Accounting Equation is also known as Balance Sheet Equation as already discussed in the previous article on Balance Sheet Equation. Here is the break-up analysis of 50 transactions given below, showing the effect of these transactions on Capital, Liability and Asset.

Students can use C + L = A or A - L = C but C + L = A is preferred as it aligns the normal Balance Sheet columns.

The presentation of the effect of transactions can be given in horizontal or vertical form. Here, only horizontal way has been given. Either way the effect is same.

Here’s a breakdown of 50 sample transactions along with their balance sheet equation effects (Assets = Liabilities + Equity):

Effect of 50 Transactions on Accounting Equation

1. Started business with cash.

Cash - Asset - Increase

Capital - Increase

2. Started business with cash, bank balance.

Cash - Asset - Increase,

Bank – Asset- Increase

Capital - Increase

3. Borrowed loan from State Bank of India.

Bank - Asset – Increase,

SBI’s loan – Liability - Increase

4. Borrowed loan from a friend.

Bank - Asset - Increase,

Friend’s loan - Liability - Increase

5. Purchased machinery for cash.

Machinery - Asset - Increase,

Cash - Asset - Decrease

6. Purchased machinery for cash, payment made by cheque.

Machinery - Asset - Increase,

Bank - Asset - Decrease

7. Purchased furniture, payment made by accepting a bill of exchange

Furniture – Asset – Increase,

Bills Payable - Liability - Increase

8. Purchased goods, 50% payment made by cheque.

Stock – Asset - Increase,

Bank - Asset - Decrease,

Creditors - Liability - Increase

9. Goods purchased on credit, now returned.

Creditors - Liability - Decrease,

Stock – Asset - Decrease

10. Sold goods for cash.

Cash - Asset - Increase

Stock – Asset - Decrease

11. Sold goods on credit.

Debtors - Asset - Increase

Stock – Asset - Decrease

12. Sold goods, 50% payment received in cash.

Cash - Asset - Increase

Debtors - Asset - Increase

Stock – Asset - Decrease

13. Payment of an instalment of State bank of India’s loan.

SBI’s loan – Liability – Decrease,

Bank – Asset - Decrease

14. Bills Receivable received from a debtor.

Bills Receivable – Asset – Increase,

Debtors – Asset - Decrease

15. Deposited into Canara bank.

Canara Bank – Asset – Increase,

Cash – Asset - Decrease

16. Withdrew from bank for office use.

Cash - Asset – Increase,

Bank - Asset – Decrease

17. Withdrew from bank for domestic use.

Drawings – Capital – Decrease,

Bank – Asset - Decrease

18. Payment of wages, rent by cheque.

Wages and Rent – Capital (Expenses) – Decrease,

Bank – Asset - Decrease

19. Returned to friend, loan borrowed from him, by cheque.

Friend’s loan – Liability – Decrease,

Bank – Asset - Decrease

20. Bad Debts (Debtors didn’t pay their dues, declared insolvent by court).

Bad Debts – Capital (Expense) – Decrease,

Debtors – Asset - Decrease

21. Cash received from Munim for commission.

Cash – Asset – Increase,

Commission – Capital (Income) - Increase

22. Received rent by cheque

Bank – Asset – Increase,

Rent – Capital (Income) - Increase

23. Goods returned by our customers.

Stock – Asset – Increase,

Debtors – Asset - Decrease

24. Collection of cash from debtors after discount.

Cash - Asset - Increase

Discount Allowed – Capital (Expense) - Decrease

Debtors - Asset - Decrease

25. Payment to creditors after discount.

Creditors - Liability - Decrease

Cash – Asset – Decrease

Discount received – Capital - Increase

26. Depreciation on asset.

Depreciation – Capital (Expense) - Decrease

Asset - Decrease

27. Appreciation to asset.

Asset - Increase

Appreciation – Capital - Increase

28. Interest on Loan.

Interest on Loan – Capital - Decrease

Loan – Liability - Increase

29. Interest on bank deposit.

Bank - Asset - Increase

Interest on Bank Deposit – Capital - Increase

30. Outstanding expenses.

Expenses – Capital - Decrease

Outstanding expenses – Liability - Increase

31. Expenses paid in advance (when these are paid).

Prepaid expenses - Asset - Increase

Cash – Asset - Decrease

32. Accrued Income.

Accrued Income - Asset - Increase

Income – Capital - Increase

33. Income received in advance. (when it is received).

Cash - Asset - Increase

Income received in advance – Liability - Increase

34. Withdrew goods for personal use.

Drawings - Capital - Decrease

Stock – Asset - Decrease

35. Goods given as charity.

Charity – Capital - Decrease

Stock – Asset - Decrease

36. Prepaid Expenses (Adjustment)

Prepaid Expenses - Asset - Increase

Expenses – Capital - Decrease

37. Interest On Capital.

Interest on Capital - Capital – Increase and - Decrease

38. Interest on Drawings.

Interest on Drawings - Capital – Decrease and - Increase

39. Loss By Fire (Theft)

