Accounting study guide

Slide 1

ACCOUNTING STUDY GUIDEBYAAQIB RATHEROn the Recommendations ofDEAN FACULTY OF COMMERCE & MANAGEMENT STUDIESUNIVERSITY OF KASHMIRH A Z R A T B A L , S R I N A G A R 1 9 0 0 0 6

MR. AAQIB HUSSAIN RATHERDELINA BARAMULLAMASTER OF COMMERCE (M.COM) ; (NET)MOBILE: 9906710947EMAIL: [email protected]

UNIT- I

Accounting- Meaning, Objectives, Characteristics & Functions;Distinction between Accounting, Book-keeping & Accountancy;Accounting as an Information System; users of AccountingInformation; Accounting as the Language of Business; GenerallyAccepted Accounting Principles (GAAP); Types of Accountants;Double Entry System- Concept; Debit & Credit- Concept; Types of Accounts; Asset- Meaning & Types; Liabilities- Meaning& Types; Terms Like - Capital, Capital Expenditure, Revenue Expenditure, Drawings, Insolvent, Bad Debts & Working Capital

ACCOUNTING.

Accounting is the preparation of financial records for abusiness company, a governmental or other organization.

According to American Institute of Certified PublicAccountants (AICPA)Accounting is the art of recording,classifying and summarizing in a significant manner and interms of money, transactions and events, which are in part atleast, of a financial character and interpreting the resultsthereof..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

OBJECTIVES OF ACCOUNTING

To supply meaningful information about the financial activities of a business to those who have a need or a right to have such information. To make available the relevant financial information to all who have a legitimate interest in the business enterprise To enable decision-makers to interpret financial information and employ its results in planning for the future MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

CHARACTERISTICS OF ACCOUNTING..

Accounting attains the objective of ascertaining the financial results Accounting records only that component of business transaction that can be represented in terms of money.. Accounting is concerned only with transactions and events that are of financial natureMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

FUNCTIONS OF ACCOUNTING.Main Functions:- Recording.. Known as the primary function of Accounting.. Communicating. Meeting Legal Requirements.. Interpreting..Others:- Calculation of Profit or Loss.. Determination of financial health of the concern..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

DISTINCTION BETWEEN ACCOUNTING, BOOK-KEEPING & ACCOUNTANCY. ACCOUNTING: Accounting is a wider term and includes the analysis and interpretation of the recorded data BOOK-KEEPING: Book-Keeping is concerned with the techniques of recording the financial data, classifying the recorded items of information, and summarizing them in the form of financial statements. It is essentially clerical in nature. ACCOUNTANCY: Accountancy is the application of accounting concepts, methods and techniques to the practice of accounting..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING AS AN INFORMATION SYSTEM..Accounting acts as an information system as it containsthree activities

INPUT: Recording data of business activities and transactions. PROCESSING OF INPUT: Recorded data are stored and processed OUTPUT: Stored and processed data is communicated to users and decision-makers in the form of statements, reports etc..

MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

USERS OF ACCOUNTING INFORMATION.accounting information is based on Doctrine of Truthand Correctness MANAGEMENT: For Planning, Control , Performance Measurement and Decision-Making. USERS WITH DIRECT FINANCIAL INTEREST: Such as; Existing and Potential Investors and Creditors USERS WITH INDIRECT FINANCIAL INTEREST: Such as; Taxation Authorities, Governmental and Regulatory AuthoritiesMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING AS THE LANGUAGE OF BUSINESS

It has been rightly said by many professionals thatAccounting is the Language of Business as it actsas a means of communicating information about abusiness.. MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)..

Financial Accounting follows a set of ground rules ofaccounting principles in presenting financialinformation which are generally known as GenerallyAccepted Accounting Principles.. Accounting Principles are those concepts,rules and conventions that are followed in accounting..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING CONCEPTS Accounting Concepts are the necessaryassumptions upon which accounting is based ENTITY CONCEPT GOING CONCERN CONCEPT MONEY MEASUREMENT CONCEPT COST CONCEPT DUAL ASPECT CONCEPT ACCOUNTING PERIOD CONCEPT MATCHING CONCEPT


ACCOUNTING CONVENTIONS. Accounting Conventions signify customs ortraditions that guide in the preparation of accountingstandards

CONVENTION OF CONSISTENCY CONVENTION OF CONSERVATISM CONVENTION OF MATERIALITY CONVENTION OF FULL DISCLOSUREMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING EQUATION..Assets=Equities Where;Assets are the resources owned by a business.Equities are the claims of various parties against theseassets. Equities are of two types viz; Capital and Liabilities Alternatively,Assets=Capital + Liabilities Where;Capital represents the claims of the owners of thebusiness on its assetsLiabilities are the claims of outsiders on the assets ofthe business.


ILLUSTRATION 1.1 From the following information,compute the assets of Mr. AdilLiabilities= $ 4400Capital= $ 5100Solution:Computation of Assets of Mr. Adil..Assets=Capital + LiabilitiesWhere; Capital= $ 5100 & Liabilities= $ 4400Therefore, Assets= 5100+4400= $ 9500


ILLUSTRATION 1.2..Information;Liabilities= $ 3600Capital= $ 9000 From the above information, you arerequired to compute Equities of Mr. Faizan.Solution:Equities= Capital + LiabilitiesWhere; Capital= $ 9000 & Liabilities= $ 3600Therefore, Equities= 9000 + 3600 = $ 12600MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

TYPES OF ACCOUNTANTS.

PUBLIC ACCOUNTANTS: Practise in companies and individually offer their professional services to the public. E.g; Chartered Accountants.. PRIVATE ACCOUNTANTS: Working for private enterprises. Private enterprises include; Manufacturers, wholesalers. GOVERNMENTAL ACCOUNTANTS: Accountants employed by Union, State and Local GovernmentsMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

CONCEPT OF DOUBLE ENTRY SYSTEM.

