mb0041 solved fall drive assignment 2011

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Q1. Distinguish between Management Accounting and FinancialAccountingManagerial Accountinga) Users of information Managers within the organizationb) Regulation: Not required and unregulated since it is intended only for

the managementc) Source of data: The organizations basic accounting system plus varioussources, such as rates of defective products manufactured, physicalquantities of material and labor used in the production occupancy rates inhotels and hospitals and average take offs delays in air-linesd) Nature of reports and procedures: Reports often focus on the sub-unitswithin the organization, such as departments, divisions, geographicalregions, or product lines based on a combination of historical data,estimates and projections of future event.

Financial Accounting

Interested parties, outside the organization. Required and must conformto generally accepted accounting principles. Regulated by FASB and to alesser degree, the SECP Almost exclusively drawn from the organization’sbasic accounting system which accumulates financial information Reportsfocus on the enterprise in its entirely based almost exclusively onhistorical transactions data.Q2. Enter the following transactions in the single column cash book of Gopichand.March, 20031st Commenced business with cash 20000

2nd Bought goods for cash 50003rd Sold goods for cash 40004thGoods purchased from Ravi Kumar 1000010thPaid to Ravi Kumar 700014thCash sales 800018thPurchased furniture for office 400022nd Paid wages 50025thPaid rent 60030thReceived Commission 400030th Withdrew for personal purpose 100031stPaid salary 900

Hint: Goods Purchased from Ravi Kumar is a credit purchasebalance c/f should be 17000

Q3. What is cash flow statement and how is the cash flow statementsubdivided?Complementing the balance sheet and income statement, the cash flowstatement (CFS), a mandatory part of a company's financial reports since1987, records the amounts of cash and cash equivalents entering andleaving a company. The CFS allows investors to understand how acompany's operations are running, where its money is coming from, andhow it is being spent. Here you will learn how the CFS is structured andhow to use it as part of your analysis of a company. The Structure of the CFS



The cash flow statement is distinct from the income statement andbalance sheet because it does not include the amount of future incomingand outgoing cash that has been recorded on credit. Therefore, cash isnot the same as net income, which, on the income statement and balancesheet, includes cash sales and sales made on credit. (For backgroundreading, see Analyze Cash Flow The Easy Way.)

Cash flow is determined by looking at three components by which cashenters and leaves a company: core operations, investing and financing,OperationsMeasuring the cash inflows and outflows caused by core businessoperations, the operations component of cash flow reflects how muchcash is generated from a company's products or services. Generally,changes made in cash, accounts receivable, depreciation, inventory andaccounts payable are reflected in cash from operations.Cash flow is calculated by making certain adjustments to net income byadding or subtracting differences in revenue, expenses and credittransactions (appearing on the balance sheet and income statement)

resulting from transactions that occur from one period to the next. Theseadjustments are made because non-cash items are calculated into netincome (income statement) and total assets and liabilities (balancesheet). So, because not all transactions involve actual cash items, manyitems have to be re-evaluated when calculating cash flow from operations.For example, depreciation is not really a cash expense; it is an amountthat is deducted from the total value of an asset that has previously beenaccounted for. That is why it is added back into net sales for calculatingcash flow. The only time income from an asset is accounted for in CFScalculations is when the asset is sold.

Changes in accounts receivable on the balance sheet from one accountingperiod to the next must also be reflected in cash flow. If accountsreceivable decreases, this implies that more cash has entered thecompany from customers paying off their credit accounts - the amount bywhich AR has decreased is then added to net sales. If accounts receivableincrease from one accounting period to the next, the amount of theincrease must be deducted from net sales because, although the amountsrepresented in AR are revenue, they are not cash.An increase in inventory, on the other hand, signals that a company hasspent more money to purchase more raw materials. If the inventory waspaid with cash, the increase in the value of inventory is deducted from net

sales. A decrease in inventory would be added to net sales. If inventorywas purchased on credit, an increase in accounts payable would occur onthe balance sheet, and the amount of the increase from one year to theother would be added to net sales. The same logic holds true for taxes payable, salaries payable and prepaidinsurance. If something has been paid off, then the difference in the valueowed from one year to the next has to be subtracted from net income. If there is an amount that is still owed, then any differences will have to beadded to net earnings. (For more insight, see Operating Cash Flow: Betterthan Net Income?)InvestingChanges in equipment, assets or investments relate to cash frominvesting. Usually cash changes from investing are a "cash out" item,



because cash is used to buy new equipment, buildings or short-termassets such as marketable securities. However, when a company divestsof an asset, the transaction is considered "cash in" for calculating cashfrom investing.FinancingChanges in debt, loans or dividends are accounted for in cash from

