FIN611 Official Handouts

Advanced Financial Accounting (Fin611) Table of Content

Lesson

No.

Title / Topic

Page No. Accounting For Incomplete Records (Single Entry)…………………………. Practicing Accounting For Incomplete Records …………………………...... Conversion of Single Entry in Double Entry Accounting System …………... Calculation of Missing Information (Single Entry) ………………………….. Calculation of Markup and Margin (Single Entry) ……………………….... Accounting System in Non-Profit Organizations …………………………. Accounting System in Non-Profit Organizations (Continued) Financial Statements of Non-Profit Organizations from Incomplete Records Departmental Accounts Departmental Accounts (Continued) & Introduction to Branch Accounting Branch Accounting System (Continued) Branch Accounting System (Continued) Branch Accounting - Stock and Debtor System …………………………….. Branch Accounting - Stock and Debtor System (continued) ………………... Branch Accounting System (Continued) Branch Accounting - Incorporation of Branch & Introduction to Partnership Account Essentials of Partnership …………………………………………………… Partnership Accounts (Continued) …………………………………………. Partnership Accounts (Continued) …………………………………………. Partnership Accounts (Continued) …………………………………………. Company Accounts ………………………………………………………… Company Accounts (Continued) …………………………………………… Company Accounts (Continued) …………………………………………… Company Accounts (Continued) …………………………………………… IASB’s Framework ………………………………………………………… Elements of Financial Statements ………………………………………….. IAS 10 – Events after the Balance Sheet Date ……………………………… IAS – 37 Provisions, Contingent Liabilities and Contingent Assets …………. IAS – 8 Accounting Policies, Changes In Accounting Estimates and Errors ... IAS – 8 Accounting Policies, Changes In Accounting Estimates and Errors ... IAS – 23 Borrowing Cost …………………………………………………... Excess of the Carrying Amount of the Qualifying Asset over Recoverable Amount IAS – 33 Earnings Per Share ……………………………………………….. IAS – 33 Earnings Per Share (Continued)…… ……………………………. . Diluted Earnings Per Share ………………………………………………… Group Accounts ……………………………………………………………. Group Accounts (Continued)……………………………………………….. Group Accounts (Continued)……………………………………………….. Group Accounts (Continued)……………………………………………….. Group Accounts (Continued)……………………………………………….. Group Accounts (Continued)……………………………………………….. Group Accounts (Continued)……………………………………………….. Group Accounts (Continued)……………………………………………….. Group Accounts (Continued)……………………………………………….. Group Accounts (Continued)……………………………………………….. (C) Copyright Virtual University of Pakistan 1.

Introduction · ACCOUNTING FOR INCOMPLETE RECORDS · LESSON # 1

This topic is also known as Single Entry System of Accounting. In this chapter we will learn how an accountant prepares financial statements of those organizations which are not keeping up proper double entry book keeping system of accounting. From accounting system stand point, business organizations can be classified into three broad categories:

1.1

Small scale business entities These consist of very small sized business entities like; barber shop, mutton shop, washer man, general store, electrician etc. etc.

1.2

Medium scale business entities These consist of medium sized business entities like; drycleaner, motor car dealers, house building contractors, schools etc. etc.

1.3

Large scale business entities These consist of large sized business entities like; importers/exporters, motor car manufactures, transporters etc. etc. Here it must be made clear that large scale business entities have these much resources with them that these can easily afford a systematic accounts department where they will be following the double entry book keeping system. Moreover, most of these concerns are incorporated bodies and these have to maintain systematic accounting records in order to fulfill requirements of the Companies Ordinance 1984 and International Financial Reporting Standards (IFRS).

2.

Accounting for Small scale business entities

Small scale business entities are often single owner organizations (Sole proprietorship). These are very small in size and cannot afford an accounts department in their organizations. They have a very little setup in which a sole trader is acting so many rolls; he/she is the sales manager, and also the purchase manager, also responsible for marketing and accounts matters as well. A sole proprietor is also concerned about financial performance (profitability) and financial position of the organization, which can make him/her able to take certain future decisions. Certain government agencies, like taxation department, also required to know about the require knowing profits of the organization. But as the sizes of the organizations are very small and these can hardly afford an accountant therefore a very simple accounting system is proposed for such organizations.

2.1

Accounting Records

These organizations do not have to keep any complex accounting records, these are directed by their accounts consultants (Qualified Accountants) to keep certain information relating to cash receipts (introduction of fresh capital) and payments (drawings) and also relating to the period end balances of assets and liabilities. As size of the transactions are very small therefore one can remember very easily what are the year end balances of loan taken or was there any addition or disposal of assets during (C) Copyright Virtual University of Pakistan the year. Finally the consultants prepare a statement of profit or loss for the period and also a balance sheet as on the closing date of such period.

2.2

Statement of Profit or Loss

As you have studied in your earlier courses that profit is an out come of the “Income Statement” that is prepared in a systematic way with the help of a trial balance extracted from the ledger. But over here in the absence of a trial balance, we are not able to prepare an Income Statement. Here we will see that where that profit goes within the financial statements, we finally find that the profit is added up in the Owner’s Equity, which appears like this: Rs. Owner’s Equity (opening balance) Add:

Net profit (for the year) Less: Drawings (during the year) Owner’s Equity (closing balance)

For small scale business entities, which are not preparing proper books of accounts and cannot extract a trial balance, the technique to calculate Net Profit will be to come other way round. To calculate Net Profit figure from the above equation one must know all other information that has to be put into it. Now the above equation will be reversed and Net Profit figure will be its out come and this equation is then named as the “Statement of Profit or Loss”.

Statement of Profit or Loss For the year ended December 31, 20x7 Rs. Owner’s Equity (closing balance) Add Drawings (during the year) Less Owner’s Equity (opening balance)

Net profit (for the year) [balancing figure]

2.3

From examination stand point, Drawings and Fresh capital will be given in the questions but often the students will be required to calculate the opening and closing balances of Owner’s Equity as these will not be given in the question as a single amount.