Double Entry System is based on theassumption that there are two aspects to every businesstransaction. There is the expense on the one hand, andan increase in assets or decrease in liabilities on theother.Equal Debits and CreditsMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

CONCEPT OF DEBIT AND CREDIT

DEBIT: The left hand side of any account is called the Debit side and is abbreviated as Dr. The act of recording a debit in an account is called Debiting.

CREDIT: The right hand side of any account is called the Credit side and is abbreviated as Cr. The act of recording a credit in an account is called Crediting..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING TREATMENT OF DEBIT & CREDIT..

For any Asset. Debit means increase.. Credit means decrease.. For Capital or any Liability Account.. Debit means decrease. Credit means increase.. For any Expense Account. Debit means increase. Credit means decrease. For any Revenue Account Debit means decrease.. Credit means increase.


T- ACCOUNT..


TYPES OF ACCOUNTSThere are three types of Accounts: PERSONAL ACCOUNTS: Include; Debtors A/c, Creditors A/c, Bank A/c, Interest Prepaid A/c, Salary Outstanding A/c, Interest Paid in Advance A/c etc. REAL ACCOUNTS: Real accounts are of things (tangible or intangible) and include; Furniture A/c, Cash A/c, Goodwill A/c, Machinery A/c etc. NOMINAL ACCOUNTS: Nominal accounts are accounts which are related to expenses and incomes and include; Wages A/c, Discount a/c, Rent A/c etcMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

RULES OF DEBIT AND CREDIT..PERSONAL ACCOUNT REAL ACCOUNT NOMINAL ACCOUNT DEBIT THE RECEIVER DEBIT WHAT COMES IN DEBIT THE EXPENSE & LOSS CREDIT THE GIVER CREDIT WHAT GOES OUT CREDIT THE GAIN & INCOME


MEANING OF ASSETS

Asset means property of all kinds owned bya business In other words, we can say that, Assets arethe resources owned by a business..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

TYPES OF ASSETS.There are three types of assets:

FIXED ASSETS: Fixed assets are the assets, not for resale. E.g; land, building, plant, machinery etc CURRENT ASSETS: Current assets are those assets which are acquired with the intention of converting into cash during the normal business operations of the company. E.g; cash, inventories, bills receivables, debtors etc FICTITIOUS ASSETS: Fictitious assets are those assets which have no real value. E.g; Preliminary Expenses etcMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ILLUSTRATION 1.3From the following information, Compute Fixed Assets,Current Assets and Fictitious Assets of Mr. ZuhaibLand= $ 50000Cash= $ 36000Machinery= $ 33500Preliminary Expenses= $30000Inventories= $ 45500Bills Receivable= $ 14500Furniture= $ 96000MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

SOLUTION: Computation of Fixed Assets:Fixed Assets=Land + Machinery + Furniture =50000 + 33500 + 96000 = $ 179500 Computation of Current Assets:Current Assets= Cash + Inventories + Bills Receivable = 36000 + 45500 + 14500 = $ 96000 Computation of Fictitious Assets:Fictitious Assets= Preliminary Expenses = $ 30000 MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

MEANING OF LIABILITIES..

Liabilities are the claims of outsiders onthe asset of a firm The term Liabilities are used to denoteliabilities which a business owes and has to return..


TYPES OF LIABILITIES.There are two types of Liabilities:

FIXED LIABILITIES: Fixed liabilities are those liabilities that will not be due for a comparatively long time, usually more than one year.

CURRENT LIABILITIES: Current liabilities are those liabilities which will be due within a short time, usually one year or less.. E.g; Trade Creditors, Bills Payable etc.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

IMPORTANT TERMS

CAPITAL: Capital is a residual claim against the assets of the business after the liabilities are deducted. Any amount invested in business is called Capital. Also known as owners equity or net worth CAPITAL EXPENDITURE: Refers to the expenditure incurred for the purpose of obtaining a long-term advantage.. REVENUE EXPENDITURE: Refers to the expenditure whose benefit expires within a year DRAWINGS: Drawings means withdrawal of goods or cash from the business by the owner for personal use (contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

IMPORTANT TERMS (CONTD)

INSOLVENT: Insolvent is a person who is not in a position to pay his debts. BAD DEBT: Bad debt is the amount not received from a debtor on account of his inability to pay his debt.. WORKING CAPITAL: Working capital means funds available for day-to-day work of the enterprise. Working Capital is calculated by the excess of current assets over current liabilitiesMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ILLUSTRATION 1.4..Calculate the working capital of Mr. Reyan, if he hascurrent assets of $ 55000 and has current liabilitiesof $ 33000.Solution:Calculation of Working Capital of Mr. Reyan:Working Capital= Current Assets Current LiabilitiesWhere; Current Assets= $ 55000 Current Liabilities= $ 33000Therefore, working capital= 55000 - 33000= $ 22000


ILLUSTRATION 1.5..The following is the Balance-sheet of Rather MedicosLiabilities Amount ($) Assets Amount ($)Capital 30000 Land 15000Creditors 45000 Cash 63000Bills Payable 40000 Inventories 37000Total 115000 Total 115000 From the above information, you arerequired to calculate the working capital of RatherMedicos.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

SOLUTION:Computation of Working Capital of Rather Medicos:Working Capital= Current Assets Current LiabilitiesWhere; Current assets= Cash + Inventories = 63000 + 37000 = $ 100000Current Liabilities= Creditors + Bills Payable = 45000 + 45000= $ 90000Therefore, Working Capital= 100000 90000 = $ 10000Capital not recorded as it is not a current liability. Land not recorded as it is a fixed asset..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

THANKYOU

MR. AAQIB HUSSAIN RATHERDELINA BARAMULLAMASTER OF COMMERCE (M.COM, NET)MOBILE: 9906710947EMAIL: [email protected]

UNIT- II

Accounting Standards- Meaning; Accounting Standards issued byInstitute of Chartered Accountants of India (ICAI);AccountingProcess- Meaning and Steps; Journal- Meaning and types;Ledger- Meaning; Ledger Posting- Meaning; Trial Balance-Meaning; Types of errors in trial balance; Suspense Account

MEANING OF ACCOUNTING STANDARDS.

