BCOM 1st Year Final Accounts Manufacturing Account Short Question Answer Notes
BCOM 1st Year Final Accounts Manufacturing Account Short Question Answer Notes : In this post you will get full information related to BCOM Final accounts; Manufacturing account, Trading account, Profit And Loss Account, Balance Sheet, Adjustment entries, All notes Study Material Sample Model Practice Paper Examination Paper here you will find all the questions of BCOM 1st Year This website parultech.com is very helpful for all students.
SHORT ANSWER QUESTIONS
Ans. A manufacturer purchases raw materials and sells it after converting it into finished product. He has to incur many expenses in this process. For the purpose of finding the cost of manufacture, he prepares manufacturing account. Opening and closing stocks in the case of manufacturing concern may be of three types namely, raw material, work-in-progress and finished goods.
|Particulas||Amount (Rs.)||Particulars||Amount (Rs.)|
|To Opening stock||By Closing stock|
|Raw material||–||Raw material||–|
|Work – in – progress||–||Work-in-progress||–|
|To purchase of raw material less returns||–||By Trading A/c (Cost of finished goods)||–|
|To gas and water||–|
|To factory rent||–|
|To factory insurance||–|
|To Consumable stores||–|
Q.2. What is a trading account? How does it differ from a manufacturing account?
Ans. Trading account is prepared to find out gross profit or loss on the basis of purchases and sales. It is prepared by merchandising concerns, i.e. concerns which purchase and sell finished goods, to know the gross profit earned or loss incurred by them from buying and selling of merchandise during a particular period of time. Gross profit or loss is the difference between the sales of a specific period (mostly of one year) and the cost of the goods sold (of the same period). If the sale proceeds exceed the cost of goods sold, it will be gross profit. In the reverse situation, it will be gross loss.
Difference between Trading Account and Manufacturing Account
1. Purpose: Manufacturing account is prepared to find out the cost of goods sold, while trading account is prepared to find out gross profit or loss.
2. Usage: Manufacturing account is used by the manufacturing concerns while trading account is used by merchandising concerns.
3. Transfer of Balance: Manufacturing account is closed by transferring its balance to the debit side of trading account whereas the balance of trading account is transferred to profit & loss account.
4. Dealing: Manufacturing account deals with raw material, partly manufactured goods and manufacturing expenses and indicates the results of manufacturing department whereas the trading account deals with finished goods only and reflects the results achieved by the trading or selling department.
Q.3. What is balance sheet? (2016)
Ans. Balance sheet is a statement which represents the financial position of a business ata prescribed date. This prescribed date is the date at which final accounts are prepared. In another view, balance sheet is a statement of assets and liabilities of business at a particular date. It is a sheet of balances which means that at the end of year all accounts of ledger are closed and the balances of nominal accounts are transferred to trading account or profit & loss account and balances of personal and real accounts are carried forward. A statement, which shows the balances of personal and real accounts, are called balance sheet. The main purpose of preparing this statement is to show the financial position of the business on a certain fixed date. It is a screen picture of the financial position of a going business at a certain moment. It may, therefore, be defined as ‘a statement drawn upon a given date, generally at the end of each accounting year, to measure the exact financial position of a business, setting forth the various assets and liabilities of the concern as at this date.’
Balance sheet is simply a classified statement. It is not an account. Hence, the abbreviations ‘Dr’ and Cr.’ which appear as part of heading of a ledger account are not applicable to the balance sheet and similarly the words ‘To’ and ‘By, as used in ledger accounts should not be prefixed to the items in the balance sheet. Secondly, it is prepared on a certain date and not for a particular period. Hence, it is true only on that date and not later.
Trading account, Profit And Loss Account, Balance Sheet, Adjustment entries
Q.4. What are the main principles of preparing trading and profit & loss accounts?
Ans. The trading and profit & loss accounts are prepared for a particular period, say, for six months or for a year. The following principles should be kept in mind while preparing both these accounts:
1. Only revenue receipts, that is to say, sale proceeds and other incomes should be entered.
2. Similarly, only revenue expenses together with losses should be taken into account. Amount paid for purchase of goods or materials used in manufacture of goods will, of course, be revenue expenses.
3. Expenses and incomes relating only to the period for which the accounts are being prepared should be considered.
4. All expenses and incomes relating to the period concerned should be considered even if the expense has not yet been paid in cash or the income has not yet been received in cash. 5. While preparing trading and profit & loss account, distinction must be made between the personal expenses of the proprietor or partners and the expenses relating to the firm.
Q.5. Write the characteristics of balance sheet. Explain it.
Ans. The balance sheet has certain characteristics, which should be noted. These are the following:
1. It is prepared at a particular date, rather the close of a day and not for a period. It is true only on that date and not later.
2. The balance sheet is prepared only after the preparation of the profit & lošs account. This is the reason why the profit & loss account (including the trading account) and the balance sheet are together called final accounts (of course, the balance sheet is not an account, the two sides are not the debit and the credit sides). Without being accompanied by the profit & loss account, the balance sheet will not be able to throw adequate light on the financial position of the firm.
3. Since capital always equals the difference between assets and liabilities and since the capital account will independently arrive at this figure, the two sides of the balance sheets must have the same totals. If it is not so, there is certainly an error somewhere.
Arrangements of Assets and Liabilities :
1. Assets: Assets may be grouped in the following two ways:
(a) Liquidity: Under this approach, the asset, which can be converted into cash first, is presented first. Those assets, which are most difficult in this regard, are presented at the bottom.
(b) Permanence: Assets, which are to be used, for long-term in the business and are not meant to be sold are permanence assets, which are most liquid, such as cash in hand, are presented at the bottom.
The various assets in both the orders will be as follows:
|In the order of liquidity||In the order of permanence|
|Cash in hand||Goodwill|
|Cash at bank||Patents|
|Stock of finished Goods||Stock of partly finished goods|
|Stock of raw materials||Stock of raw materials|
|Stock of partly finished goods||Stock of finished goods|
|Patents||Cash at bank|
|Goodwill||Cash in hand|
Some of the assets are capable of being sold easily like investments in government securities or shares of some companies. They should be treated as liquid or permanent according to the intention of the firm.