I.Com Part I Notes

Accounting Syllabus for I.com Part I 

Chapter No 1: Journal, Ledger, Trial and trial balance

Chapter No 3: Bill of exchange

Chapter no 3: Bank Reconciliation Statement

Chapter no 4: Final Account

Chapter no 5: Capital and Revenue

Chapter no 6: Rectification of error

Bill of exchange                                                                    Chapter no 2

Define bill of exchange?

“A bill of exchange is an instrument in writing containing an unconditional order by one person (seller) to another person (purchaser) signed by the both parties having fixed amount payable after fixed future Time.”

How many parties involves in bill of exchange?

There are three parties involve in bill of exchange

• Drawer
• Drawee
• Payee

Define drawer, drawee and payee?

• Drawer: the person who writes/draw the bill of exchange. He is the seller/Debtor.
• Drawee: the person to whom the bill is drawn
• Payee: the person who receives the amount of bill is called payee. He may be drawer, bank or endorsee.

Difference between inland bill and foreign bill

Inland bill are drawn in a country upon person same country.

Foreign bill is drawn in a drawn in one country and payable in another country.

Define promissory notes?

An instrument in writing containing an unconditional promise by the maker (purchaser) to pay a certain sum of money only to other person (seller) after fixed future time period.

How many parties involves in promissory notes?

They are two parties to a promissory note.

• The maker (purchaser)
• The payee (seller)

Tenor

Tenor is period of time after which a bill becomes payable, also called duration of bill.

How many kind of acceptance?

There are two types of acceptance

General acceptance when accept the bill without any condition.      

Qualified acceptance when accept is accept with condition/qualification (time, place).

Define bill receivable and bill payable?

When a bill is written then a bill from the view of drawer is bill receivable

When a bill is written then a bill form the view of drawee is called bill payable

Define grace days

It is customary to allow three days of grace to the drawee to pay the amount in the case of a term bill.

Holder of the Bill

Holder of a bill means that Drawer, Endorsee and bank whole is entitled to receive the payment on due date.

Define discounting a bill

If the holder of a bill is in need of money before the due date of bill he may sell it to the bank. The bank will give cash after deduction of some charges.

e.g A draw the bill on B, A is drawer and B is drawee. When A Discount the Bill form Bank is Called discounting of Bill.

Define the endorsement of a bill

Endorsement of the bill means when drawer transfer the bill to his creditor for settlement of debts.

A draw the bill on B, A is drawer and B is drawee. When A endorsee Bill to C. C is Endorsee.

When a bill become dishonored

When Drawee fail/refuse to make the payment on the due date is called dishonour of bill

e.g A draw the bill on B, A is drawer and B is drawee. When B Fail to Make the Payment is called Dishonoured of Bill.

Notary Public

Notary Public is an officer who maintains record of then Dishonour Bills.

Define noting charges

In case of bill dishonored the notary pubic will charge a small fee from the holder of the bill This fee is known as noting charges.

What is meant by retiring of a bill

Retiring a bill means making payment before of maturity of the bill

e.g A draw the bill on B, A is drawer and B is drawee. When B make the payment before date.

Define Trade Bill

Trade bill is drawn and accept on Credit purchase and sale of goods.

Define accommodation bill.

accommodation bill drawn to help or to accommodate someone for certain period.

Insolvency

Insolvency mean the on the due date of the bill, the person is unable to pay the whole the bill.

Renewal of bill

Drawee request the drawer to issue new bill with condition to cancel the old bill before due date by paying some interest.

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

·         This process start from credit sales

Sales account                          XXX                                       Purchases account       XXX

            Drawee account                      XXX                                   Drawer account               XXX

·         Now draw a bill

Bill receivable                         XXX                                       Drawer account             XXX

            Drawee account                      XXX                                       Bill Payable                             XXX

Here drawer has four options

1. Retain the bill till due date
2. Discounting the bill from bank
3. Bank for collection
4. Endorsement

1.Retain the bill till due date

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Cash account                                                                                       Bill payable

            Bill receivable                                                                                     Cash account

2.Discounting the bill from bank

Here make sure of  two things that first transaction is between bank and drawer because drawer discounted the bill from bank and then between bank and drawee

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Bank account                                                                                                   Bill receivable

Discount account                                                                                                         Cash a/c                      Bill receivable                                                                                              Discount a/c

                                                            Bill Payable                                         Cash account

                                                                        Cash account                                      Bill receivable

3.Bank for collection

Here case is different because you people are just giving the bill to bank for collection but not giving the possession of bill so following entries is passing

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Bank for collection                                                                                                  No entry

                        Bill receivable                                                                                    

When bank collect the bill just bank charges from that money

Bank account                                                  Bill payable                             Cash account

Bank charges                                                               Cash account                     Drawer account                 Bank for collection                                                                                         Bank charges