Accounting standards are required tomake the financial information more useful.

Accounting Standards serve as aguidance which is followed while preparing financialStatements..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING STANDARDS ISSUED BY INDIAN INSTITUTE OF CHARTERED ACCOUNTANTS (ICAI).. AS- 1: DISCLOSURE OF ACCOUNTING POLICIES AS- 2: VALUATION OF INVENTORIES AS- 3: CASH FLOW STATEMENT AS- 4: CONTIGENCIES & EVENTS OCCURING AFTER THE BALANCE-SHEET DATE AS- 5: NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES AS- 6: DEPRECIATION ACCOUNTING AS-7 (REVISED): CONSTRUCTION CONTRACTS (Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING STANDARDS ISSUED BY INDIAN INSTITUTE OF CHARTERED ACCOUNTANTS (ICAI)..(Contd) AS- 8: WITHDRAWN & INCLUDED IN AS- 26 AS- 9: REVENUE RECOGNITION AS- 10: ACCOUNTING FOR FIXED ASSETS AS- 11(REVISED 2003): THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES AS- 12: ACCOUNTING FOR GOVERNMENT GRANTS AS- 13: ACCOUNTING FOR INVESTMENTS AS- 14: ACCOUNTING FOR AMALGAMATIONS AS-15 (REVISED 2005): EMPLOYEE BENEFITS (Contd)


ACCOUNTING STANDARDS ISSUED BY INDIAN INSTITUTE OF CHARTERED ACCOUNTANTS (ICAI)..(Contd) AS- 16: BORROWING COSTS AS- 17: SEGMENT REPORTING AS- 18: RELATED PARTY DISCLOSURES AS- 19: LEASES AS- 20: EARNING PER SHARES AS- 21: CONSOLIDATED FINANCIAL STATEMENTS AS- 22: ACCOUNTING FOR TAXES ON INCOME AS- 23: ACCOUNTING FOR INVESTMENT IN ASSOCIATES IN FINANCIAL STATEMENTS (Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING STANDARDS ISSUED BY INDIAN INSTITUTE OF CHARTERED ACCOUNTANTS (ICAI)..(Contd) AS- 24: DISCONTINUING OPERATIONS AS- 25: INTERIM FINANCIAL REPORTING AS- 26: INTANGIBLE ASSETS AS- 27: FINANCIAL REPORTING OF INTEREST IN JOINT VENTURES AS- 28: IMPAIRMENT OF ASSETS AS- 29: PROVISIONS, CONTIGENT LIABILITIES & CONTIGENT ASSETS AS- 30: FINANCIAL INSTRUMENTS RECOGNITION & MEASUREMENT (Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING STANDARDS ISSUED BY INDIAN INSTITUTE OF CHARTERED ACCOUNTANTS (ICAI)..(Contd)

AS- 31: FINANCIAL INSTRUMENTS-PRESENTATION AS- 32: FINANCIAL INSTRUMENTS-DISCLOSURESMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

MEANING OF ACCOUNTING PROCESS.

Accounting Process involves an entiresequence of accounting procedures which are repeatedin the same order for every different accountingperiod...MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING PROCESS.


STEPS IN ACCOUNTING PROCESS..

DOCUMENTING THE TRANSACTIONS CLASSIFYING THE TRANSACTIONS RECORDING THE TRANSACTIONS POSTING THE TRANSACTIONS SUMMARIZING THE TRANSACTIONS INTERPRETING THE TRANSACTIONSMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

MEANING OF JOURNAL. Journal is a preliminary book to keep achronological record of transactions in which eachtransaction is noted down in its entirely..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

TYPES OF JOURNALThere are two types of Journal: General Journal Special Journal Special Journal is divided into seven categoriesPurchase Book Sales Book Purchase Return Book Sales Return Book Bills Receivable BookBills Payable Book Cash Book


MEANING OF LEDGER & LEDGER POSTING..

LEDGER: Ledger is a set of accounts. Ledger is the book which contains the various accounts.

LEDGER POSTING: Ledger Posting is the process of transferring the debits from the journal to the proper ledger account.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

CONCEPT OF TRIAL BALANCE..

In the double entry system, the debits must beequal to credits. The sum of all debits must be equal tothe sum of all credits. This proof of the equality of thetotals of the debit and credit balances is called atrial Balance..


MORE ON TRIAL BALANCE A Trial Balance is prepared as a two- columnschedule listing the names and balances of all theaccounts in the order that they appear in theledger. Debit Balances are listed in the left column and the Credit Balances in the right column. The total of the two columns should tally..


TYPES OF ERRORS IN TRIAL BALANCE..There are two types of Errors in Trial Balance:


DEFINITIONS Errors of Omission: if a transaction has not been entered in the books of accounts either wholly or partially, it is known as ERROR OF OMISSION. Errors of Commission: Refers to a transaction being incorrectly recorded in the journal or inaccurately posted in the ledger.. Errors of Principle: Arise when some fundamental principles of sound accountancy are not strictly adhered to in recording a transaction. Compensating Errors: Arise when two or more errors exactly nullify the effect of one another..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ILLUSTRATION 2.1..