Loss by Fire (Theft) – Capital - Decrease

Stock – Asset - Decrease

40. Received a Cheque from Angad, directly deposited into bank.

Bank - Asset - Increase

Angad – Asset - Decrease

41. Collected accounts Receivable

Cash – Asset – Increase

Accounts Receivable – Asset - Decrease

42. Purchased vehicle with loan

Vehicle – Asset – Increase

Loan – Liability - Increase

43. Owner withdrew cash

Cash – Asset – Decrease

Capital - Decrease

44. Paid off accounts payable

Accounts Payable – Liability – Decrease

Cash/Bank – Asset - Decrease

45. Provided services on credit

Debtors – Asset – Increase

Service Income - Capital - Increase

46. Owner invested additional cash

Cash – Asset – Increase

Capital - Increase

47. Received interest income

Cash – Asset – Increase

Interest - Capital - Increase

48. Paid insurance premium

Insurance – Capital – Decrease

Cash/Bank – Asset - Decrease

49. Paid for software subscription

Software Expenses – Capital – Decrease

Cash – Asset - Decrease

50. Paid for employee medical insurance

Employee Benefit Expenses – Capital – Decrease

Cash – Asset - Decrease

Note:

Name of the expense, asset, liability, debtor, creditor etc. is to be used if given.

For payment Cash/ Bank is to be used depending on the case.

Learning Games and Activities in Accountancy – Class 11

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The post Dr. and Cr. as Pillars of Accounting appeared first on Commerceatease - Website for 11th & 12th Commerce.

Single entry system is a system of Book-Keeping that records only cash and personal aspects of the transactions. This is the reason we call it an Incomplete system also.

In this system, we maintain Cash Book and personal accounts of debtors and creditors. Real and nominal Accounts are not there.

Features of Single-Entry System

1. It is an unsystematic method of recording transactions.
2. It generally, records for cash transactions and personal accounts only.
3. We do not record Personal transactions of owners, in the cash book.
4. There is lack of uniformity. Every business organisations can maintain records in their own way.
5. Calculation of profit or loss depends on original vouchers only.
6. We can find Only estimated profit or loss for the year.
7. It shows Only the estimated financial position of business.

Limitations of Single-Entry System

The limitations of incomplete records are as follows:

1. We cannot prepare Trial balance to check the arithmetical accuracy of accounts.
2. Correct calculation of Net Profit/Loss of business also is out of question.
3. Analysis of profitability, liquidity and solvency of the business cannot be done.
4. There is difficulty in filing an insurance claim as exact loss cannot be calculated.
5. Single Entry System not acceptable to the income tax authorities.
6. Large business enterprises cannot use this system.

It is due to disadvantages that Double Entry System came into existence.

Preparation of Financial Statements:

Following statements are prepared to show the financial position and to calculate profit earned during the accounting year.

1. Opening and Closing Statements of Affairs:

A statement prepared on the basis of the estimated balances of various assets and liabilities on a particular date is called Statements of Affairs.

Statement of Affairs are prepared at the beginning and at the end of the accounting year to calculate the Capital on the two dates and to show the financial position.

Proforma of Statements of Affairs

2. Statement of Profit and Loss

(Calculation of profit by Net Worth Method or Statement of Affairs method)

Calculate Profit with the help of comparison of Opening Capital and Closing Capital, after making adjustments for Drawings, Additional Capital and other items. This statement is Statements of Profit and Loss.

Additional Information (Adjustments)

1) Additional Capital:

Amount of cash or assets in kind brought by the proprietor/partners, during the year.

2) Drawings:

Cash/goods/assets withdrawn by the proprietor/partners from the business for personal use, during the year.

3) Other Items:

Subtract Depreciation, Bad debts, Reserve for doubtful debt etc. from the profit to calculate the Net Profit. Similarly, Add some items to arrive at the net profit. (Check in the question, as You have done in Final Accounts under Double Entry System).

Proforma of Statement of Profit and Loss

Test Your Understanding - 1

Test Your Understanding - 2

Test Your Understanding - 3

Important Theory Questions in Accountancy – Class 11

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Learning Games and Activities in Accountancy - Class 11

Here are some activities to help students learn with fun. Then can check their understanding of the topics.