financing. Changes in cash from financing are "cash in" when capital israised, and they're "cash out" when dividends are paid. Thus, if acompany issues a bond to the public, the company receives cashfinancing; however, when interest is paid to bondholders, the company isreducing its cash. Tying the CFS with the Balance Sheet and Income Statement The cash flow statement is derived from the income statement and thebalance sheet. Net earnings from the income statement are the figurefrom which the information on the CFS is deduced. As for the balancesheet, the net cash flow in the CFS from one year to the next should equalthe increase or decrease of cash between the two consecutive balance

sheets that apply to the period that the cash flow statement covers. (Forexample, if you are calculating a cash flow for the year 2000, the balancesheets from the years 1999 and 2000 should be used.)A company can use a cash flow statement to predict future cash flow,which helps with matters in budgeting. For investors, the cash flowreflects a company's financial health: basically, the more cash availablefor business operations, the better. However, this is not a hard and fastrule. Sometimes a negative cash flow results from a company's growthstrategy in the form of expanding its operations.By adjusting earnings, revenues, assets and liabilities, the investor can

get a very clear picture of what some people consider the most importantaspect of a company: how much cash it generates and, particularly, howmuch of that cash stems from core operations.

Q4. A large retail stores makes 25% of its sales for cash and the balanceon 30 days net. Due to faulty collection practice, there have been lossesfrom bad debts to the extent of 1 % of credit sales on average in the past. The experience of the store tells that normally 60 % of credit sales arecollected in the month following the sale, 25% in the second followingmonth and 14 % in the third following month. Sales in the preceding threemonths have been January 2007 Rs.80,000, February Rs.1,00,000 and

March Rs.1,40,000. Sales for the next three months are estimated as AprilRs.1,50,000, May Rs.1,10,000 and June Rs.1,00,000. Prepare a schedule of projected cash collectionHint : Cash Receipts: April Rs. 1,27,650, May Rs. 1,31,750, June Rs.1,17,325

Statement of expected Cash receipt

Collection form April May June

Cash Sales3750

02750

02500

0

Collection fromDebtors

January 8400 - -



February1875

01050

0 -

March6300

02625

01470

0

April -6750

02812

5

May - -4950

0

Total1276

501317

501173

25

Q5. What are the guidelines that deal with reserve for discount ondebtors? What is a Bad debt also Mention the accounting treatment of baddebts.1. If a reserve for discount on debtors does not exist and cash discount isallowed, then transfer the discount to P&L account.2. Any fresh reserve for discount on debtors is to be made, debit the P&LAccount with the amount of reserve3. If provision for discount on debtors exists at the time of providingdiscount, then write off the discount from the provision already made forthe purpose.4. New provision should then be calculated and only as much as requiredto bring the existing provision to the new figure should be debited to P&LAccount.5. If the new provision required is lower than the provision alreadyexisting (old), then the difference shows profit and transfer the same toP&L Account.

Accounts receivable that is unlikely to be paid and is treated as loss. Afirm may use one of the two methods in writing off such losses against itssales revenue:(1) By deducting the uncollectible amounts from revenue in theaccounting period they are deemed uncollectible (see direct write off method), or(2) By deducting an estimated amount from revenue in each accountingperiod and adjusting any excess or shortfall in the following accountingperiod (see allowance method). The ratio of bad debt losses and the openaccount (credit) sales is an indicator of the quality of a firm's collectibles,and the efficiency of its credit monitoring efforts. Also called uncollectible

account.

The accounting treatments of provision for doubtful debts are.First of pass the journal entry of actual bad debts.Entry for recording actual bad debt which did not record in books of business1. Bad debts account Dr. xxxxx To Sundry Debtors Account xxxxxxEntry for transferring bad debts to provision for bad debts Account2. Provision for bad debts account Dr. xxxxxx

To Bad Debts account xxxxx Transfer of provision for bad debts account to profit and loss account3. Profit and loss account Dr. xxxxxx



To Provision for bad debts account xxxxxQ6. Prepare a statement of changes in working capital from the followinginformation.Particulars April 1 March 31

Share Capital 50,000 50,000

Retainedearnings

14,000 48,000

Fixed Assets atcost

80,000 90,000

Provision forDepreciation onFixed Assets

22,000 27,000

Investments inshares of subsidiaries

15,000 15,000

Government

securities

6,0000 12,000

8% Debentures(redeemable in5 equal annualinstallment of Rs.20,000 each,from thecurrent year

20,000 -

Prepaidexpense

21,000 4,000

Outstandingexpenses 5,000 12,000

Creditors andBills Payables

30,000 25,000

Debtors andBillsReceivables

18,000 20,000

Cash and Bankbalances

5,000 13,000

Provision forDoubtful Debts

4,000 2,000

mb0041 solved fall drive assignment 2011

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