From the following information, you are required toprepare the trial balance of Faizan Bros for the yearending 31st March 2013.Sales= $ 350000Cash= $ 300000Capital= $ 400000Purchases = $ 450000


SOLUTIONNote: In trial Balance, debit balance and credit balanceshould tally..Preparation of Trial Balance of Faizan Bros for theyear ending 31st March 2013Particulars Dr ($) Cr ($) Sales --- 350000Cash 300000 -----Capital --- 400000Purchases 450000 -----Total ($) 750000 750000


CONCEPT OF SUSPENSE ACCOUNT.. If the error in the trial balance is notlocated, then to avoid delaying the preparation of thefinal accounts, the difference is to put to a suspenseaccount The suspense account is debited if thedebit side is short and credited for a short credit sideBalance Suspense Account is an accountwhich is opened to avoid delay in the preparation of finalaccounts.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ILLUSTRATION 2.2.The books of Rather Medicos Inc. did not agree. Theaccountant put the difference in a suspense account.Rectify the following errors and prepare the suspenseaccount.A purchase of $ 4000 from Umair has been entered in the sales book. However, Umairs account has been correctly credited. A sale of $ 4300 to Abid has been credited in his account as $ 3400.. A sale of $ 2960 to Kifayat has been entered in the sales book as $ 2690..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

SOLUTION..Journal of Rather Medicos.


THANKYOU


UNIT- III

Financial Statements- Meaning and Components; Accounting Treatment of Trading Account, Profit & Loss Account and Balance - Sheet; Aaqibs 3-Equation Model of COGS; DifferenceBetween Trial Balance & Balance- Sheet ; Types of BusinessTransactions..

MEANING OF FINANCIAL STATEMENTS Financial Statements refer to Profit & LossAccount, Balance-Sheet and Statement of Changes inFinancial PositionAlternatively; Financial Statements generally refer to theProfit & Loss Account and Balance-Sheet. However, itmay include the Statement of Changes in FinancialPosition, the Statement of Retained Earnings andothers.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

COMPONENTS OF FINANCIAL STATEMENTS..

(Contd)


COMPONENTS OF FINANCIAL STATEMENTS..(Contd)There are three components of Financial Statements: TRADING ACCOUNT: Trading Account is the part of Profit & Loss Account. It is designed to show the gross profit or loss for a specified period. PROFIT & LOSS ACCOUNT: Profit & Loss Account is designed to arrive at the final i.e; net profit or loss corresponding to a certain period BALANCE-SHEET: Balance-Sheet is a statement which is prepared to show the financial position of businessMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING TREATMENT OF TRADING ACCOUNTParticularsAmount ($)ParticularsAmount ($)To Opening stockXXXBy Sales (less Returns)XXXTo Purchases (less Returns)XXXBy Closing StockXXXTo Direct ExpensesXXXBy Gross Loss (B.f*)XXXTo Gross Profit (b.f *)XXX TotalXXX TotalXXX

Note: B.F*. Balancing Figure or Calculating figure.


ILLUSTRATION 3.1The following is the information of Rather FruitCorporation, DelinaStock as on 1st Jan 2011.. Rs. 5 LacsStock as on 31st Dec 2011.. Rs. 7 LacsPurchases.. Rs. 3 LacsSales.. Rs. 6.50 LacsPurchase Returns.. Rs. 1 LacsSales Returns. Rs. 0.50 LacsDirect Expenses. Rs. 0.70 Lacs From the following information, you arerequired to Prepare Trading Account of Rather FruitCorporation for the year ending 31st December 2011 MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

SOLUTIONParticularsAmountRs. In LacsParticularsAmountRs. In Lacs

To Opening stock5By Sales 6.50To purchases 7Less: Returns 0.506Less: Returns 16By Closing stock7To Direct Expenses0.70To Gross Profit (b.f*)1.30 Total13 Total13

Therefore, Gross Profit of Rather Fruit Corporation is Rs. 1.30 Lacs


ACCOUNTING TREATMENT OF PROFIT & LOSS ACCOUNT..ParticularsAmount ($)ParticularsAmount ($)To SalariesXXXBy Gross ProfitXXXTo Rent, Rates & RepairsXXXBy Interest ReceivedXXXTo Bank ChargesXXXBy Discount ReceivedXXXTo Audit FeesXXXBy Commission ReceivedXXXTo Carriage OutwardXXXBy Net Loss (b.f*)XXXTo Lighting & StationryXXXTo InsuranceXXXTo PostageXXXTo Discount AllowedXXXTo Provisin for baddebtXXXTo Dep & AdvertisingXXXTo Net Profit (b.f*)XXX TotalXXX TotalXXX


ILLUSTRATION 3.2..From the following information, you are required toprepare Profit & Loss Account of JK Trolleys Pvt. Ltd..Gross Profit Rs. 1.30 LacsInterest, Discount & Commission Received are Rs. .30,Rs. 0.20 and Rs. 0.2o respectively.Salaries. Rs. 0.10; Rent, Rates and Repairs. Rs. 0.15;Bank Charges. Rs. 0.05; Audit fees. Rs. 0.15;Carriage outward. Rs. 0.07; Lighting & Stationary Rs.0.08; Discount allowed. Rs. 0.21; Provision for BadDebts.. Rs. 0.12..


