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ECO-02
April, 2016 (For January 2016 Session)
(Prepared by our Students)
Q:-1 Define Accounting. Explain the accounting concepts which guide the accountant at the
recording stage.
ANS- Accounting is an art of recording, classifying, and summarising, in a significant manner.
Accounting is defined as the as the art of recording, categorizing, and then summarizing in a
noteworthy manner in terms of transactions, money and events which are of financial character, and
understanding the results thereof. Accountancy is regarded both as a science and as an art. Accounting
is the art of recording, classifying and summarizing the financial transaction in a systematic manner
and interpreting the results to achieve predetermined objectives. Accounting refers to the systematic
recording of business transactions and preparation of statements relating to assets, liabilities and
functioning results of a business. Accounting has to follow certain fundamental rules that form the
basic accounting concepts and principles.
CostConcept :
Transactions are recorded in the books of account at the amounts actually involved. No arbitrary
values, put on transactions, are considered. Thus, if a plot of land in Guwahati is purchased for Rs.10,
000 though it is in word Rs.1, 00,000 will be recorded in the books. However, in some cases estimated
values are taken into consideration, e.g. depreciation, etc.

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When separate set of books are maintained, the joint venture transactions are recorded as a
Separate accounting entity on the basis of double entry principles. Under this method the
Following accounts are opened:
Joint Bank Account
Joint Venture Account
Personal accounts of each co-venture
Bank Account is a real account like the ordinary Rank Account. All the co-venturespay or deposit
their contribution in this account, The Joint Venture Account is like aprofit and loss account
which shows all the expenses and incomes of the joint venture.The personal accounts of the coventures simply show their contributions in the form of goods, cash or expenses and the amounts
received by them.
Let us now see the various journal entries which are normally recorded under this method.
(1) When co-ventures contribute their share of capital:
Joint bankA/c Dr.
To Co-ventures Personal Also
(2) When co-venture contributed in the form of goods:
Joint Venture A/c
To Co-ventures Personal A/c
(3) When purchases are made for joint venture:
a) If on cash:
Joint Venture A/c dr.
To Joint Bank A/c
b) If on credir:
Joint Venture A/c Dr.
To Creditor's Personal A/c

Q: 2.(b)Explain the separate set of books method for maintaining joint venture accounts.

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Note that when goods are purchased for the joint venture business, you will debit the
joint
Venture Account not the Purchases Account,
(4) When expenses are incurred on account of joint venture:
a) If paid out of Joint Bank Account
Joint Venture A/c Dr
To Bank A/c

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The single entry system of accounting is usually followed by small traders and theprofessionals who
cannot afford to employ qualified persons for the accounting work. Single Entry System actually
refers to incomplete recol.ds or the defective Double Entry System. Under this system, for certain
transactions both the aspects are recorded while for othersonly one aspect is recorded. Some
transactions may simply be ignored, they are not recorded at all.
:- there are two methods which can be used for ascertaining the profits.
1.
Net Worth Method:
Under this method profits are computed by comparing the net worth or capital at thebeginning of the
accounting period with the net worth or capital at the end of theaccounting period. This method does
not involve the preparation of Trading and Profitand Loss Account. It is considered most suitable
when the information available is toolimited.
2.
Conversion Method:
Under single Entry System the Debtors' Ledger and Creditors' Ledger are usuallymaintained along
with the Cash Book. Thus, though the records are incomplete, theyprovide sufficient information for
preparation of the Trading and Profit & Loss
Account. Hence the Conversion Method is employed for ascertaining the profits which
involve the preparation of proper final accounts after working out the missing figures.
Full Conversion Method
The full conversion method involves conversion of records maintained onsingle, entry system into
complete double entry records. You know most of the firms whichkeep records on single entry system
usually maintain a Cash Book along with the personalaccounts of the customers and suppliers. So, in
order to convert them into double entryrecords, you must also open all the concerned real and nominal
accounts in the ledger andmake proper postings therein. This involves a series of steps as follows:
Prepare the Statement of Affairs at the beginning and open all those real and personalaccounts
which do not appear in the ledger maintained under single entry system. Thismay involve the
opening of all real accounts (other than cash and bank) and thepersonal accounts such as
Capital, Drawings, Loan, Outstanding Expenses,Outstanding, Incomes, Prepaid Expenses,
etc. It can be done by passing an openingjournal entry.
From the Cash Book, complete costing into all real and personal accounts openedabove.
Go through the debit side of the Cash Book and open all the incomes' accounts in theledger
and make postings therein.
Go through the credit side of the Cash Bank and open all expenses' accounts in the *ledger
and make postings therein.
5 Make complete analysis of the customers accounts and complete double entry inaccounts
like Sales, Sales Returns, Bad Debts, Bills Receivable, etc.
Abridged Conversion Method
You will agree that the conversion of records maintained on single entry system intodouble entry
records is an arduous task involving a lot of time, labour and expense. Hence, a short cut method
known as 'Abridged Conversion Method' has been devised which helpsus to prepare the Trading and
Profit & Loss Account and the Balance Sheet without theopening of any additional accounts in the
ledger. Under this method we simply prepare asummary of all Cash transactions for the entire
accounting period. This is known as .'Receipt and Payments Account'.

Q: 3 What is meant by single entry system? Distinguish it from Double Entry System. Explain
the two methods of ascertaining profit when accounting records are incomplete.

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Q: 4(b)Straight line method and diminishing balance method of depreciation.

ANSStraight line method
Diminishing balance method
Depreciation is calculated onn the original cost.
Depreciation is calculaed on the written down
value.
Depriciation installment is the same every year.
Depreciation insatalment goes on reducing every
year.
The balance is the assets account will reduce to
The balance in the assets acccount will never
zero at the expiry of the working life of the
reduce to zero.
assets.
The combined cost on account of depreciation
The combined cost on amount of depriciation
and repairs is low during the initial years and
and repairs is more or less equal thoughout.
high during later year.
It is suitable for assets which is get depriciation
It is suitable for aasets which require heavy
more on account of the expiry of time.
repairs in later years of their working life.

Q:- 4 (a) Income and Expenditure Account & Receipts and Payments Account.
AnsIncome and Expenditure
Receipt and Payment Account
The Income and Expenditure Account shows
The Receipts and Payments Account is the
those items whichare of revenue nature and
summary of Cash Book.
records only such amounts which relates to the
currentyear.
Income and expenditure accounts are prepared to It commences with the opening Lash and bank
show the net result of the operation during the
balances, shows all receipts and payments made
period to derive surplus or deficit.
during the year, and ends with the closing cash
and bank balances.
In income and expenditure account all
While recording the receipts and payments in this
expenditure of revenue nature are recorded on
account, no distinction is made between capital
debit side and all income of revenue nature are
and revenue items as both are to be included.
recorded on credit side.
All expenses and income of revenue nature are
The amount received or paid relates to the current
recorded on accrual basis in income and
year the preceding years or the following years, it
expenditure.
is fully recorded in the Receipts and Payments
Account.
Income and expenditure is required to balance
Receipt and payment expenditure is not required
sheet.
to balance sheet.

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