Accounting Test Online - Part 8

Today is 31st May and this is the end of may. Now, today, we are starting a new section in which, I will teach accounting whole the month and end of month, you have to give test. This will be objective type. If you learn everything seriously in accounting education, you will clear this test. If you did not clear the test, it means, you need to learn more. Following are the questions which are taken from my written contents in 1st May to 30th May 2012.

Question 1. What is Segment Reporting?

(a) To make the journal of branch and show its detail in report.  (b) To promote the division and show its report to higher authorities.  (c) To Make the report of the weakness of employees. (d) To show revenue and financial position on the basis of different products and services.

Question 2. Who will give bid in share market?

(a) SEBI (b) Sellers of shares (c) Buyer of shares  (d) Govt. Company

Question 3. Who has to accept the terms of bond Indenture?

(a) The person who will buy the bonds. (b) The company who will issue the bonds. (c) Bond indenture is legal agreement. Both parties have to accept its written terms.     (d) Broker who will sell the bond indenture.

Question 4. Why is Rupee falling against Dollar?

(a) Increasing the imports from USA, False advertising of USA Companies' zero quality products and other conspiracies  (b) Increases the prices of petrol  (c) Euro Crisis (d)  For increasing the tour of USA peoples in India

Question 5. How to Calculate Working Hours?

(a) Total Hours / Rate per hour (b)  Total Cost / Rate per hour  (c) No. of Women X No. of Men X Rate X hours (d) Total Cost X Rate per hour

Question 6. Balance sheet shrinking means

(a) To sells assets for repaying the loan.  (b)  To getting loan for buying new assets.

Question 7. What is today beta of Microsoft Company?

(a) 1.36 (b) 0.99

Question 8. What is Sales price Variance?

(a) It is the difference between actual sales quantity and standard sales price. (b) It is the difference between actual sales price and standard sales price.  (c) It is the difference between actual sales price and standard sales quantity. (d) It is the difference between standard sales quantity and actual sales quantity.

Question 9. What is sales volume variance?

(a) It is the difference between actual sales quantity and standard sales price. (b) It is the difference between actual sales quantity and standard sales quantity.  (c) It is the difference between actual sales price and standard sales quantity. (d) It is the difference between standard sales quantity and actual sales quantity.

Question 10. In ledger posting, how will post the journal entry  - cash account dr.   bank account cr

(a) In cash account's debit side, we will show bank account and in bank account's credit side, we will show cash account. (b)   In  bank account's debit side, we will show cash account and in cash account's credit side, we will show bank account. (c) We will show only cash account in Bank account's credit side (d)   We will show only bank account in Cash account's debit side Please see the correct answer at here.

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Cash Flow to Assets

Cash flow to assets is the accounting ratio which tells us the relationship of cash flow from operation and our total assets. To find this ratio is very necessary for knowing capacity to buy new assets in case of old assets becoming scrape. For calculating cash flow to assets, we have to calculate cash flow from operation and our total assets.

1. Cash from operation 

Cash from operation  means the net profit in the form of cash which we have obtained from our business operation. In this, there will not include the cash from investing and financial activities.

2. Total Assets 

Total assets means the total value of assets side of balance sheet.

Formula of Cash Flow to Assets 

= Cash From Operation / Total Assets 

For example : a company had net cash flows from operations of $100,000 , total cash flows of $400,000, and average total assets of $1,000,000. the cash flow on total assets ratio equals:

= 10%

Now, we are explaining the indication which is telling by this ratio:

1. It means, if we have 100 $ total assets and all have become dead, we have $ 10 net profit in cash for buying all new assets. So, increasing the cash flow from operation, we can increase cash flow to assets ratio.

2. After calculating this ratio, we can start to make update our forecasting. This updates may be relating to increment in our past sales.

3. You can again evaluate your business policies. For example, you pay your supplier within 60 days and gets from your customers within 25 days. By changing this period, you can see the changes in your cash flow to assets ratio.

4. You can also motivate your sales department for improving your cash flow to assets ratio. By getting motivation, your salesmen can get more than what you had made the target in past.

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How to Make a Journal Entry

In this world, the power of making is in the hand of God. We can not make anything, we can just copy from the creation of God. God also gives us brain for knowing his creation and using it for new creation. Accounting rules are also take from God's accounting. God records each movement of his created creature. He maintains all these records and he gives us result as per his accounting records. We also try to learn this accounting by maintaining our business records. First of all, we have to learn to make journal entry.

Journal entry is the first step of recording the transaction. If you will learn its technique, you will be able to record every transaction of the world in correct way. Rules are very simple

One account will be debit and other account will be credit.

Now, problem is to find two accounts. Which account will be debited and which account will be credited? Answer this question is also simple.

Learn the Rules of Journal entry.

1. For personal account

Receiver will be debited and giver will be credited. But this is not possible in all transaction because there may be only receiver or giver of anything in any transaction.So, we have to write just debit or credit the name of person as per the nature of transaction.