SOLUTIONParticularsAmount (Rs. In Lacs)ParticularsAmount (Rs. In Lacs)To Salaries0.10By Gross Profit1.30To Rent, Rates & Repairs0.15By Interest Received0.30To Bank Charges0.05By Discount Received0.20To Audit Fees0.15By Commission Recivd0.20To Carriage Outward0.07To Lighting & Stationary0.08To Discount Allowed0.21To Provision for Baddebt0.12To Net Profit (b.f*)1.07 Total2.00 Total2.00

Therefore, Net Profit of JK Trolleys Pvt Ltd is Rs. 1.07 lacs


ACCOUNTING TREATMENT OF BALANCE-SHEET.LiabilitiesAmount ($)AssetsAmount ($)Owners EquityXXXMachineryXXXLoanXXXBuildingXXXBank OverdraftXXXLandXXXCreditorsXXXFurnitureXXXBills PayableXXXStockXXXOutstanding ExpensesXXXCash and BankXXXDebtorsXXX TotalXXX TotalXXX


ILLUSTRATION 3.3The following is the information of Jamkash VehicleadsPvt Ltd.Cash.. Rs. 55000 ; Land & Building.. Rs. 90000Stock. Rs. 10000 ; Debtors. Rs. 50000Capital. Rs. 100000 ; Net Profit. Rs. 15000Drawings. Rs.10000 ; Loan. Rs. 20000Outstanding Expenses. Rs. 5000 ; Creditors.Rs. 35000Bank Overdraft Rs. 10000 ; Bills Payable Rs. 30000 From the above information, you arerequired to prepare Balance-Sheet of JamkashVehicleads Pvt Ltd for the year ending 31st Mar 2013


SOLUTION.LiabilitiesAmount (Rs)AssetsAmount (Rs)Owners Equity:Land & Building90000Capital 100000Stock10000Add: Profit 15000Cash55000Less: Drawings 10000105000Debtors50000Loan20000Bank Overdraft10000Creditors35000Bills Payable30000Outstanding Expenses5000Total205000Total205000


AAQIBS 3- EQUATION MODEL OF COGS.

Gross Profit= Sales COGSOrSales= Gross Profit + COGS

COGS= Opening Stock+Purchases+Direct Expenses-Closing StockMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ILLUSTRATION 3.4 The following is the Trading Account of RatherStationary Pvt Ltd. For the year ending 31st March 2013

From the above information, you are required tocompute Cost of Goods Sold (COGS) for the year ending31st March 2013..(Using Aaqibs 3-equation Model)ParticularsAmount (Rs)ParticularsAmount (Rs)To Opening Stock5000By Sales10000To Purchases3000By Closing Stock6000To Direct Expenses6000To Gross Profit2000Total16000Total16000


SOLUTIONComputation of COGS through Aaqibs 3- Equation Model:Equation-1: Gross Profit=Sales-COGS 2000= 10000-COGS 2000-10000=-COGS -8000=-COGS {Cancel Negative (-) Signs}Therefore, COGS= Rs. 8000Equation-2: Sales=Gross Profit-COGS 10000=2000-COGS 10000-2000= COGSTherefore, COGS= Rs. 8000Equation-3: COGS=Opening Stock+Purchases+Direct Expenses-Closing Stock = 5000+3000+6000-6000 = 8000Therefore, COGS= Rs. 8000


DIFFERENCE BETWEEN TRIAL BALANCE & BALANCE-SHEET.

Trial Balance is the total of all debit balancesand credit balances of accounts. If both, total of debitand credit are equal, it means there exists no error.. Balance-Sheet is a financial statement whichshows the position of assets and liabilities of thecompany at the end of the yearMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

TYPES OF BUSINESS TRANSACTIONS..

(Contd)


TYPES OF BUSINESS TRANSACTIONS.. (CONTD)There are two types of transactions:1. CAPITAL TRANSACTIONS: Capital Transactions are those transactions which affect the business more permanently in that their effect subsists into the future accounting periods This includes.. Capital Expenditure: Capital expenditure comprises such expenditure, the benefit of which is not fully consumed in the present accounting period but spreads over several years.. E.g; Cost of Freehold Land and Building, cost of Goodwill, Cost of Lease Acquired, Cost of Plant, Machinery, Tools and Furniture etc(Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

TYPES OF BUSINESS TRANSACTIONS.(CONTD) Capital Receipts: Capital Receipts refer to money received by an enterprise for the purpose of establishing, expanding or modernizing the business2. REVENUE TRANSACTIONS: Revenue Transactions are those transactions which are generally limited to the current accounting periods. This includes Revenue Expenditure: Revenue expenditure refers to the expenditure in one accounting period and the full benefit of which is also consumed in the same period.... E.g; Expenses incurred in the normal course of business (Administration expenses), Expenses incurred to maintain business (Repairs to Assets), cost of Raw Materials Purchased etc.. (Contd)


TYPES OF BUSINESS TRANSACTIONS.(CONTD) Revenue Receipts: Revenue Receipts refer to any income or gain that arises from the use of the assets of a business E.g; Sale Proceeds, Interest on Bank Deposits or Government Securities etc..

DEFERRED REVENUE EXPENDITURE.. Deferred Revenue Expenditure relates to a heavy expenditure of a revenue nature that is incurred with a view to securing benefits over a number of years

Examples: Preliminary Expenses; Brokerage paid on the issue of new shares and debentures; Heavy Advertisement Projects and Compaigns; Research & Development Expenses etc


THANKYOU


UNIT- IV

Depreciation- Meaning, Characteristics and Causes; DepreciationAccounting- Meaning & Objectives;Determinants of DepreciationCharge; Methods of calculating Depreciation Amounts;Accounting Treatment of Depreciation under Straight-Line,Diminishing - Balance & Machine Hour Method ; Difference between Straight Line Method & Diminishing-Balance Method; Difference between Depreciation, Depletion & Amortization; Concept of Replacement Cost; Concept of Accelerated Rate ofDepreciation.

MEANING OF DEPRECIATION..

Depreciation means a reduction in thevalue of a fixed asset owing to factors as wear and tear orobsolescence.. Depreciation is the process of allocatingthe cost of a fixed asset over the period during whichservice is received from it..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

CHARACTERISTICS OF DEPRECIATION Depreciation is an expense for the use of an asset in the normal course of a business. Depreciation is not to be understood simply as the process of valuation of an asset. Rather, it is the process of allocation of the cost of the asset over the period of its expected life. The basis of depreciation is the cost price and not the replacement price of the asset.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

CAUSES OF DEPRECIATION..

