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Assignment and Case Studies of Accounts

This document provides explanations and definitions related to key accounting concepts and terms. It discusses the double entry system, rules of accounting, differences between real and nominal accounts, accounting assumptions like going concern and accrual, importance of bookkeeping, balance sheet contents, inventory valuation methods, differences between capital and revenue expenditures, importance of accounting for managers, factors considered in capital budgeting like future cash flows and payback period, and the formula for calculating weighted average cost of capital.

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Sachin Thakur
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188 views

Assignment and Case Studies of Accounts

This document provides explanations and definitions related to key accounting concepts and terms. It discusses the double entry system, rules of accounting, differences between real and nominal accounts, accounting assumptions like going concern and accrual, importance of bookkeeping, balance sheet contents, inventory valuation methods, differences between capital and revenue expenditures, importance of accounting for managers, factors considered in capital budgeting like future cash flows and payback period, and the formula for calculating weighted average cost of capital.

Uploaded by

Sachin Thakur
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment and case studies of Accounts

1. Explain Double entry System?


Answer:
In the double-entry system, transactions are recorded in terms of debits and credits. Since a
debit in one account offsets a credit in another, the sum of all debits must equal the sum of all
credits.

2. Explain three rules of accounting?


Answer:
Debit the receiver, credit the giver.
Debit what comes in, credit what goes out.
Debit all expenses and losses and credit all incomes and gains.

3. Distinguish between Real account and nominal account?


Answer:
A nominal account starts the next fiscal year with a zero balance, while a real account starts with
the ending balance from the prior period. A nominal account is also known as a temporary
account, while a real account is also known as a permanent account.

4. Explain going concern, accrual concern, constancy concern


Answer:
1] Going Concern
This assumption is based on the principle that while making the financial statements of an entity
we will assume that the company has no plans of winding up in the near future. So the
assumption is that the company will continue to exist indefinitely (far into the future), i.e. it will
keep on going.
2] Consistency
This assumption states that unless and until things are mentioned in the accounting policies,
procedures, standards, etc, Things that have been followed in accounting remains the same.
This allows for uniformity in the financial statements of a company over the years. It also
becomes easier to compare financial statements from the previous years, something that is
important to potential investors and other external stakeholders.
3] Accrual
Under this assumption, accounting transactions are recorded in the books of accounts when
they occur. This is known as the Mercantile System. So as opposed to the cash system, in accrual
concept, the revenue or expenditure is recognized in the year they are realized.

5. Why booking keeping is important and its advantages.


Answer
Bookkeeping records offer benefits that help you make smart business decisions. With
bookkeeping, you can identify money-making opportunities, avoid cash-flow problems, and find
ways to increase income or decrease spending.
6. Explain contends in balance sheet.
Answer
Contents of a balance sheet includes: fixed assets - long-term possessions. Current assets -
short-term possessions. Current liabilities - what the business owes and must repay in the short
term
7. How to make inventory valuation?
Answer
There are three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First
Out), and WAC (Weighted Average Cost). In FIFO, you assume that the first items purchased are
the first to leave the warehouse.
8. Difference between capital expenditure and revenue expenditure.
Answer
Capital expenditures are typically one-time large purchases of fixed assets that will be used for
revenue generation over a longer period. Revenue expenditures are the ongoing operating
expenses, which are short-term expenses used to run the daily business operations.

9. Give important points why account is important subject for managers.


Answer
Managerial accounting helps managers make operational decisions–intended to help increase
the company's operational efficiency–which also helps in making long-term investment
decisions.

10. What is capital budgeting and what factor we have to compute?


Answer
Capital budgeting usually involves calculation of each project's future accounting profit by
period, the cash flow by period, the present value of cash flows after considering time value of
money, the number of years it takes for a project's cash flow to pay back the initial cash
investment, an assessment of risk.

11. What is capital budgeting and what factor we have to compute?


Answer
The WACC formula is calculated by dividing the market value of the firm’s equity by the total
market value of the company’s equity and debt multiplied by the cost of equity multiplied by the
market value of the company’s debt by the total market value of the company’s equity and debt
multiplied by the cost of debt times 1 minus the corporate income tax rate.

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