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Question 1. What Are Current Assets?
Answer :
Current Assets : are the assets which get generated during the course of operations and are likely to be converted in the form of cash or getting utilized during the normal operational cycle of the business within a short span of time of one year. Example: Sundry Debtors, Prepaid expenses, Stock etc.
Answer :
Loans which comes under long term liabilities. It may consist of long term loan borrowed from banks or financial institutions and are paid off over a longer span of time say 5-10 years.
Question 3. What Are Advances?
Answer :
Advances are the sums paid or received before an obligation is fulfilled. This comes under current liabilities. Example: Advance received from customers and income received in advance.
Question 4. What Are Fixed Assets?
Answer :
Fixed Assets indicate the value of infrastructural properties acquired by the business where the benefits are likely to be received over a longer period of time. These assets are not supposed to be sold but they are used to do the business and to earn profits. Example: Plant, Machinery, Furniture, Building, Land etc.
Question 5. What Are Investments?
Answer :
Investments indicate the amount of funds invested by the organization outside the business for earning income by way of dividend, interest etc.
Question 6. What Are Current Liability Includes?
Answer :
Current Liability includes loans, deposits and bank overdraft which fall due for payment in a relatively short time, normally not more than 12 months. Following are the current liabilities:
Question 7. Explain Provisions For?
Answer :
Question 8. In Balance Sheet, Where Do You Show Tds?
Answer :
It is shown on the assets section, right after the head current asset.
Question 9. Explain What Is Working Capital?
Answer :
Working capital is a financial metric that calculates the resources available to the company to finance its day-to-day operations. It is typically calculated by deducting current liabilities from current assets.
Question 10. What Are The Basic Financial Statements?
Answer :
The basic financial statements of an enterprise include the
The balance sheet provides a snapshot of an entity as of a particular date.
Question 11. How Does Depreciation Affect The Income Statement?
Answer :
Accumulated depreciation does not directly affect net income but is instead the total amount of a company's depreciation expenses charged against its net income over the lifetime of an asset or group of assets. Accumulated depreciation is an asset account on the balance sheet with a credit balance.
Question 12. What Are The Three Main Financial Statements?
Answer :
“The three financial statements are the income statement, balance sheet, and statement of cash flows. The income statement is a statement that illustrates the profitability of the company. It begins with the revenue line and after subtracting various expenses arrives at net income.
Answer :
Financial statements are prepared in two forms:
Question 14. Explain Why Do Businesses Prepare Financial Statements?
Answer :
Basically to know the two facts about the business the financial statements are prepared:
Question 15. Explain Profitability Statement?
Answer :
Profitability Statement also known as Profit and Loss Account. It is a period statement as it refers to a particular period.
Question 16. Do You Know Balance Sheet?
Answer :
Balance Sheet : is a position statement as it refers to a particular date. It is also referred to as Statement of Sources and Application of Funds. It informs about the various sources used by the organization which are technically known as liabilities to raise the funds which are referred as assets.
Question 17. Explain How Can The Analysis Of Financial Statements Be Carried Out?
Answer :
There are two ways in which analysis of financial statements can be carried out:
Internal Analysis indicates the analysis carried out by the management of the company to enable the decision making process. This analysis is carried out in the legal or statutory matters in which parties have the access to the books and records of the company. This is carried out in the legal or statutory matters.
External Analysis indicates the analysis carried out by the creditors, prospective investors and other outsiders who do not have the access to the books and records of the company.
Answer :
The techniques used for the analysis and interpretation of financial statements are:
Question 19. Explain Limitations Of Financial Statements?
Answer :
Limitations of Financial statements are:
Question 20. Explain Reserves And Surpluses?
Answer :
Reserves and Surpluses indicate that portion of the earnings, receipt or other surplus of the company appropriated by the management for a general or specific purpose other than provisions for depreciation or for a known liability. Reserves are classified as: Capital Reserve and Capital Redemption Reserve.
Question 21. Explain Share Capital?
Answer :
Share Capital is that portion of a company's equity that has been obtained by issuing share to a shareholder. The amount of share capital increases as new shares are sold to public in exchange for cash.
Question 22. What Is Cash Flow Analysis?
Answer :
Cash Flow Analysis is the analysis in which Cash Flow Statement is prepared which shows changes in inflow & outflow of cash during the period. Cash flow statement is an analysis tool used by large and medium scale companies for Inflow and Outflow of money during a particular period of time.
Question 23. What Is Funds Flow Analysis?
Answer :
Funds Flow Analysis : is the analysis in which Funds flow statement is prepared in order to determine the sources and application of funds. Fund flow statement is commonly used in business plans and proposals to show investors about the flowing of their funds through the organization. This is not used in annual reports. It is used by bankers who want to know how borrowed funds will flow through company operations. It is used to show the management how the cash is flowing through the company operations.
Question 24. What Is Ratio Analysis?
Answer :
Ratio Analysis is a systematic technique of analysis and interpretation of financial statements i.e Profitability statement and Balance sheet with the help of various ratios so that the strengths and weakness and the financial position of the firm can be determined. This technique is not a creative technique as the information already given in the financial statements is used.
Question 25. What Are Unsecured Loans?
Answer :
Unsecured Loans are the loans which are not secured against any security of the assets of the company. Following are the Unsecured Loans:
Question 26. What Are Secured Loans?
Answer :
Secured Loans are the loans which are secured wholly or partly against the assets of the company. Following are the secured loans:
Question 27. Explain Profit And Loss Account Debit Balance?
Answer :
As per the business entity principle, owner is different from the business. Thus, the profit generated by the business belongs to the shareholders, and hence the business is liable to shareholders for the distribution of profits. In the same way, when loss is incurred in the business it is born by the owners. Hence, it is an asset for the business as it is a receivable from the owners.
Question 28. Explain Miscellaneous Expenditures?
Answer :
Miscellaneous Expenditures are the incidental expenses which cannot be classified as manufacturing, selling, and administrative expenses. These expenses are not revenue in nature and hence shown in the asset side of the Balance Sheet and should be written off over a period of time. Example: Preliminary Expenses, Development expenditures and expenditure on raising of shares and debentures.
Question 29. Explain What Are The Activities That Includes In Cash Flow Statement?
Answer :
The cash flow statement showcase the cash generated and used during the year or months. Various activities that are involved for the Cash Flow are
Operating activities – business activities accounting to cash.
Investing activities – sale and purchase of equipment or property.
Financial activities- purchase of stock and own bonds.
Supplemental information- exchange of significant items that don’t involve cash
Question 30. What Is A Double Entry System? What Are Its Disadvantages?
Answer :
A double entry system records all transactions we usually keep in journals. It prepares all final accounts and closes the books of several accounts. It also posts journal entries regularly in all ledger accounts and then prepares for a proper trial balance. Some of the disadvantages of the double entry system include having an compensatory errors which is difficult to find out in this system, the system that needs a lot of clerical labour and that it is hard to find all errors have been recorded in books. It is also smart to disclose the information which is not recorded in any journal.
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