Wear and tear of the asset on account of constant use as is the case of plant and machinery, furniture and fixtures used in a factory Exhaustion of the asset through working. Obsolescence due to technological changes and new inventions Accident of the asset, causing a decrease in its value Efflux of time,causing of a fall in the value of an asset.. Growing inadequacy of the asset in meeting the firms requirements.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

MEANING OF DEPRECIATION ACCOUNTING

The American Institute of Certified Public Accountants (AICPA) in its Accounting Research Bulletin states that. Depreciation Accounting is a system of accounting, which aims to distribute the cost or other basic value of tangible capital assets less salvage (if any), over the estimated useful life of the unit in a systematic and rational manner. It is a process of allocation, not a valuationMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

OBJECTIVES OF DEPRECIATION ACCOUNTING

To arrive at the current amount of net profit or loss for a period, after deducting depreciation, being the expense for the use of fixed assets during the period To show assets at their current value, after deducting the charged depreciation from the original cost.. To provide for the replacement of an asset. The charge of depreciation saves profit from being distributed, which money could be utilized for the purchase of a new asset at the end of its life.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

DETERMINANTS OF DEPRECIATION CHARGE.

The actual cost of the asset, including all incidental costs.. The residual or scrap value representing the estimated amount likely to be recovered from it at the time of its sale or disposal. The estimated useful life of an asset in terms of years over which the cost is to be spreadMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

METHODS OF CALCULATING DEPRECIATION AMOUNTS

(Contd)


METHODS OF CALCULATING DEPRECIATION AMOUNTS (CONTD)1. STRAIGHT-LINE METHOD: Also known as Fixed Percentage on Original Cost MethodIn this Method, an appropriate percentage of original cost is written off the asset every year2. DIMINISHING-BALANCE METHOD: In this method, the rate of depreciation is fixed, but it applies to the value at which the asset stands in the books in the beginning of the year3. SUM OF YEARS DIGIT METHOD: In this method, the amount of depreciation charged goes on decreasing in the coming years. However, depreciation is charged by means of differing periodic rates. (Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

METHODS OF CALCULATING DEPRECIATION AMOUNTS (CONTD)4. ANNUITY METHOD: Annuity Method is based on the assumption that the capital sunk in the asset, if invested elsewhere, would have earned interest. Therefore, the amount of total depreciation is calculated at the rate on the cost of the asset plus interest thereon..5. SINKING FUND METHOD: Sinking Fund Method combines the benefits of depreciating the asset as well as accumulating funds for its replacement..6. REVALUATION METHOD: Revaluation Method involves a periodic valuation of assets, the fall in their value being treated as depreciation. It is mainly used for depreciation of loose tools, patents etc. (Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

METHODS OF CALCULATING DEPRECIATION AMOUNTS (CONTD)7. DEPLETION METHOD: Depletion Method is employed for mineral resources, natural resources and timber stands. Such resources deplete due to extrapolation8. INSURANCE POLICY METHOD: Under this method, an insurance policy is taken for the asset concerned and the amount of policy is such that it will be sufficient to replace the asset after its life. The amount equal to amount of depreciation is paid by way of premium each year9. MACHINE HOUR METHOD: In this method, depreciation is charged according to hours used.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

ACCOUNTING TREATMENT OF DEPRECIATION UNDER STRAIGHT LINE, DIMINISHING BALANCE & MACHINE HOUR METHODSTRAIGHT LINE METHOD

DIMINISHING BALANCE METHOD

MACHINE HOUR METHOD


ILLUSTRATION 4.1. A Machine is purchased for $ 170000 withinstallation charges of $ 40000 and estimated scrapvalue of $ 10000. The Machine has an estimated life of 10years. Compute the Annual Depreciation ofMachine by using Straight Line Method..SOLUTION:

Therefore, Annual Depreciation is $ 20000


ILLUSTRATION 4.2.. Compute annual Depreciation by using MachineHour Method, if the cost of asset is $ 450000, its scrapvalue is $ 55000. The estimated number of hours is 300hours.SOLUTION:

Therefore, Annual Depreciation is $ 1317 (Approx)


DIFFERENCE BETWEEN STRAIGHT-LINE METHOD & DIMINISHING-BALANCE METHODS.NOSTRAIGHT-LINE METHODS.NODIMINISHING-BALANCE METHOD1.The amount of depreciation remains same throughout the life of the asset1.The amount of depreciation changes every year2.The overall charge for use of the asset goes on increasing due to fixed amount of depreciation including increasing cost of repairs year after year..2.The overall charge for use of the asset almost remains the same every year


DIFFERENCE BETWEEN DEPRECIATION, DEPLETION & AMORTIZATION DEPRECIATION: Depreciation is the process of allocation of cost of a fixed asset over the periods in which asset is used.. DEPLETION: The word Depletion is used when we allocate the cost of some wasting assets or natural resources such as mines, oil wells, timber trees etc AMORTIZATION: The term Amortization refers to the process of writing down the intangible assets such as goodwill, patents etc. over their useful life..MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

CONCEPT OF REPLACEMENT COST.. Replacement Cost is the cost at which an asset can be replaced on a given date In the periods of rising prices or inflation, the funds required for replacement of an asset is much more than the original cost. So, it is advocated to charge depreciation on replacement cost instead of original cost

CONCEPT OF ACCELERATED RATE OF DEPRECIATION.. Accelerated Rate of Depreciation is the rate of depreciation which comprises a normal depreciation rate as well as an additional rate of depreciation sustained by the asset depreciated


IMPORTANT CONCEPTS.

