NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Financial Accounting & Analysis
Internal Assignment Applicable for December 2022 Examination
Q1. Prepare the journal by recording the following transactions.
Ans.
Introduction
The accounting transaction in accompany recorded as double entry accounting system. A journal is a
book where the accounting transaction register chronological order. As it is mentioned that accounting
entry is double entry accounting system, where each debit entry has corresponding credit entry. It
creates base for various accounting ledger prepared as accounting entries are published in the ledgers
from the journal.
Concept and numerical
Company business use accounting journals to services transaction like sales, cash, salary, account
payable or receivable etc. Different transition has two sets of entry according to double entry posting
system which is one credit or debit. Journal are used to register below information which is very
important to an organisation.

 Date of Transaction
 Description of particular
 Affected ledger accounts
 Affected by ledger account
 Debit amount
 Credit amount
 Ledger folio
To prepare accounting journals, Organization need to register all financial transition [like billing,
invoice, purchases, capital investment, resources etc] in sequential or chronological order.
Steps for recording general entries:
1) Identification of financial transaction related to business.
2) Analyse the transaction and identify how it impact the accounting equation.
3) Register in book along with debit and credit amount, transaction date, ledger folio.

While booking the entry in journal, it is important to keep debit and credit entry to particular financial
transition same otherwise it will create difference in over call journal credit and debit and become out
of sync.
Reconciling the journals is also not tough task as it contains the financial transaction separately and
with dates associated with it. Also if we put consolidate entry of transaction then there is a concept of
ledger folio where we can define the breakup of consolidated entry and link it with that consolidated
transaction registered in journal.
Below journal is recorded for Mrs. Veena’s newly setup business which help Mrs. Veena to
understand the details of all transaction made [purchases, sales etc.] till 10-Dec.
Below transaction are recorded in chronological order.
Journal of Mrs. Veena’s business
 L
Date Particulars F Debit Credit
Dec-03 Cash A/c Dr. 5000
Bank A/c Dr. 500000
To Equity/Capital 505000
(Being cash introduce to start the business)

Dec-05 Furniture A/c Dr. 60000

To Bank A/c 30000
To Payable/Creditors A/c 30000
(Being furniture purchased for 60000, 30000
Paid through bank, balance is taken on credit)

Dec-07 Purchases A/c Dr. 315000

To bank A/c 315000
(Being goods purchased and payment made through
Bank account)

Dec-08 Bank A/c Dr. 500000

To Purchases A/c 500000
(Being goods sold)

Dec-10 Rent A/c Dr. 10000

Electricity A/c Dr. 10000
Salary A/c Dr. 10000
To Bank A/c 30000
(Being rent, electricity, salary paid
through bank account)

As per the above journal entries, the sum of all debits and the sum of all credits are equal, by
which we can say that accounting equation is in sync.
Conclusion

 Since a transaction is recorded as soon as it occurs, chances are very low that you will
exclude a transaction that matters to your business.
 Accounting journal maintains the chronological approach of recording all the
transactions. Therefore, it becomes easier for you to retrieve data regarding a
particular transaction on a specified date.
 All the transactions are broken down according to their debit and credit nature and
then for every debit entry, we assign an equal amount of monetary value to their
corresponding credit entry.
 If you find any inconsistencies or mistakes in the ledger or trial balance, then you can
go back to the journal again to correct the mistakes.

Q2. Preparing the profit and loss account is a lengthy but at the same time interesting task.
You need a lot of information to prepare the profit and loss statement. Discuss any five
essential components out of the total eight components which contributes in preparing
the profit and loss statement.
Ans. Profit and Loss Statement [Introduction]
Profit and loss statement depict the financial statement of company which consist of revenue,
cost, expenses over the specific period of the time [Quarterly, Half yearly, Yearly].
This is also known as income statement which provide information about company’s
performance during that period of time. It enables the company to take appropriate financial
decision well on time and in favour of company’s growth [Like Company can work on
increase the revenue and cut down the cost, expenses or both to make good profit].
Also, helpful for the inverters who can take investment decision by looking over all profit and
loss incurred by company in that financial period.
There are two type of profit and loss statement.
a. Cash Method: Book revenue whenever the cash come in and liability when cash go
out. This method is not commonly used method and use by small size industries.
b. Accrual Method: Book revenue for the future date cash come in and same for the
liability. This is the common method used by industry (Ex. Banks do accrual so that
they can well aware of revenue/expense come in future).
Below are some major components which contribute to income statement.
1. Revenue: Revenue is the major aspect of profit and loss statement. It is the amount
earned by company by selling the goods, services and other company’s operation.
Revenue is of two type:
a. Operating Revenue
b. Non-Operating Revenue

Example: - For manufacturer company, Revenue is earned by selling the

manufactured goods [finished goods] called as operating revenue. And if company is
getting interest on some investments then it is call non-operating revenue.

2. Cost: This is the amount which company spent on selling of goods and services. This
can include purchase of row material, labour wages, packaging of goods etc.

3. Expenses: The expenses done by company for operating the business like marketing
the product or services, sales, administrative expenses etc. Company focus lot on this
area so that they reduce the expenses by keeping business intact to increase the profit.

Example: Rent, Salary, periodically maintenance etc.

4. Taxes: Every company have to pay tax amount as the norm set by governance body
on the profit or loss booked into that particular period due to which Tax component is
the part of income statement and considered during drive of net profit or loss.
 Example: SGST and CGST applied on row material purchase, selling of goods etc.

