IGNOU SOLVED ASSIGNMENT- 2018-19, ECO – 02: Accountancy-I,

IGNOU SOLVED ASSIGNMENT - 2018 -19, ECO - 02: ACCOUNTANCY - I

TUTOR MARKED ASSIGNMENT

Course Code                      : ECO - 02

Course Title                        : Accountancy-I Assignment Code              : ECO – 02/TMA/2018-19 

Coverage                            : All Blocks

  Maximum Marks: 100

Attempt all the questions.

 1. (a) What is Bank Reconciliation Statement? Explain the causes of disagreement in the balances shown by cash Book and Pass Book.                                                    (10)

(       (b)    Why do you maintain bill book separately? State the transactions recorded in Bills Receivable and Bills Payable journals.                                                                  (10)

2.    (a) What is suspense Account? Why is it opened and how is it closed? Explain.   
                                                                                                                               (10)

    (b)    Why is provision for doubtful debts created? How is it shown in the Balance sheet? Explain                                                                                                                   (10)

3.                How would a not-for-profit organization deal with the following items?      (4X5)

(a) Outstanding Subscriptions, (b) Donation, (c) Tournament Fund, (d) Legacy,

(e) Life Membership Fees

4.                 (a) What is joint venture? Explain various methods of recording the joint venture transaction. Give entries in each case.                                                                   (10)

            (b)     Differentiate between :                                                                        (10)

(i)       General Commission and Del Creder Commission

(ii)     Normal Loss and Abnormal Loss

5.            “Incomplete records system is unscientific, incomplete, inaccurate and unsystematic”. Explain                                                                                (20)

1. (a) What is Bank Reconciliation Statement? Explain the causes of disagreement in the balances shown by cash Book and Pass Book.                                                  (10)

Ans.

What is Bank Reconciliation Statement?

        A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records.The statement outlines the deposits, withdrawals and other activity affecting a bank account for a specific period. A bank reconciliation statement is a useful financial internal control tool used to thwart fraud.

Causes of disagreement in the balances shown by cash Book and Pass Book.  

a) Checks Issued or Drawn to Creditors But Not Paid by Bank:

        When a check is issued to a creditor, it is recorded on the credit side of the cash book in bank column. The bank will record it on the date when it is paid. In most of the cases a check cannot be presented for the payment by the creditor on the date on which it is drawn. So long the check is not presented to the bank, the cash book balance and the pass book balance will differ.

b) Checks Deposited for Collection but Not Yet Collected and Credited by the Bank:

        When a check is received from a debtor, it is recorded in the cash book on the date when it is deposited with the bank for collection. But the bank will record it in depositor's account on the date when it is actually collected by the bank from the concerned bank. So long the bank cannot collect the amount; the cash book balance and pass book balance will disagree.

c) Amount Deposited Directly into the Bank by Debtors:

        Sometimes the debtors deposit the amount directly to our bank a/c instead of paying cash to us. In such a case the bank will transfer the amount to our account and sends us an intimation of this transaction. But usually, there is some delay in receiving this information from the bank. So long the intimation is not received by us, the cash book balance and the pass book balance will disagree. For this, the cash book will show less balance and the pass book will show more balance.

d) Income Collected by the Bank:

      Sometimes the bank collects and credits our account with dividend on shares, interest on govt. securities etc. as per our instructions and sends intimation to us. But it takes a few days to receive this intimation from the bank and we record it in cash book on the date of receipt of this intimation. For this, the cash book will show less balance and the pass book will show more balance.

e) Interest on Deposits:

        The bank allows us interest on our deposits and credits the amount of interest to our account and sends intimation to us on receipt of the intimation, we record it in the cash book. So long the information is not received by us, the cash book balance and the pass book balance will not agree. For this, the cash book will show less balance and pass book will show more balance.

f) Expenses Paid by the Bank Directly:

       Sometimes the bank pays insurance premium, factory rent, interest on debentures, trade subscription etc. on our behalf as per standing order. The bank debits our accounts and sends intimation to us. On receipt of intimation for the bank, we record it in our cash book. For this, there will be a disagreement between cash book and pass book.

g) The Bank Charges:

      Our account is debited with bank charges and interest on overdraft and intimation is sent to us by the bank. On receiving the intimation from the bank, we record them in the cash book. For this the cash book will show more balance and the pass book will show less balance.

h) Errors and Omissions:

      In business, errors and omissions are very common. Someone may forget to record something or record it but in a wrong way. The cash book balance and the pass book balance can also disagree if there is an error or mistake in the cash book or in the pass book.

(b) Why do you maintain bill book separately? State the transactions recorded in Bill Receivable and Bills Payable journals.                                                                     (10)

Ans.

Why do you maintain bill book separately?

        However, because Bills Receivable represents amount to be received by the business, it acts as an asset for the business, thus, usually carries a debit balance.

        Bills Receivable Book and Bills Payable Book both record the transactions separately because of nature of transactions involved. Bills Receivable Book records all the receivable for the business and this total of all the receivables are transferred to the ledger for a given accounting period. On the other hand, Bills Payable book records all the payables by the business. The person who draws the Bill of Exchange is called the drawer and the customer on whom it is drawn is called the acceptor or drawee.