1. Classification of Terms -2 activities
2. Terms related to Accounting
3. Accounting Terms ,
4. Accounting Antonyms
5. Trial Balance MCQs
6. Quiz based on first five chapters of 11^th Accounting
7. Introduction to Accounting
8. Accounting Concepts/Principles 
9. Characteristics and Principles of GAAP
10. Nature of Account Class 11
11. Rules of Dr./Cr.
12. Ledger - 2 activities
13. GST MCQs
14. Subsidiary Books
15. Subsidiary Journals MCQs
16. Bank Reconciliation Statement - 2 activities
17. Trial Balance 1
18. Trial Balance 2
19. Trial Balance MCQs
20. Types of Accounting Errors
21. Rectification of Errors MCQs
22. Final Accounts - Transfer of Items and 3 other
23. Final Accounts - 1,2 activities
24. Final Accounts - 3,4 activities
25. Final Accounts of Sole Proprietor
26. Accounts from Incomplete Records - 2 activities
27. Accounts from Incomplete Records MCQs

NOTE: All these above activities are scattered here and there. Only the above links will take you to the concerned activity. Activities added after these have been directly posted with the concerned topic, without inserting link here.

Find more such Learning Activities.

Learning Games and Activities in Business Studies Class 11

The post Learning Games and Activities in Accountancy – Class 11 appeared first on Commerceatease - Website for 11th & 12th Commerce.

These are some Very Important Questions with Answers which students must understand:

Questions

1. Give any three points of superiority of Accrual Basis of Accounting over Cash Basis of Accounting.
2. Give a transaction that can break the Accounting Equation.
3. 'Provide for all the possible losses but don't anticipate profits.' Identify the Accounting concept referred in this sentence.
4. What is window dressing?
5. How does Cash book serve the dual purpose?
6. What is contra entry?
7. What do you mean by imprest?
8. Is Trial Balance the conclusive evidence of accuracy of Accounting records?
9. What option is available to the accountant if Trial Balance doesn't match and Final Accounts are to be prepared?
10. What is the nature of Suspense Account?
11. Which accounts are not balanced?
12. Which accounts are not taken to Trial Balance?
13. Which accounts are taken to Trading account and Profit and Loss account?
14. What types of accounts are taken to the Balance Sheet?
15. When is CGST used?
16. Identify the subsidiary book in which the following can be recorded:                                                                                                                     (a) Paid rent, (b) Outstanding wages.

17. Identify the type of Accounting Error:

(a) Wages paid to Ankit debited to Ankit account.

(b) Debit side of Mahesh account cast short.

18. Identify whether the following are capital items or revenue items:                                                                                                                               (a) Rent paid, (b) Wages paid for construction of building.

19. What are the two basis of Marshalling of Balance Sheet?
20. Arrange the following items in order of permanence:                                                                                                                                                 (a) Land and building, cash in hand, stock.      (b) Bank loan, Bills payable, Capital.

21. What type of accounts are included in financial statements?
22. Where do we transfer different types of accounts from Trial Balance, while preparing financial statements of sole proprietor?
23. What is secret reserve?
24. What are operating expenses and non-operating expenses?
25. Give two examples of indirect expenses.
26. What is the difference between operating profit and net profit?
27. Write the main difference between provision and reserve.
28. What is opening journal entry?
29. Give an example of adjusting entry.
30. Write the difference between depreciation and amortization.
31. What is depletion of an asset?
32. Write the main difference between gross profit and net profit.
33. Give any two similarities of Balance Sheet and Trial Balance.
34. Give any two objectives of GST.
35. Out of journal and ledger which one is known as book of prime entry and why?
36. What is the purpose of pay-in-slip?
37. Why do we record personal expenses of proprietor as drawings, while preparing financial statements of sole proprietor?
38. Give any two qualitative characteristics of accounting information.
39. Give any two examples of specific reserve.
40. Which system of accounting is called unscientific and incomplete and why?
41. What is revenue expenditure?
42. What is deferred revenue expenditure?
43. Give any two uses of accounting standards.
44. Give the full form of ICAI and IFRS.

