Assignments - Mba Sem I Subject Code Mb0025 Set 1

ASSIGNMENTS - MBA Sem I Subject Code MB0025 Set 1 Subject Name: Financial & Management Accounting Ques. 1. Explain any two concepts of accounting with examples. Ans. Money measurement concept - All transactions of a business are recorded in terms of money. An event or transaction that cannot be expressed in money terms, cannot find place in the books of accounts. For example, the honesty of employees cannot be brought to the books of accounts. Money is the common denominator in which the business transactions should be expressed. Accrual concept - Profit earned or loss suffered for an accounting period is the result of both cash & credit transactions. It is possible that certain incomes are earned but not received & similarly expenses incurred but not yet paid during an accounting period. But it is relevant to consider them while computing the financial results just because they are related to specific accounting period. For example, interest receivable on fixed deposit for the year ending 31.12.06 is Rs. 12,000 but it is actually credited to the bank account only in February 2007. For calculating the income from interest, the amount Rs. 12,000 is considered even though it is not received before 31.12.06. This amount is called accrued interest. Ques. 5. Write short notes on: A. Outstanding Expenses B. Prepaid Expenses Ans. A. Outstanding expenses - Expenses due but not yet paid are known as outstanding expenses. Wages, salaries, rent, commission, etc payable in the current month are paid in the following month. If final accounts are prepared for year ending 31st December, then the expenses payable foe December will be paid in January of next year. The extent to which the amount belongs to the current year but payable in the next year is called outstanding expenses. To record that aspect, the journal entry drawn in the journal proper is: Concerned Expenses A/c Dr To Outstanding Expenses A/c Outstanding expenses account indicates liability for the current year & it will appear in the balance sheet. Outstanding expense accounts are personal accounts. B. Prepaid Expenses - Expenses paid in advance are regarded as prepaid expenses. Prepaid expenses form an asset & therefore prepaid expenses account is debited. For example, insurance premium is paid from April, 2004 to March, 2005 & the amount is Rs. 3,600. The financial year ends by 31st December, 2004. Therefore the premium relating to Jan, Feb & Mar of 2005 Rs. 900 is said to have been paid in advance. To record this internal adjustment, the entry is Prepaid Expenses A/c Dr Rs. 900 To Insurance A/c Rs. 900 Prepaid expenses accounts are personal accounts.