5. Depreciation and financial changes: Depreciation is the amount which can drive by
analysing the reduction in cost of assets.

Example: If the expiry of the row material or finished product is nearby then values of
that inventory will reduce and will be encounter as depreciated value.

Financial changes can be understanding as change in interest rate or some governance

policy changes which leads to change in revenue may impact of net profit and loss.
That’s why this is consider in profit and loss statement.

Conclusion
All the components of profit and loss statements are equally important to drive the net
profit and loss statement of the company. Income statements is vital report for the
organization by analysing it they can sustain longer into market by taking decision on
appropriate time. It determines how much company spent on expenditure along with
revenue earned in one fiscal year, so that they can have holistic view of their expenses
and revenue.

Q3. Prepare T Form Balance Sheet out of the details as shared in the table.
Ans:
Introduction
Balances sheet is the financial statement which represent company’s assets, stakeholder
equity and liabilities at given point of time. It provides the information, what is own and
owes, as well as amount invested by stakeholders.
Balance sheet helps to compare [financial ratio] the performance of company in past fiscal
years so that inverters can take decision before making investment into that company.

Concept and numerical

Balance sheet work on below fundamental equation.
Asset = Liabilities + Shareholder’s Equity
Above formula represent that company has to pay off all the funds it owns [Asset] by either
borrowing money [Liabilities] or taking it from investment [shareholder Equity].
For Example: If company take loan from financial institute of Rs. 5000, then liability
amount will increase with Rs. 5000 and corresponding asset amount also increases with Rs.
5000. After some time if company raise Rs. 8000 against share equity then equity amount
increase by Rs 8000 and new asset amount will become Rs. 13000 [5000 from borrowing +
8000 from equity].
As name depict, balance sheet always balanced in nature. If there is mismatch in balance
sheet, it means some entry is misplaced or not recorded or any other problem is occurred.
We can prepare balance sheet in below two manners.
 A vertical presentation [Widely use in corporate’s balance sheet preparation]
 A Horizontal presentation or T form balance sheet [Old method to prepare balance
sheet]
Components of balance sheet
Asset: This category explains the resources owned by the organisation and use to produce
future revenue. These are of two types.
 Current Asset
 Non-current Asset
Liabilities: A liability is any money that a company owes to outside parties, to pay to
suppliers to interest on bonds issued to creditors, salaries etc. These are also have two type.
 Current liability
 Non-current liability
Shareholder’s Equity: The equity of the business stands for the amount contributed by the
owners of the business and the revenues preserved in the business. Retained earnings,
common stock are some example of it.
Horizontal Balance sheet [T form balance sheet]
According to this format, all business liabilities, equity exists on left hand side and all asset
are on right hand side of the balance sheet due to which it is called as T- form balance sheet.

T-Form Balance Sheet

Amoun Amoun
Liabilities t Assets t
CAPITAL Fixed Asset
Lend, building,
Common stock capital 1000 equipment 1500
Retained earning 860

LIABLILITY Current Asset

Unearned
revenue 200 Cash in hand 550
Salary Payable 150 Account receivable 250
Account Payable 540 Prepaid insurance 300
Supplies 150
2750 2750
Conclusion
We can conclude that above balance sheet adheres to an equation that asset is equal to the
sum of liabilities and shareholder equity.
Now this balance sheet can be compare with previous balance sheet of the origination to
calculates financial ratio.

Q3. b) Define and calculate the current ratio, Discuss the significance of this ratio.
Ans.
Introduction
Current ratio is the ratio between current properties of the business and its present
responsibilities.
Current [Existing] properties are own by an organisation and can be liquidated with in the
operating cycle of the business.
Present [current] responsibility or obligations are owe to an organisation which must be paid
or satisfied with in operating cycle of business.
Concept or numerical
A company’s mandatory declaration are prepared to identify its earning and financial position
in the industry. It represents the ratio between total current asset v/s total current liabilities. It
indicates financial health of the company and how it can maximize the liquidation of its
current assets to settle debt or payables.
Current ratio = current asset / current liabilities
Current assets are those which can easily converted into cash within one year. Below are
some component of current assets.
 Cash
 Cash equivalent
 Account receivable
 Others receivables
 Inventory
 Prepaid expenses
Current liabilities are business obligation owed to supplier and creditors and other payment
which are due within one year. Below is some component of current liabilities.
 Account payable
 Account Expenses
 Other Expenses
 Deferred revenue
Calculation for current ratio of Z and X LLP

Current Assets
Amou
Particulars nt
Accounts receivable 250
Supplies 150
Cash 550
Prepaid insurance 300
Common stock 1000
2250

Current Liabilities
Amou
Particulars nt
Accounts payable 540
Salaries payable 150
Unearned revenue 200
890

Formula for Current ratio

Current ratio = Current asset / Current liabilities
Current ration = 2250 / 890
Current ration = 2.53
It represent that current ration of Z and X LLP is 2.53 : 1
Conclusion
A ratio of 2:1 is considered an excellent ratio as it reveals that the company has doubled its
present properties compared to its current obligations. However, ratio 1:1 is considered
significant. If the ratio is lower than 1:1, it shows the lower monetary liquidity of the
business. If the ratio is too high, it shows organization is under utilizing the resources to
produce revenue.