Important Theory Questions in Accountancy Class 11

Answers

1. Accrual basis of accounting considers all transactions cash transactions as well as credit transactions whereas in case of cash basis of accounting only cash transactions are considered.
2. No transaction can break the accounting equation.
3. Prudence concept or conservatism concept.
4. Manipulation of accounting records to show a different picture is called window dressing.
5. All the transactions relating to cash and Bank are recorded in cash book in chronological order so it becomes a journal. All the transactions relating to cash and Bank can be checked at a single place with its balance so it becomes ledger also.
6. Contra entry is the entry recorded on both sides of cash book one in cash column the other in Bank column.
7. Imprest is the monthly advance given to the petty cashier for petty expense.
8. No, Trial Balance is not a conclusive evidence of accuracy of accounting records. There can still be some errors left after matching of the Trial Balance.
9. The difference in trial balance can be put to suspense account.
10. The nature of suspense account is not fixed as it is an artificial and Temporary account.
11. Nominal accounts are not balanced.
12. The accounts having Nil balance or not taken to trial balance.
13. Nominal accounts are taken to trading and profit and loss account.
14. Real and personal accounts are taken to balance sheet.
15. Cgst is used for intra State transactions means within the same state.
16. a. Cash book , b. journal proper
17. a.  Error of principle, b. clerical errors
18. a. Revenue item, b. capital item
19. a. Order of liquidity, b. order of permanence
20. a. Land and building, stock, cash in hand, b. Capital, bank loan, bills payable
21. Personal accounts, real accounts and nominal accounts.
22. Nominal accounts are taken to trading and profit and loss account and Real and personal accounts are taken to balance sheet.
23. Secret reserve is the Reserve which is not disclosed in the balance sheet, it is also called hidden reserve.
24. Operating expenses are the expenses relating to operating activities of the business that is expenses which are related to to day to day functioning of the business. Non-Operating expenses are the expenses which are not required for the day-to-day functioning of the business.
25. Examples of indirect expenses -  salaries, rent.
26. Net profit is calculated after considering non-operating expenses and non-operating income but operating profit is calculated without considering non-operating expenses and non-operating income.
27. The purpose of making provision is to meet some known liability whereas the purpose of creating reserve is to strengthen the financial position or payment of an unknown liability.
28. Opening journal entry is journal entry passed in the beginning of the accounting year to open the accounting books.
29. Expenses A/c     Dr.   To Outstanding Expenses
30. Depreciation is charged on Fixed assets whereas amortization is used for writing off Intangible Assets.
31. Exhausting of an asset (natural resources) like Coal mine.
32. Gross profit is after meeting cost of production but the net profit is after meeting all the expenses and losses.
33. There is main similarity i.e. Totals of both the sides/ columns of these statements must be same for meaningful results. Both are based on Accounting Equation.
34. Two objectives of GST are: To simplify tax structure and to solve the problem of black money.
35. Journal is called book of prime entry as all transactions are first of all recorded in Various types of journal.
36. The purpose of pay-in-slip is to deposit cash into bank.
37. To calculate correct amount of net profit of business.
38. Relevance, comparability.
39. Debenture Redemption Reserve, Workmen's Compensation Reserve.
40. Single entry system, because it doesn't record both the aspects of a transaction and there is absence of any principles.
41. The expenses on normal day to day business activities the benefit of which is obtained during the same accounting period.
42. The revenue expenditure the benefits of which will be obtained over many accounting years.
43. To bring uniformity in accounting records and provide comparability.
44. ICAI - Institute of Chartered Accountants of India, IFRS - International Financial Reporting Standards.

Important Theory Questions in Accountancy Class 11

Learning Games and Activities in Accountancy – Class 11

The post Important Theory Questions in Accountancy Class 11 appeared first on Commerceatease - Website for 11th & 12th Commerce.

Question: What is a computer?

Answer: Computer is an electronic device which is capable of performing a variety of operations at the directions or a set of instructions. It is an electronic digital machine that acts on a set of instructions called program or software and is used for processing raw data into meaningful information.

Computer

Raw Data ------> Meaningful Information

Question: What are the main elements of a computer system?

Answer: A computer system is a combination of following elements:

1. Hardware: It consists of physical components such as a keyboard, mouse, monitor and processor. These are electronic and electromechanical components.

2. Software: It is a set of programs used to work with hardware. Eg- MS Office, Tally.
3. People: People interacting with computers are called live wares, they can be analyst, programmer or operator etc.

4. Processor: These are series of operations in a particular order to achieve a desired result. The processor can be hardware oriented, software oriented or internal processor.

5. Data: These are facts and consist of numbers, text These are gathered and entered into computer system which classifies and processes the data to produce information useful for decision making.

6. Connectivity: It implies connection of one computer to others through telephone line, micro-wave transmission, satellite links etc.

Question: What are the capabilities of computer system?

Answer: Computer system possesses some features in comparison to humans which make it very useful.