2. For Assets account

Assets will be debited when it comes to the business and asset will be credited when it goes from business. It means when we purchase the asset, it will be debited. It means when our total assets will be increased due to new buying, at that time new bought asset will be debited. When assets are sold, these assets will be credited. But some time we do not sell the asset but when we buy the asset with cash, our cash asset will decrease, so cash will be credited.

3. For Income and expenses account 

All the expenses and losses will be debited and all the incomes and gains will be credited. You should never confuse expenses of buying asset with other general expenses. Assets gives long term benefit, so we will apply second rule instead of third rule. We only include the expenses which gives us one year or small period benefits. For example one month mobile charges will be our expense and it will be debited.

Related : Journal Entries Examples

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Cash equivalents

Cash equivalents are those liquid assets which can easily convert in cash. For example, our cash in our bank account is cash equivalent because we can easily withdraw cash from bank through our ATM. Like this, if we have govt. treasury bills like kisan vikas pater or money market’s commercial papers, all these can convert into cash within one or two days. Some part of current assets can be included in it if we are able to covert into cash without any delay. For example, we deal in gold. Gold is our inventory; it can easily be sold in the market by selling gold in the market at any time. We can get cash fastly. So, stock of gold will be our cash equivalent.

Importance of Cash Equivalents

There are many decision of management in which we have not only to see the cash but also cash equivalents. So, cash equivalents can not be ignored.

1. For calculating Quick Ratio

For calculating the quick ratio, we add cash equivalents items in cash.


2. Selling of Auction Rate Security

To know the cash equivalents is also important because its knowledge we can know the happening in the financial area. For example auction rate security is long term security but it was sold as cash equivalent. Since February 2008, most such auctions have failed, and the auction market has been largely frozen. Following is the detail which has been taken from Wikipedia.

According to multiple reports, these were widely sold as "cash equivalents", such that the cash would be available for return within as little as 7 days. However, once the auctions were abandoned by the banks, thousands of investors were left with these illiquid funds since February 2008, without knowing when their cash will be returned.

3. Banker’s Acceptance

Banker’s acceptance is also cash equivalent because the holder of bank’s acceptance draft can be sold at discount. But it is important to know if person want to collect cash from bank, he has to wait upto maturity date. So, from that point of view, it will not be cash equivalent.

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To and By in Accounting

Today one of Indian accounting teacher asks the meaning of "to and by in accounting" from me. As per my definition.

To account represents the account which will go the debit side of an account.
By account represents the account which will go to the credit side of an account.

Suppose, cash account a current asset account. It has two side, one is debit and other is credit. If any account will show in debit side, we will use to because all accounts are go to this account for increasing its balance. But in its credit side, all accounts will show with by. It means its balance is decreasing because in other account, it will be debited with to for increasing the balance of other account. For example, furniture account is credited in cash account and we have written By Furniture account because we have written To cash in furniture account for increasing the balance of furniture account.

Now, in brief,

1. To will increase the balance of all asset's account and expenses account and By will decrease the balance of all asset account and expenses account.

2. To will decrease the balance of liability account and incomes account, By will increase the balance of all liability account and incomes account

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List of Mutual Funds in Saudi Arabia

Saudi Arabia is the one of the country in the world which produces and exports the petrol at large scale. Due to this, its per capita income is the largest in the world. It is estimated that every person will earn more than $ 33000 in 2020. Now, it is also growing in the construction, real estate and other areas. So, many important mutual funds are created in Saudi Arabia in which people can invest their money can get good return. Following is its list:

1st Mutual Fund - Al Emaar Fund

Al Emaar Fund is an open-end fund incorporated in Saudi Arabia. The Fund aims to achieve long-term capital growth. The Fund will invest primarily in stocks of listed Saudi companies engaged in building, construction, real estate and cement, in addition to other companies related to these sectors. The Fund also invests partially in stocks of Gulf companies and are compliant with Shariah.

2nd Mutual Fund - Amanah Balanced Portfolio Fund

HSBC Amanah Multi-Assets Growth Fund is an open-ended collective investment scheme, approved by the Shariah Supervisory Committee of the Fund. The Fund began accepting subscriptions on December 28, 200 4. The price of Fund Units is denominated in Saudi Riyals (SAR). If payment for Units is made in a currency other than the denominated currency of the Fund, the payment will be converted to the denominated currency of the Fund by the Manager at the prevailing exchange rate and the purchase will become effective upon realization of the Funds in the denominated currency and based on the forward Unit price. The HSBC Amanah Multi-Assets Growth Fund is an open-ended Investment Fund with the aim to achieve, over the
medium to long-term, mainly capital growth with major exposure to Equity Markets by diversely investing in equity Funds that invest in the local, regional, and Global Equity Markets, as well as investing in Funds that invest in the debt markets and the Money Markets. The Fund Managers has the discretion to invest up to 10% of the Fund in other investments, that adhere to Shariah principles as advised by the SSC of the Fund. The Fund is an income accumulation Fund whereby its income will be reinvested and not distributed to the Unit Holders. The reinvestment of the Fund’s income will be reflected in the value and price of the Units.