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UNIT- VSingle Entry System - Meaning, Sailent Features & Limitations;Methods of Single Entry; Statement of Affairs & ConversionMethod of Ascertaining Profit; Accounting Treatment of Profitor Loss; Difference between Balance - Sheet & Statement ofAffairs; Double Entry System vs Single Entry System; Receipts & Payments Account- Meaning & Features; Income & ExpenditureAccount Meaning & Features; Difference between Receipts &Payments account and Income & Expenditure account.

MEANING OF SINGLE ENTRY SYSTEM

Single Entry System is a system of bookkeeping in which as a rule only records of cash and ofpersonal accounts are maintained; it is always incomplete double entry, varying with circumstancesMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

SAILENT FEATURES OF SINGLE ENTRY SYSTEM. Usually under Single Entry system, only personal accounts are maintained.. Under Single Entry System, a cash book is maintained.Single Entry System is suitable for small firms, sole proprietary firms or partnership firms. Single Entry System is dependent on original vouchers. The necessary information is collected by using original voucher.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

LIMITATIONS OF SINGLE ENTRY SYSTEM. As the Single Entry system ignores dual aspect of every transaction, a trial balance cannot be prepared owing to lack of double entries. Thus, the arithmetical accuracy of records cannot be verified and ensured.. The possibility of fraud and misappropriation is high.......... Any information derived from a Single Entry System cannot be free from doubt.. Single Entry System fails to inspire the confidence of outsiders in the business. This might pose problems at the time of sale of businessMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

METHODS OF SINGLE ENTRY..

(Contd)


METHODS OF SINGLE ENTRY (CONTD)There are three methods of Single Entry:PURE SINGLE ENTRY: This method maintains only the personal accounts leaving unrecorded all real and nominal accounts. It ignores the dual aspect of each transaction. SIMPLE SINGLE ENTRY: This method maintains the cash book in addition to the personal accounts. COMMONLY PRACTISED SINGLE ENTRY: In this method, the cash book, personal accounts and some subsidiary books are kept.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

METHODS OF ASCERTAINING PROFIT.

(Contd)


STATEMENT OF AFFAIRS METHOD..(CONTD) Under Statement of Affairs Method, the profit orloss of the business can be arrived at by comparing theopening capital with the closing capital. For this, statements known as Statement of Affairs should be prepared A Statement of affairs is a sort of balance-sheet prepared under the single entry system, showingthe assets and liabilities as on a particular dateRequired Adjustments for Determination of the Profit.Adjustment for Drawings; Adjustment for Capital Introduced.. (Contd)


CONVERSION METHOD(CONTD) As the profit ascertained from the statementof affairs method cannot be highly accurate, it is advisableto convert the accounts to the double entry system. This would enable the profit and loss account and balance-sheet to be prepared as usual, and lead to reliable resultsProcedure to be followed.Preparation of opening Statement of Affairs; Analysis of Business Transactions; Analysis of cash Transactions; Identification of Omissions; Preparation of Total Debtors & Total Creditors..


ACCOUNTING TREATMENT OF PROFIT OR LOSS.

Statement of Profit & Loss (for the year)ParticularsAmount ($)A. Capital at the end of the yearXXXB. Add: Drawings made during the yearXXXC. Less: Capital introduced during the yearXXXD. Less: Capital in the beginning of the yearXXXE. Profit Earned / Loss Suffered during the year (A+B-C-D)XXX


ILLUSTRATION 5.1. From the following information, you are requiredto ascertain the profit or loss of Mr. Waseem for theyear ending 31st March 2013

Information:

Capital as on 01.04.2012= $ 500000; Capital as on 31.03.2013= $ 700000; Waseem has made drawings and introduced capital of $ 100000 and $ 200000 respectively during 2012-13.


SOLUTIONComputation of Profit earned or Loss Suffered of Mr. Waseem for the year ending 31st March 2013

Statement of Profit & Loss (for the year ending 31st March 2013)ParticularsAmount ($)A. Capital at the end of the year700000B. Add: Drawings made during the year100000C. Less: Capital introduced during the year200000D. Less: Capital in the beginning of the year500000E. Profit Earned / Loss Suffered during the year (A+B-C-D)100000

Therefore, Mr. Waseem has earned profit of $ 100000 during the year 2012-13


DIFFERENCE BETWEEN BALANCE-SHEET & STATEMENT OF AFFAIRS.S.NOBALANCE-SHEETS.NOSTATEMENT OF AFFAIRS1.The main aim of Balance-Sheet is to show the financial position of the business on a particular date..1.The main aim of Statement of Affairs is to ascertain the profit made by the business during a particular period..2.Balance-Sheet is prepared from trial balance and ledger accounts2.Statement of Affairs is prepared from ledger accounts and several other accounts3.Balance-Sheet is supposed to show the true financial position of the business.3.Statement of Affairs is not supposed to show the true position of the business4.Balance-Sheet can easily disclose the omission of assets and liabilities.4.Statement of Affairs cannot easily disclose the omission of assets and liabilities.


DIFFERENCE BETWEEN DOUBLE ENTRY SYSTEM AND SINGLE ENTRY SYSTEM..DOUBLE ENTRY SYSTEM Double Entry System is based on the assumptions and principles of accounting. Both the aspects (Debit and Credit) of a transaction are recorded and all types of accounts (Personal, Real and Nominal) are maintained..

SINGLE ENTRY SYSTEM

In Single Entry System, both the aspects of transactions are not recorded. Usually, cash and personal accounts are maintained..


RECEIPTS AND PAYMENTS ACCOUNT.. Receipts and Payments account is the summary of cash transactions both receipts and payments of the accounting period. Details of these may be found in the cash book.

FEATURES OF RECEIPTS AND PAYMENTS ACCOUNT.