1. Speed: It refers to the amount of time computer takes in completion of a task or an operation. A computer requires very less time than a human in performing a task.

2. Accuracy: It refers to the degree of exactness with which computations are made and operations are performed. The computers rarely commit errors and perform all types of complex operations accurately.

3. Reliability: It refers to the ability with which computers remain functional and serve the users. Computers are well adjusted to perform repetitive operations. They are free from tiredness, boredom etc. so they are more reliable than humans.

4. Versatility: It refers to the ability of computers to perform a variety of tasks- simple as well as complex. A general purpose computer can be used in any area like business, industry, scientific studies, communication, technological study etc.

    5. Storage: A computer system can store a large amount of data in a very small physical space.

Computers in Accounting

Question: What are the limitations of computer system?

Answer: Computer system suffers from the following limitations:

1. Lack of common sense: Computer system lacks common sense. Whatever program is used, computers will work accordingly.
2. Low IQ: Computer must be directed to perform each and every action as they are dumb devices with zero IQ (intelligence quotient) .
3. Lack of decision making: Decision making is a complex process involving information, knowledge, intelligence, wisdom, judgement etc. Computers do not possess all these qualities for decision making.

Question: What is management information system(MIS)?

Answer: Management Information System is a system that provides information necessary to take decision and manage the business affairs.

Question: What are the types of accounting related MIS reports?

Answer: Following are the main accounting related MIS reports:

1. Summary report: It summarizes all activities of the organisation and presents it in the form of summary report like Trading and Profit and Loss account, Balance Sheet.

2. Demand report: This report is prepared only when the management makes request for them e.g. Bad debts report, Stock valuation report.
3. Customer/Supplier report: These reports are prepared according to the specification of the management e.g. top 10 customers report for customer analysis, top 10 suppliers report for vendor analysis.
4. Exceptional report: According to the conditions or exceptional cases, such reports are prepared e.g. inventory report in case of short supply, overstocked status report etc.
5. Responsibility report: Management wants report for the fixation of management responsibility e.g. a report on cash position.

Question: What are the main steps that are taken in designing the accounting report?

Answer: Following are the main steps taken to design the accounting report:

1. To fix the objectives of report: The objective of the report must be clearly defined e.g. who are the users of the report and the decision to be taken on the basis of the report.

2. Structure of report: It must be considered at the first stage. The information must be contained in the report and the decision of presentation is to be decided for the structure of the report.
3. Query with the data report: The accounting information queries must be clearly defined and the methodology to be adopted while interacting with the database must be decided.

4. Finalising the report

Computers in Accounting

Question: What is the accounting information system? Show the relationship of accounting information system with the other functional management systems.

Answer: Accounting information system is a sub-system of management information system which identifies, processes and communicates economic information about an entity, for the purpose of decision making by various users, internal or external like shareholders, creditors, management etc. The relationship of systems of management information system and accounting information system can be shown with the help of following diagram:

MIS

Question: What is a report?

Answer: When data is processed it becomes information and when that information is processed to make a particular form to meet a particular need it becomes a report.

Data ----> Information ------> Report

Question: What are the essentials of an accounting report?

or

What criteria must be fulfilled by an accounting report.

Answer: Following are the essentials of an accounting report:

1. Relevance
2. Timeliness
3. Summarization
4. Accuracy
5. Completeness

Question: What is computerized accounting system (C A S)?

Answer:  Computerised accounting system is an accounting information system that mainly processes the financial transactions and events as per Generally Accepted Accounting Principles (GAAPs) to produce report as per the requirement of different users, internal as well as external like employees, management, creditors etc.

In computerised accounting system, the framework of storage and processing of data is called operating environment that includes hardware and software both of which are interdependent and important.

Question: What are the basic requirements of computerised accounting system?

Answer: Every computerised accounting system has two basic requirements:

1. Accounting framework: It consists of a set of principles, coding and grouping structure of accounting.
2. Operating processor: It is well defined operating processor with a particular operating environment of the organisation.

Computers in Accounting

Question: What is the difference between manual and computerized accounting system?

Answer: Manual and Computerized accounting system can be compared on the basis of following activities or processes:

1. Identifying: In this step transactions are identified to be recorded which processes are similar in both cases.
2. Recording: Recording of financial transactions in the manual system is through subsidiary journals whereas in computerized accounting system it is done through accounting database.
3. Classification: In Manual system transactions recorded in journal are further classified in ledger which results in data duplication but in computerised accounting system no such data duplication is made.
4. Summarising: In Manual accounting system preparation of ledger account is must for preparing Trial balance but in computerised accounting system Ledger is not required for preparing Trial balance.
5. Adjusting entries: In Manual accounting many adjusting and rectification entries are required but in computerized accounting system only errors of principle are rectified.
6. Financial statement: In Manual accounting system trial balance is necessary to prepare financial statements I.e. Profit and loss account and Balance sheet but not in case of computerised accounting system.
7. Closing the books: In Manual accounting system entries are passed to close and open the accounting books but in computerised accounting system there is year ending processing to create and store opening balances of a come in database.

