2018}

Now, calculate the changes in each working capital account:

- Short-term Loan to Employees:

{Change in Loan} = {Loan in 2019} - {Loan in 2018} = Rs.18,000 - Rs.15,000 =
Rs.3,000

- Creditors:
{Change in Creditors} = {Creditors in 2019} - {Creditors in 2018} = Rs.8,000 -
Rs.30,000 = -Rs.22,000 \]
(Note: It's negative because creditors decreased)

- Bills Payable:
{Change in Bills Payable} = {Bills Payable in 2019} - {Bills Payable in 2018} =
Rs.20,000 - Rs.18,000 = Rs.2,000

- Stock in Trade:
{Change in Stock} = {Stock in 2019} - {Stock in 2018} = Rs.13,000 - Rs.15,000 = -
Rs.2,000
(Note: It's negative because stock decreased)
 - Bills Receivable:
{Change in Bills Receivable} = {Bills Receivable in 2019} - {Bills Receivable in 2018}
= Rs.22,000 - Rs.10,000 = Rs.12,000

- Prepaid Expenses:
{Change in Prepaid Expenses} = {Prepaid Expenses in 2019} - {Prepaid Expenses in
2018} = Rs.600 - Rs.800 = Rs.-200
(Note: It's negative because prepaid expenses decreased)

- Outstanding Expenses:
{Change in Outstanding Expenses} = {Outstanding Expenses in 2019} - {Outstanding
Expenses in 2018} = Rs.500 - Rs.300 = Rs.200

Now, calculate the total change in working capital:

{Change in Working Capital} = {Sum of Changes} = (3,000) + (-22,000) + 2,000 + (-
2,000) + 12,000 + (-200) + 200 = -7,000

4. Substitute Values into the Formula:

{Cash Flow from Operating Activities} = Rs.38,000 + Rs.1,200 - Rs.7,000

Now, calculate the final value to get the cash flow from operating activities.

Q2
**Costing Marginal:**

A concept in which costs for decision-making purposes only variable considered. It

segregates fixed and variable components, focusing on costs behavior concerning production
or sales levels. The element in marginal costing is contribution margin, the difference
between total sales and total variable costs.

**Marginal Assumptions Costing:**

1. **Fixed and Variable Classification:**
- Assumes costs can be classified into fixed and variable components.
- Variable costs vary directly with production or sales, while fixed costs remain constant.

2. **Constant Variable Cost per Unit:**

- Assumes the variable cost per unit remains constant at all production levels.

3. **Total Fixed Costs Constant:**

- Assumes total fixed costs remain constant within the relevant range.

4. **Selling Price Constant:**

- Assumes selling price per unit remains constant, irrespective of production volume.

5. **Single Product or Constant Sales Mix:**

- Assumes a uniform sales mix or deals with a single product.

6. **No Inventory Fluctuations:**

- Assumes no changes in inventory levels during the accounting period.

7. **Separation of Variable and Fixed Costs:**

- Assumes possible to segregate and identify variable and fixed costs accurately.

**Marginal Limitations Costing:**

1. **Assumption of Fixed Costs:**

- In reality, some fixed costs may vary over a production range, restricting this assumption.

2. **Production and Sales Volume:**

- Marginal costing may not be suitable when production and sales volumes fluctuate
significantly, as fixed costs may vary in the long run.
3. **Inventory Valuation:**
- Marginal costing values closing stock at variable cost, not appropriate for decision-
making in some situations.

4. **Inaccurate Profit Reporting:**

- During periods of fluctuating production, the profit reported by marginal costing may not
accurately represent the financial position due to the omission of fixed costs.

5. **Overemphasis on Variable Costs:**

- The exclusive focus on variable costs may lead to neglecting the importance of fixed
costs in the overall cost structure of the business.

6. **Absorption Costing for External Reporting:**

- Marginal costing may not be suitable for external reporting, as external regulations often
require absorption costing for financial statements.

7. **Short-term Perspective:**
- Marginal costing is more suited for short-term decision-making, and its application to
long-term decisions may be limited.

Despite these limitations, marginal costing remains a valuable tool for short-term decision-
making and analysis, providing insights into the contribution of each unit to cover fixed costs
and generate profits. Organizations often use a combination of marginal costing and
absorption costing to gain a more comprehensive understanding of costs and make informed
decisions.

Q3
**Budgetary Control:**

Budgetary control is a systematic and formal process used by organizations to plan, monitor,
and control their financial and operational activities. It involves the establishment of budgets,
which are detailed plans of expected activities and outcomes for a specific period. The actual
performance is then compared against the budget, and any variations are analyzed to take
corrective actions. The primary aim of budgetary control is to ensure that organizational
objectives are achieved efficiently and effectively through the proper allocation and
utilization of resources.

**Essential Features of Budgetary Control:**

1. **Establishment of Budgets:**
- Budgetary control begins with the formulation of comprehensive budgets covering
various aspects of the organization, including sales, production, expenses, and capital
expenditures.

2. **Clear Objectives:**
- The budgets set clear and measurable objectives for different departments and functions
within the organization. These objectives align with the overall goals and strategies of the
organization.

3. **Communication and Participation:**

- Budgets are communicated to all relevant levels of management and employees. There is
often a participatory approach in which managers at different levels contribute to the budget-
setting process.

4. **Periodic Preparation:**
- Budgets are usually prepared for a specific period, commonly on an annual basis.
However, they may be broken down into monthly, quarterly, or other relevant time frames for
more effective monitoring.

5. **Flexibility:**
- While budgets provide a framework for planning and control, they should be flexible to
accommodate changes in the business environment. Unexpected circumstances may require
adjustments to the original budget.

6. **Performance Measurement:**
- Budgetary control involves comparing actual performance against the budgeted figures.
This performance measurement helps identify variations and assess the efficiency and
effectiveness of operations.
7. **Responsibility and Accountability:**
- Each level of management and every individual involved in the budget process is
assigned specific responsibilities. Budgetary control fosters accountability by holding
individuals and departments responsible for meeting their budgeted targets.

8. **Feedback and Analysis:**

- Regular feedback and analysis of budget variances are essential components of budgetary
control. Managers analyze the reasons for differences between actual and budgeted figures
and take corrective actions when necessary.

9. **Continuous Monitoring:**
- Budgetary control is an ongoing process. Continuous monitoring ensures that deviations
from the budget are identified and addressed promptly, allowing for timely corrective
actions.

10. **Cost Consciousness:**

- Budgetary control encourages a culture of cost consciousness within the organization.
Managers and employees become more aware of the financial implications of their decisions
and actions.

11. **Management by Exception:**

- The principle of management by exception is applied, where managers focus more on
significant variations from the budget rather than getting involved in every detail. This
allows for efficient use of managerial time.

12. **Integration with Organizational Objectives:**

- Budgetary control is integrated with the overall objectives and strategic plans of the
organization. Budgets serve as tools to achieve these objectives by aligning the efforts of
different departments and functions.

By incorporating these essential features, budgetary control becomes a powerful tool for
organizations to manage their resources efficiently, achieve financial discipline, and work
towards their long-term goals.