It is a real account It begins with an opening balance on the debit side, representing the cash in hand or at bank Under Receipts and Payments Account, receipts are recorded on the debit side and payments are recorded on the credit side.. Receipts and Payments account ends with the closing balance. Debit would be cash and credit would be bank overdraft


INCOME AND EXPENDITURE ACCOUNT. Income and Expenditure Account is a revenue account of non-profit organizations, prepared on the lines of a profit and loss account of a trading concern. The balance of the account would denote a surplus or income over expenditure and vice-versa

FEATURES OF INCOME & EXPENDITURE ACCOUNT.. It is a nominal account.. It doesnot begin with any opening balance Only items of a revenue nature are dealt within it, those of a capital nature are excluded.. The debit side shows the expenditure and the credit side records the incomes..


DIFFERENCE BETWEEN RECEIPTS AND PAYMENTS ACCOUNT & INCOME AND EXPENDITURE ACCOUNT..S.NORECEIPTS & PAYMENTS ACCOUNTS.NOINCOME & EXPENDITURE ACCOUNT1.Receipts & Payments Account is a short form of cash book1.Income & Expenditure Account is the substitute of profit and loss account2.Receipts & Payments Account begins with the opening balance of cash in hand or at bank2.Income & Expenditure Account does not begins with any opening balance, but includes all incomes received or receivable for the current year.3.Receipts & Payments Account is a real account.3.Income & Expenditure Account is a nominal account..4. Receipts & Payments Account shows the closing cash or bank balance.4.Income & Expenditure Account shows an excess of income over expenditure and vice-versa..


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UNIT- VI

Inventory- Concept; Methods of Inventory Valuation;Inventory Control- Concept, Procedure and Techniques; Inventory Systems; Determination of EOQ

CONCEPT OF INVENTORY. The American Institute of Certified PublicAccountants (AICPA) defines Inventory as.

Inventory designates the aggregate items of tangiblepersonal property which are held for sale in the ordinarycourse of business.. Items like jigs, tools component partsetc. are included in inventory


METHODS OF INVENTORY VALUATION

(Contd)


METHODS OF INVENTORY VALUATION(Contd)1. FirstIn-First-Out (FIFO) Method: This method assumes that the materials which are purchased first are the first to be issued for production..ADVANTAGES: Normal procedure is followed.. Based on present price conditions. Provides benefit of full recovery cost..DISADVANTAGES: Increase the possibility of clerical errors.. Not suitable in time of fluctuating prices.. (Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

METHODS OF INVENTORY VALUATION(Contd)2. Last- In- First- Out (LIFO) Method: This method operates on the assumption that the latest purchases are the first to be issued for production..ADVANTAGES: Considers current market conditions Reduces the burden of Income TaxDISADVANTAGES: Involves complicated calculations in calculating prices. Out- of- Date price.. (Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

METHODS OF INVENTORY VALUATION(Contd)3. Highest- In- First- Out (HIFO) Method: This method works on the principle that the most highly priced purchases would be the first to be utilized, regardless of the date of purchase.4. Specific Price Method: This method is relevant for job order production, which involves materials being purchased for individual jobs..5. Base Stock Method: This method assumes that a certain minimum stock of the material should be not issued for production except in conditions of emergency(Contd)MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

METHODS OF INVENTORY VALUATION(Contd)

6. Simple Average Method: This method involves the average of the varying prices, without regard to the quantities.7. Weighted Average Method: This method involves the multiplication of the purchased lots of materials with the respective prices paid for them, thereafter the average to be calculated on the total quantity of materials in handMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

CONCEPT OF INVENTORY CONTROL.Also known as Material Control

Inventory Control may be defined as the systematic control over the procurement, storage and usage of material so as to maintain even flow of materials and avoiding at the same time excessive investment in inventoriesMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

INVENTORY CONTROL PROCEDUREThe following are the steps involved in the procedure ofInventory Control:

Purchase of material; Receipt and Inspection of material; Storage of material; Issuing of material and Maintenance of Inventory Records.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

TECHNIQUES OF INVENTORY CONTROL..1. Inventory Levels: Also known as Level Setting. This technique seeks to avoid the twin danger of over- stocking and under-stocking. This includes; Maximum Level; Minimum Level; Re-Order Level and Danger Level2. Just- In- Time: Just- In- Time means inventories are received just-in-time to go into production.. Just-in-time reduces stock of inventories.(Contd)


TECHNIQUES OF INVENTORY CONTROL(CONTD)3. Economic Order Quantity (EOQ): Also known as Economic Lot Size . EOQ is that quantity or size of the order which gives maximum economy in purchasing any material. This includes; Ordering or Set-up Costs and Carrying or Holding Costs Since, there is a trade-off between ordering costs and carrying costs; it is known as Trade- Off Model of Inventory Control

(Contd)


TECHNIQUES OF INVENTORY CONTROL(CONTD)4. ABC: This is a selective technique of inventory control, which accords varying degrees of priority to different categories of items.. A- Items: Less in number but higher value ( Require greater supervision and care). B or C- Items: Require vigilance5. Two- Bin System: In this system, two bins are maintained. As soon as the materials of the first bin are exhausted, a new order is placed for the quantity of the first binMR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

INVENTORY SYSTEMS.There are two systems of Inventories viz; PeriodicalInventory System and Perpetual Inventory System

PERIODICAL INVENTORY SYSTEM: In Periodical Inventory System, inventory is counted only at the end of the specific period PERPETUAL INVENTORY SYSTEM: Also known as Continuous Inventory System. In Perpetual Inventory System, there is a continuous check on the inventory.MR. AAQIB RATHER (M.COM, NET), MOBILE: 9906710947EMAIL: [email protected]

DETERMINATION OF EOQ From the following information, you are required tocompute Economic Order Quantity (EOQ).Annual Demand. 10,000 unitsOrdering Cost.. Rs. 100 per orderCarrying Cost Rs. 6 per unit SOLUTION: Computation of EOQ:


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