Question: What are the advantages of computerised accounting system?

Answer: Following are the main advantages of computerised accounting system:

1. Speed: Accounting data is processed faster by using computerized accounting system than it is achieved through manual efforts.
2. Accuracy: The possibility of Clerical Errors is minimised in computerised accounting system as data is entered once for all.
3. Reliability: The computerized accounting system is adjusted to perform repetitive tasks, it is not subject to tiredness or boredom.
4. Up to date information: Computerised accounting system helps in keeping the information automatically updated as and when accounting data is entered and stored.
5. Real time user interface: Both computers are interlinked through a network of computers which facilitate the availability of information to various users at the same time.
6. Automated document production: Accounting reports such as Cash book, Trial balance, Statement of affairs can be obtained just by a click of a mouse.
7. Legibility: Data display on computer monitor is legible which helps in avoiding errors caused by untidily written figures.
8. Efficiency: The computerised accounting system ensures better use of resources and time.
9. Quality reports: The inbuilt check facility is available which makes accounting information more reliable in case of computerised accounting system.
10. MIS reports: Computerised accounting system facilitates the production of MIS reports like Debtor analysis, Creditor analysis.
11. Storage and retrieval: Computerized accounting system allows us to store data in a manner that does not require large physical space like in case of storage of data in pen drive, CD, hard disk etc.
12. Motivation and employees interest: Computerised accounting system requires a specialised training to staff which motivates them to develop interest in the job.

Question: What are the limitations of computerised accounting system?

Answer: The main limitations of computerised accounting system are:

1. Cost of training: Working with computerised accounting system requires special knowledge of hardware and software which requires huge cost.
2. Staff opposition: When Computerised accounting system is introduced there is a significant degree of resistance from the existing accounting staff.
3. Disruption: The accounting process suffers a significant loss of work and time due to changes in working environment.
4. System failure: There can be hardware failure leading to loss of time but software damage and failure due to virus can lead to total destruction of data files.
5. Inability to check unanticipated errors: Computers lack the capability to judge they cannot detect unanticipated errors as humans can.
6. Breach of security: Fraud and embezzlement can also be committed in computerized accounting system by alteration of data or a program. Hacking of passwords of users may change the accounting record.
7. Ill-effects on health: The excessive use of computer may lead to health problems like back ache, eye strain etc.

Question: When do you need accounting software?

Answer: The need for accounting software arises in two situations:

1. When computerised accounting system is to be introduced to replace the manual system.
2. When the current computerised accounting system is to be replaced with and new system to meet the changing needs.

Question: What do you mean by accounting software?

Answer: The program used for recording and storing accounting data and generating report as per requirements of the users is called accounting software. The most popular used accounting software is Tally. There are various accounting software available in the market. The basic feature of all accounting software are same on global basis.

Question: What are the main categories of accounting packages?

Answer: The main categories of accounting software are:

1. Ready to use software: This software is used by the organisations running on small scale where the volume of transactions is very low. In this case, cost of installation is also very low and the number of users are limited.

Main Advantage is, it is easy to learn and simple training needs. It is economical.

Disadvantage: The level of secrecy is low as it is prone to data fraud. It does not have secondary backup facility. There is little scope of linking to other information systems.

2. Customised software: Accounting software to meet the special needs and requirement of the users are called customised software.

Main advantage: It is very useful and offers benefit of data secrecy of the software can be better maintained.

Disadvantage: The cost of installation is high. Cost of training to staff is also very high.

3. Tailored software: The accounting software is generally tailored for large business organisations with users geographically scattered.

Main advantage: Secrecy as well as authenticity is very high. Flexibility in terms of users is also very high.

Disadvantage: Cost of installation is very high. The cost of specialised training to staff is also very high.

This Topic has been eliminated from Class 11 but is there in Option II of Class 12 Accountancy Syllabus.

Learning Games and Activities in Accountancy – Class 11

The post Computers in Accounting appeared first on Commerceatease - Website for 11th & 12th Commerce.

