''NEW YEAR GIFT''

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happy new to my friend and fellow.May my all friend live long and new year may bring the prosperity in your life and we got a wonderful and successful future.
ENJOY THE NEW YEAR MORNING AND WHOLE YEAR.
REGRAD,
                 FAHAD RASOOL  

INTERNAL CONTROL OVER CASH

BANK RECONCILATION STATEMENT:

“Bank reconciliation is a schedule explaining any differences between the balance shown in the bank statement and the balance shown in the depositor’s accounting records.”

Following differences could appear in both records:

DEPOSITOR’S BALANCE		BANK BALANCE
Add	Direct deposit	Add	Deposit in transit
Less	NSF(not sufficient funds) Service charges Dishonor cheque	Less	Outstanding cheque
Add/Less	Book error	Add/Less	Bank error

STEPS IN PREPARING A BANK RECONCILATION STATEMENT:

1. Compare deposits listed in bank statement with the deposits shown in the accounting records.
2. Compare checks paid by the bank with the corresponding entries in the accounting records.
3. Add to the depositor’s balance, any credit memoranda issued by bank.
4. Deduct from depositor’s balance, any debit memoranda issued by bank.
5. Make appropriate adjustment for any bank/book error.
6. Compare the adjusted balances of both statements (bank statement and depositor’s balance)
7. Prepare journal entries to record any item in the bank reconciliation not recorded in accounting record of depositor.

MERCHANDISING INVENTORIES

Two approaches are used in accounting for merchendising inventory.

1. Periodic inventory system
2. perpetual inventory system

Periodic inventory system:

In periodic inventory system no effort is made to keep up-to-date record of either the inventory or the cost of goods sold.Because these amounts are determined only periodically usually at the end of each year.

Following are the factors suggesting a periodic inventory system 

• Small companies, run by owner
• accounting records of inventories and specific product sales not needed in daily operations;such information developed primarily for use in annual income tax returns.
• inventory with many different kinds of  low-cost items.
• high volume of sales transactions and a manual accounting system.
• All merchandise stored at the sale site (for example , in the store)

Perpetual inventory system:

• large companies with professional management.
• management and employees wanting information about items in inventory and the quantities of specific products that are selling.
• items in the inventory with a high per unit cost.
• low volume of sales transactions or a computerized accounting system.
• merchandise stored at multiple locations or in warehouses separate from the sale site.

           JOURNAL ENTRIES FOR PERPETUAL AND PERIODIC INVENTORY SYSTEM

Event	Perpetual system	Periodic system
Purchase/acquiring merchandise inventory	Inventory             Account payable/cash	Inventory             Account payable/cash
Sale of inventory	1.      Account receiveable/cash                                         Sales      (at invoice price)   ____________________ 2.      cost of goods sold                          inentory         (at cost price)	Account receiveable/cash                                        Sales
Closing entries	Cost of goods sold                        Inventory   (shrinkage amount)	Cost of goods sold               purchase               Inventory(opening balance)  _________________ Inventory         Cost of goods sold

 

                                                      ''DEPRECIATION''     


The gradually decrease in the value of an assets is called depreciation.


There are two types of depreciation

1. fixed base method/ original cost method
2. written down method

First of all i want to explain to the fixed based method in which method the depreciation is fixed and charge on the original value of an assets that's why this method  is called fixed base method

The 2nd  method is written down value method in which method depreciation is charged on the book value (original value - depreciation) of an assets.

Explanation of this picture

This picture shows that's when assets are purchased then he his performance or market value in highest position but with the passage of time or the use of assets in business the value of assets are decreased and few place where the value of the assets are increase instead of decreased this position is called appreciation of an assets.Appreciation is the process when the value of an assets is increased instead of decreased.

  

'Accelerated Depreciation'

This also the method of depreciation which is used in accounting and income tax purpose

 ''Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset''.

                                                  ''ACCOUNTING EQUATION''
Accounting equation may be defined as '' a device by which the financial position of a business can be checked at a glance''
The fundamental accounting equation for each transaction, the debit is equal to the credit.

Assets=There are the things of value possessed by a trader, such as building,furniture.stock and good is called assets.

Liability=These are debts due by a business to its proprietor and others.Liability also defined as the claims of the business of the outsiders against the assets of the liability.

Owner's equity= The amount of cash and goods which the proprietor of the business invest in it is know as his capital and owner's equity.

ASSETS = LIABILITY+OWNER'S EQUITY

                               I can explain accounting equation with the help of example.

• Started business with cash rs. 50000
• purchased merchandise on credit rs.5000
• payment made against a/p rs 4900 in full settlement of rs 5000
• sold merchandise on credit rs.4000 costing rs 3500
• received cash rs 3950 in full settlement of rs 4000.  

                                 ASSETS                                   =                                        EQUITY                           
  CASH      +       MERCHANT    +        A/R                             A/P           +         CAPITAL 
1  50000              ..................              ............           =          .............                   50000
2 ..........             (+) 5000                        ...........         =     (+)  5000                     ............
3(-) 4900                ..............                                       =           -5000                 (+)    100      
4 .........                -3500                       4000                =            ............             (+) 500  
5(+) 3950                                         (-)  4000               =                                     (-) 50
                                                                                                                                               
TOTAL
49050          +       1500                       ..........                  =          ............               50550        

               50550                                                                                  50550              


In this example the two point where company face the profit and loss when company face profit then profit add in owner equity and when company face the loss then loss subtract from owner equity.At the end of all the transaction the debit and credit side are equal.

                                                  ''ACCOUNTING CYCLE STEPS ''
Definition
                  Accounting cycle is the process in which you identify the transaction,analyze the transaction,journal entries,post to ledger,then post to trail balance,then make adjusting entries,then make adjusting trail balance,the make financial statement from adjusting trail balance then close the revenue and expense into the income summary and profit and dividend is  close into the retain earning.The whole process is called is Accounting cycle.

The step which is involved in accounting cycle is following

• Identify the transaction.
• analyze the transaction.
• journal entries.
• post to ledger. 
• Trail balance.
• Adjusting entries.
• Adjusting trail balance.
• Financial statement.
• closing entries.
• post closing entries into ledger.

1. In which step you identify the transaction and source of transaction.

2. In which  step you analyze the transaction even the cash is paid or receivables.

3. In which  step make the journal entries the transaction in which journal entries one account is debit and the another is credit.

4. In which step the journal entries post to the ledger relevant account.

5. In which step the balance of the ledger is posted to the trail balance.

6. In which step you make a adjusting entries of the the remaining item or prepaid or payable items.

7. In which step the balance of the adjusting entries is posted to the trail balance and make the adjusting trail balance .

8.In which step make the financial statement from the adjusted trail balance i.e(income statement,statement of retain earning,balance sheet)

9.In which step the revenues and expenses are closed to the income summary and profit and dividend are closed in retain earning. 

10.In which step post the closing entries balance in the relevant into ledger account.