4.Endorsement         

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Endorsee

Endrosee a/c                                                                                        Bill receivable

            Bill receivable                                                                                                 Drawer a/c

                                                           

Bill payable account                          Cash account

                                                                        Cash account                                    Bill receivable

Journal entries for dishonored of bills

·         Retain the bill till due date

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Drawee account                                                                                  Bill payable

            Bill receivable                                                                                     Drawer account

·         Discounting the bill from bank

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Drawee account                                  Bill payable                                         Drawer account                       Bank account                                                Drawer account                                Bill receivable

·         Bank for collection

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Drawee account                                  Bill payable

Bank for collection                                   Drawer account                                   No entry

·         Endorsement      

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Endorsee

Drawee account                                  Bill payable                                         Drawer account           Endorsee account                                    Drawer account                                 Bill receivable

When noting charges are paid then only cash is shown in the accounts of party which has paid these charges so these entries in aspects of noting charges are as follow but these charges are received by drawee in future and drawee gives the name of trade expenses.

·         Retain the bill till due date

Here cash is paid by self because bill has been retained by drawer himself

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Drawee account                                                                                  Bill payable

Bill receivable                                                                         Trade Expenses     

Cash account                                                                                       Drawer account

·         Discounting the bill from bank

Here charges are paid by bank so

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Drawee account                                  Bill payable                                         Drawer account

Bank account                                      Trade expenses                                    Bill receivable

 Drawer account                                  Cash account

Bank for collection

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Bank

Drawee account                                  Bill payable

Bank for collection                                   Drawer account                                   No entry

·         Endorsement      

Drawer/Creditor/Seller         Drawee account/Debtor/Purchaser                         Endorsee

Drawee account                                  Bill payable                                         Drawer account           Endorsee accont                                    Drawer account                                 Bill receivable

When first time bill is drawn

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Drawee account                                                                                  Bill payable

            Bill receivable                                                                                     Drawer account

On request of drawee a new bill is drawn

Pass the journal entry for interest

            Drawee account                                                                      Interest or cash account

                        Interest or cash account                                                          Drawer account

Then pass here a simple journal entry as above

Drawee account                                                                                  Bill payable

            Bill receivable                                                                                     Drawer account

·         Retain the bill till due date

Drawer/Creditor/Seller                                                         Drawee account/Debtor/Purchaser

Cash account                                                                                       Bill payable

Rebate account                                                                                               Cash account

            Bill receivable                                                                                     Rebate account

Journal, Ledger and Trial balance                                                 Chapter No.1

What is accounting?

“Accounting is act of Recording, classifying, Summarizing and interpreting the monetary transactions in the books of accounts”

What is bookkeeping?

“Book keeping is the act of Recording Monetary transactions in the books of account.”

Define business?

Any legal activity undertaken for the purpose of earning profit is called business

e.g General Store, Book shop.

Define proprietor

“The owner of business who actually invest money in business.”

e.g Mr. ASAD started a business, Mr. ASAD is Proprietor of the business.

Define capital?

“Investment by the owner to Start the  business is Called Capital”

e.g Mr. ASAD started a business with Rs.100000, Rs. 100000 is his Capital.

What is drawing?

“The cash or goods taken away by the proprietor from the business for personal and private use is called drawings”

What is transaction?

“Any dealing between two or more persons is called transaction”

Mr. ASAD sales goods to Mr. Ishaq at certain price is called transaction between Mr.ASAD and Mr. Ishaq

Define double entry system?

“A system in which we consider both aspects (Dr and Cr) of transactions is Called Double Entry System.”

What is trade discount?

“A Trade discount is allowed by Seller to Purchaser on the list price/Retail price of goods

What is cash discount?

“Cash Discount is Deduction which is allowed by the seller to the purchaser at the time of Payment is called cash Discount.”

What is sale?

“The act of selling  goods or service at specific price to Customer is called sale”

e.g when books sold by book shop to students

Types of Sale

1.      Cash Sale

“The act of selling goods or services at specific price to Customer  on Cash is called Cash sale ”

2.      Credit Sale

The act of selling  goods or service at specific price to Customer on credit is called Credit Sales”

What is sale return/return inward?

“Sale Return Occurs when customers return defective, damaged, or otherwise undesirable goods to the seller”

What are purchases?

“When goods are purchased by business for selling purpose is called purchases”

 e.g books purchased by book shop for sales.

 Types of Purchases

3.      Cash Purchases

“When goods are purchased by business for selling purpose on Cash is called Cash Purchases”

4.      Credit Purchases

When goods are purchased by business for selling purpose on credit is called Credit Purchases”

What is purchases return/return outward?

“When Goods returned by Business to supplier due to any defect is called purchases return”

What is account?

“A summarized record of business transactions relating to a person or a thing.”

What are assets?

“Assets are Economic resources of business are called assets of business.”