How to study Accountancy? Most of the students take Commerce and get entangled in answering this question but are not prepared to put in efforts required. Here are some suggestions to tame the subject:

1. Be regular

Be regular in school, don't skip class, don't skip an assignment as the accounting concepts are all related like if a students understand the basic terminology, only then he can understand the rules of accounting.

If he understands rules, he can understand to prepare Journal, Ledger, Trial Balance and so on. Cramming any topic without basic understanding will not help to understand Accountancy.

   2. Try to understand

Accountancy is based on logic. So, try to understand the concepts rather than memorizing. Understanding the terms, then accounting rules, Journalizing, ledger posting etc. are the processes that are basic to Accounting but cannot be done without understanding. Understanding makes Accounting an interesting process.

3. Try to apply rules

No question in Accountancy can be done without the accounting rules. So, whatever you do, apply rules. Cramming can land you into trouble if you forget the things, but deep understanding of rules will be there to solve every problem however difficult it is.

4. Ask your teacher

If you are attentive in class, listening to your teacher properly, jotting down main points but are not following something, don't hesitate to ask your teacher the point you have not understood, as the problems will accumulate and become difficult to handle later on.

5. Practice is the key

Though Accountancy is based on rules, and you have understood the rules, it is the subject that requires lot of practice. If you solve fifty questions, there can be a fifty first question set in the exam. Every single question solved by you should give you satisfaction.

6. Keep in mind your future goal

If you don't feel like studying accounting, you need to motivate yourself by thinking about what you want to become that you had thought of becoming when you opted for Commerce. Don't forget the saying, No pain, no gain.

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Double Entry system of Book-keeping requires record of both the aspects of a transaction into accounting books, one Dr. and the other Cr. e.g. Sold goods to Ashok for ₹3,000. In this case Goods worth ₹3,000 are going out of the business and cash ₹3,000 is coming into the business, both must be recorded in accounting books.

Rules of Double Entry

Rules of Double Entry can be studied under two methods:

1. Basic Book-keeping method.

2. Balance Sheet Equation method.

1. Basic Book-keeping method.

Under this method rules are studied on the basis of various types of accounts. Account is the summary of transactions relating to a particular item relating to the business, in ‘T’ form, where left side is used for Debit and right side is used for Credit.

Types of Account:

1. Personal accounts: These accounts are related to the persons or group of persons and can be:

(a) Natural personal accounts like X account, Ashok account.

(b) Artificial Personal accounts like Sharma Brothers account, Ashoka Textiles ltd.

(c) Representative personal accounts like expenses outstanding, Income received in advance.

2. Impersonal accounts: These accounts are other than personal accounts and include:

(a)Real accounts: Related to assets also called property accounts.

(b)Nominal accounts: Related to expenses, Incomes, losses, gains, revenues of the business.

Personal accounts:

Debit the receiver, Credit the giver e.g. if cash is given to Mahesh, Mahesh is receiver so Mahesh account should be debited.

Real accounts:

Debit what comes in, Credit what goes out e.g. If furniture is sold to Ramesh, furniture is going out of the business so Furniture account should be credited.

Nominal Accounts:

Debit the expenses and losses, Credit the Incomes, gains, revenues and profits e.g. if commission is received, Commission account should be credited as it is Income of the business.

Summary of Rules of Double Entry:

1. Personal accounts: Debit the receiver, Credit the giver.

2. Real accounts: Debit what comes in, Credit what goes out.

3. Nominal Accounts: Debit the expenses and losses; Credit the Incomes, gains, revenues and profits.

2. Balance Sheet Equation Method:

Under this method rules of Double Entry are studied on the basis of the items of Balance Sheet Equation so all the accounts are divided into five categories for this purpose:

(a) Asset account:

Debit in case of Increase, Credit in case of Decrease like In case machinery is purchased for cash, Machinery account should be debited and cash account should be credited.

(b) Liability account:

Credit in case of Increase, Debit in case of Decrease like If loan is borrowed from State Bank of India, State bank Of India’s loan account should be credited.

(c) Capital account:

Credit in case of Increase, Debit in case of Decrease like when proprietor invested cash into business, his capital account should be credited.

(d) Expenses/Losses account:

Debit all the expenses/losses (Debit in case of Increase, Credit in case of Decrease.), Expenses are always debited except in case of cancellation like if rent is paid, Rent account should be debited.

(e) Revenues/Gains/Incomes and profits account:

Credit all the revenues/gains/incomes/profits (Credit in case of Increase, Debit in case of Decrease), Incomes accounts are always credited like if rent is received, rent account should be credited.

Summary of Rules of Double Entry:

(a) Asset account: Debit in case of Increase, Credit in case of Decrease.