        Bills Payable account usually has a credit balance as it is to be paid on maturity and acts as liability for the business. However, because Bills Receivable represents amount to be received by the business, it acts as an asset for the business, thus, usually carries a debit balance.

        E.g. (i) Drew on Mr. X, debtor (Bill No. 123) at two months after date for Rs 4,000- It will be recorded in Bills Receivable Account as amount is to be received by business.

(ii) Accepted Mr. PQR, creditor's draft for Rs 10,400- This would be recorded in Bills Payable Account as amount is payable by the business.

State the transactions recorded in Bill Receivable and Bills Payable journals.

          Normally bill transactions can be recorded in the Journal Proper. But, if dealings in bills are numerous, it is better to maintain separate books both for bills receivable and bills payable. A book in which we record all bills receivable by the firm is called 'Bills Receivable Book' and the book in which we record all bills accepted and payable by the firm is called 'Bills Payable Book'.

                                                                                   Bills Receivable Journal

Sl. No.	Date of Receipt	From whom Received	Acceptor	Date of Bill	Term	Due Date	Where Payable	Amount Rs.	L.F	How Disposed of	Remarks

                                                                                     Bills Payable Journal

Sl. No.	Date of Acceptance	Drawn by	Payee	Date of Bill	Term	Due Date	Where Payable	Amount Rs.	L.F	Remarks

Recording in Bills Receivable Journal and its Posting

       As and when promissory notes or bills of exchange are received, the particulars are noted in the Bills Receivable Journal as per the columns given in the above figure. Entries in Bills Receivable Journal are made only at the time of receiving the bill from the drawee. The entries for their realisation and discounting are made in the Cash Book. Similarly, entries for endorsement and dishonour of bills are also made in the Journal Proper. However, if a discounted bill is dishonoured the entry for dishonour will be made in the Cash Book, not in the Journal Proper.

      All entries made in the Bills Receivable Journal are posted to the credit side of the individual accounts of the parties from whom the bills were received. Periodic total of the Bills Receivable Journal is posted to the debit of Bills Receivable Account by writing 'To Sundries-as per B/R Journal'.

Recording in Bills Payable Journal and its Posting

      As and when the firm accepts the bills, they are entered in the Bills Payable Journal as per columns given in the above figure. Entries for the payment of these bills are made in the Cash Book, and those for dishonour in the Journal Proper.

       All entries made in the Bills Payable Journal are posted to the debit side of the individual accounts of the parties at whose request the acceptances have been given. Periodical total of the Bills Payable Journal is posted to the credit side of the Bills Payable Account by writing 'By Sundries-as per B/P Journal'.

IGNOU, B.Com Solved ASSIGNMENT- 2018-19, ECO - 02, Accountancy - I

2. (a) What is suspense Account? Why is it opened and how is it closed? Explain. (10)

Ans.

         Suspense accounts are used when our trial balance is out of balance or when we have an unidentified transaction. The suspense account is a general ledger account that acts as a holding account until the error is discovered or the unknown transaction is identified. When working with the trial balance, we can open one suspense account to hold all of the discrepancies until we find them. However, suspense accounts are temporary accounts that must be closed by the end of your accounting cycle.

       All items added to the suspense account are found on report- Daily Suspense Update Report. The 'Daily Suspense Update Report' gives the details of each transaction such as debit/credit account, transaction code, date posted, description and reason why the transaction put in suspense. The most common circumstances for transactions to be posted to the suspense account include the use of an invalid six-digit account number, four-digit sub - code or an account previously frozen.

      The daily balance of the suspense account is monitored through the file, Daily Suspense Balance (by month). This file is kept to monitor and investigate any unusual balances in the suspense account over a given time. Any relevant information regarding the balances is kept in the notes section of the file.

      Once the correct account information has been received by the Administrator, a batch is created in order to correct the transaction in (remove from the suspense account and post to the correct account). A batch ID is assigned by the Office of Finance for the used to enter all of correcting transactions. No corrections are made by the originator of the transactions. The procedures described above are also performed during month-end closing and year-end closing processes. These procedures are integrated in the month-end closing and year-end closing checklists to ensure the suspense account is monitored and cleared on a timely fashion throughout the accounting cycle closing process.

4.(b) Differentiate between:                                                                                        

     (i) General Commission and Del Creder Commission                                 (10)

Ans.

Basis of Distinction	General Commission	Del Creder Commission
1. When allowed	It is allowed to all the consignees for all the consignments for the selling of goods.	It is allowed to the consignee only when he undertakes the risk of bad debts arising out of credit sales.
2. Guarantee	In return of this commission, consignee guarantees only the proceeds of cash sales.	In return of this commission, consignee guarantees the proceeds of cash sales and credit sales.
3. How to calculate?	It is calculated at an agreed rate on the total sales.	It is calculated at an agreed rate either on total sales (if no agreement) or credit sales (if agreement provides)

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