 (Cash, Land, Building and Machinery)

Define liabilities?

“Any kind of debts of business is liabilities”

e.g (Bank Overdraft and Loan)

What is account equation?

“Assets = Liabilities + Capital (Owner’s Equity)”

Define debtors or Account Receivables?

“A Person who purchase good on credit from Business and has to Pay the Amount to business is Called Debtor, it is consider as assets of the business”

e.g Mr. B Purchased Goods from Business (Bookshop) for Rs. 10000, B is Debtors from Business Point of View.

Define creditors or Account Payable?

“A Person who sold the goods on credit to business and has to receive the Cash from business, it is consider as Liability of the business”

e.g Mr. A Sold Goods to Business for Rs. 10000, A is Creditors from Business Point of View.

What is commission?

“It is a form of remuneration for services rendered by one person to another”

What is difference between double entry system and single entry system?

“A system in which we follow two folded aspects (debit and credit) of entry is called double entry system one is debit (Dr) and other is credit (Cr)”

“A system in which we follow only one aspect (debit or credit) is called single entry system. It is only partial record of small business”

 What are dual aspect concepts?

“Dual aspect concepts may be stated as for every debit there is a credit, and for every credit there is a debit.”

How many kinds of account?

The two types of account

• Personal account
• Impersonal account
• Real account or property account
• Nominal account

What are personal accounts?

“Accounts relating to person or firms are called personal accounts.”

e.g Like ahmed account, bank alfalah.

What are real accounts?

“All those account which keep record of properties or things owned by a trader are called real accounts.”

e.g  building account, furniture account

What are nominal accounts?

Nominal accounts which keep record of income, expenses, gains and losses “

e.g such as Discount account, Salaries, Rent, Repair account.

What is journal/Book of original entry?

“The book of accounts in which business transactions are originally recorded in chronological order is called journal. It is also called book of original entry”

Define narration?

“A short explanation of each transaction in journal is written at the end of  each entry which is called. “

What is journalizing?

“The act of recording transaction in journal is called journalizing.”

What in Simple entry?

“The entry which involve only one debit and only one credit is called simple entry.”

What in compound entry?

“The entry in which more than one account is debited or credited is known as compound entry.”

What is ledger? “A book in which business transactions are finally recorded in summarized and classified form is called ledger.”

Explain the term balancing?

“The process of equalizing the two side of account is known as balancing.”

Sketch the standard form of ledger account?

Dr                                                                                                                                Cr

Date	Particulars	Folio	Amount	Date	Particulars	Folio	Date

Define zero balance?

“If the two sides of an account are equal the account will show zero balance.”

Define Debit balance?

“Debit balance mean where total of debit side exceeds than credit side is written on credit side of account.

Define Credit balance?

“Credit balance mean where total of credit side exceeds than debit side is written on debit side of account”

What is trial balance? “An accounting schedule which contains the ledger account balance where total of debit balances is equal to the total of credit balance.”

Define the term merchandise?

“Merchandise are the Goods purchased by business for selling.”

e.g Books purchased by Shopkeeper are the Merchandise for the business.

What is inventory?

“Goods on hand those remaining unsold at the end of the year is also called stock.”

e.g Book Remain unsold at the end of the year called stock or ending inventory.

Define bank?

“A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it.”

.What is cheque?“A cheque is unconditional order in writing drawn by customer on his bank, requesting to pay certain sum of money on demand.”

How many kinds of cheques?

Bearer cheques is one on which “bearer” is written after the name of payee. It is payable to bearer.

Order cheques           is one on which “order “ is written after the name of payee. It is payable to person whose name is written before order.

Crossed cheques when two parallel line are drawn on the side of cheque is payable only through a collecting banker and not directly at the counter of the bank.

What is bank draft?

“A bank draft is a written order for transferring money from one place to another”

 How many functions of bank.

Primary function is to borrow and lend money.

General function is to issue important documents, and keep valuable things in safe custody.

Agency function is bank collect and pay cheques and realizes interest and dividend on customer behalf.

How may kinds of accounts?

Current accounts in this case the customer can deposit or withdraw money any time within banking hours. Bank does not pay any interest or Profit/Loss.

Saving account customer deposits its saving into the bank and bank will share profit and loss with customer.

Fixed Deposit account in which money is deposit for fixed time period, Banks Pay very high interest rates.

Pay in slip a printed form which is filled in when money is being deposited in a bank.

Cheque book A booklet of cheques which enable holder to draw money from his/her  account deposits.

Bank pass book issued by a bank  to record deposits, withdrawals and balance in Account holder account.

Date	Particular	Deposits	withdrawals	Balance	initial of officer

Bank Overdraft

“Any Excess amount withdrawn from bank by the account holder is called bank overdraft”

Accounting Cycle

1. Transaction                  3. Ledger                     5.Final Account
2. Journal                         4. Trial Balance