(b) Liability account: Credit in case of Increase, Debit in case of Decrease.

(c) Capital account: Credit in case of Increase, Debit in case of Decrease.

(d) Expenses/Losses account: Debit (Debit in case of Increase, Credit in case of Decrease).

(e)Revenues/Gains/Incomes and profits account: Credit (Credit in case of Increase, Debit in case of Decrease).

Note: It may be noted that there is no specific instruction for the use of these two methods. The results of these two methods are same. So, either of these two may be used.

Match The Basic Terms with their Meaning

Application of Rules of Debit and Credit

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Meaning and Components

Financial Statements are popularly known as Final Accounts. Trial Balance is generally prepared at the end of every month and at the end of the accounting year to know the balances of all the accounts & to test the arithmetic accuracy of accounts.

The basic objective of accounting is to know about the profit or loss during the previous year & present financial position at the end of the accounting year. This can be known only if Trading account and Profit & Loss account and Balance Sheet are prepared at the end of year. These are also known as FINANCIAL STATEMENTS.

It is only from Trial Balance that the Final Accounts i.e.

1) Trading and Profit & Loss account and

2) Balance Sheet

can be prepared.

As these two statements are prepared to give the final results of the business, both of these are collectively called as final accounts. Accounting cycle finally ends with these statements.

Trading account is prepared by trading concerns i.e., concerns which purchase and sell finished goods, to know the gross profit or gross loss incurred by them from buying and selling of goods during a particular period of time. Gross profit or gross loss is the difference between the cost of goods sold and the proceeds of their sale. If the sale proceeds exceed the cost of goods sold, gross profit is made and vice-versa in case of gross loss.

For non-corporate business organization Profit & Loss account is second part of income statement. It is prepared to know the net profit or net loss of business during a particular period. Every businessman has to spend on expenses other than on manufacture or purchase of goods which are called indirect expenses. There can be other incomes except sales. So, gross profit or loss is adjusted keeping in view these indirect expenses and other incomes to find out net profit or net loss.

Balance Sheet is a component of financial statements which shows balances of capital, liabilities & assets. All nominal accounts are closed by transferring these to Trading & Profit & Loss Account. Only personal & real accounts are left to be entered in Balance sheet.

Balance Sheet is the final step in accounting cycle. It shows the true position of the business in terms of assets, liabilities and capital on a particular date.

Precautions while preparing Financial Statements:

• All items given in the Trial balance will move to one place only, out of Trading / Profit and Loss Account and Balance Sheet.
• If the item moves to the Trading and Profit and Loss Account, it moves to the same side.
• If it moves to the Balance Sheet, it moves to the opposite side.
• All adjustments given outside the Trial Balance will be taken to two of these three places.
• Write down TD, TC; PD; PC; BL and BA in the Trial Balance items, to simplify the transfer process. (TD means Trading A/c Debit side; TC means Trading A/c Credit side, PD means P&L A/c Debit side, PC means P&L A/c Credit side, BL means Balance Sheet Liabilities side, BA means Balance Sheet Assets side.)
• Heading for the Trading and Profit and Loss Account is …for the year ended / ending but for the Balance Sheet, write … as at ….

Accounting Synonyms

Where to Transfer These Items in Final Accounts?

Do this activity.

Test Your Understanding

Final Accounts Formats

Final Accounts with Adjustments 1

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Trading Account:

This account is used to determine the gross profit or loss of a business over a specific period of time. It includes the direct costs associated with producing goods or services, such as raw materials, labor, and manufacturing expenses.

The formula is: Gross Profit/Loss = Sales - (Opening Stock + Purchases + Direct Expenses - Closing Stock)

      Dr.                                                        Trading Account                                                       Cr.  

Profit and Loss Account:

This account is used to determine the net profit or loss of a business over a specific period of time. It includes all indirect expenses and incomes. The net profit or loss is calculated by deducting the total expenses from the total revenues. The formula is:

Net Profit/Loss = Gross Profit - Operating Expenses + Other Revenues

       Dr.                                         Profit and Loss Account                                                          Cr.

Final Accounts Formats

Balance Sheet:

This is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It includes assets, liabilities, and shareholders' equity. The balance sheet follows the accounting equation:

Assets = Liabilities + Shareholders' Equity

                                                            Balance Sheet

Identify Capital and Revenue Items

Activity 2

Final Accounts with Adjustments 1

Final Accounts with Adjustments 2

Final Accounts with Adjustments 3

Final Accounts with Adjustments 4

Final Accounts with Adjustments 5

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