3rd Mutual Fund - NCBC

Depending on your goals, needs, risk tolerance and investment philosophy, NCBC offers  a wide range of Investment Services to suit your individual needs. It provides comprehensive solutions for your investment needs today as well as in the future. It is Saudi Arabia's first and most successful provider of mutual funds and are also a world leader in the rapidly growing area of Islamic Shariah compliant mutual funds.


4th Mutual Fund -Al Danah GCC equity trdg fund

To provide long-term capital growth by principally investing in the GCC stock market countries excluding Saudi Arabia. The fund may also take some exposure not more than 10% through funds in the Middle East and North Africa in accordance to Islamic Sharee'a .

5th Mutual Fund - HSBC Amanah Saudi Freestyle Equity Fund

This mutual fund has been made for following purpose

• Providing a wide range of superior investment banking services and products,
• Leading the transformation of the Saudi Stock market,
• Be the preferred choice for Corporate Financing Services (Initial Public offerings, M&A and Private Placements),
• Being the leader in Debt Finance & Advisory,
• Providing quality service and best investment advice, and
• Providing innovative Islamic Shariah Complaint (Amanah) solutions.

HSBC Amanah Saudi Freestyle Equity fund is an open-ended fund domiciled in the Kingdom of Saudi Arabia , regulated by the Capital Market Authority of Saudi Arabia (CMA).

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Carry over in Accounting

Carry over means to transfer of journal total or the balance of account from one page to other or from one period to other. Instead of using carry over, we use carry forward or C/F. Both carry forward and carry over meaning is same. All fixed asset's balance will go to next financial period because these accounts are not closed by transferring them to profit and loss account. So, carry over of fixed assets' account is must. In some current asset account may be the balance which will transfer to next period because these accounts are not closed. For example, our debtors have paid just Rs. 10000 but we have to take Rs. 11000. Still, we have to take Rs. 1000 after his payment of Rs. 10000. Due the end of financial period, we will carry over the Rs. 1000. with carry over debtor's receivable balance in the accounts, we easy remember what amount will we have to take from debtors.

Neither income or expenditure account will be carry over from one period to other period because all these accounts balance will transfer to profit and loss account for knowing net performance of business.

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Boot in Accounting

Boot means "in addition". In business, if anybody transfers his asset to other in addition to obtained price, it will be the boot because there is not any consideration of boot asset. It only happens, if you do not know better dealing. Other party will get your asset at unfair exchange rate. Accounting meaning is different from computing meaning. In computer language boot is switch off the computer for performing it normal.

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Accounting Basics - Three Main Accounting Mistakes

This is good, you have started to learn accounting basics before learning its advance concepts. But do you know what are the three main accounting mistakes which do accounting students?

Mistake #1. Believing that Purchase of everything goes to Purchase account 

When you start to pass the journal entry first time, you think that everything purchase will go to purchase account. Yes, both buying of goods and buying of any other asset will increase your resources but to show purchase account for purchase of anything is mistake because purchasing of goods is revenue expenditure but purchasing of any fixed asset is capital nature item. If we add all the purchase in purchase account, our fixed assets will decrease in our balance sheet. Due to this, our balance sheet will not show correct financial position. We just write purchase account for purchasing of goods in which we deal. If you have bought shares as your long term investment, it will be your fixed asset but if you have bought share for selling next day, it is your product and you can show it as purchase in your journal entry. If you do this mistake, it means, it is your principle error.

Mistake #2. Drawing is not Business Use of Fund

Whether employee takes money for personal use or owner uses money for personal use, it is said that it is not business use of fund. This fund must be recorded as per rules. Personal use by owner is decrease of capital. It should be debited and cash or goods or anything which goes from business must be credit. If you have bought furniture for personal use. We can not say furniture account debit to cash account because business can not use the furniture. It is just decreasing of capital and we will write drawing account debit and cash account credit in our journal.

Mistake # 3. Individual and Partnership is different from Company Business 

In accounting, you treat company as individual and partnership, it will be your mistake. In individual and partnership, capital is only of owner or partners. So, we need only to record his or their capital. But in company, we need to record every bought share of company. Total of this will be our paid up capital. We also make reserve and surplus account in which we have to keep our retained earning after giving dividend to shareholders.

Related : What are Accounting Basics?

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What are Accounting Basics

Yesterday, I received on call from an advocate who is BA, LLB who is doing CS from ICSI. He is asking me to explain my CS accounting notes because he was not understanding advance concepts of accounting in my CS accounting notes. I suggested him to learn accounting basics. Then he asked me about the accounting basics. So, today, I am explaining some accounting basics which are important to non-commerce students who are studying advance accounting.

Definition : Accounting basics are the collection of some accounting knowledge which will be the base of every accounting work. 


1. Knowledge of Assets, Liabilities, Capital, Expenses and Incomes 

When a person starts a business, he needs capital but it may not be sufficient to operate business. So, he takes some loan. It is the liability of business. Accounting helps to record all the liabilities when we take loan whether it is short term or long term. When it in the form of buying goods on credit or taking advance before providing goods or service. All are liabilities. Assets are bought from capital or taken liabilities. No one gives you the assets in free form. Assets may be any physical good or machine or plant or building or vehicle which will give you short or long term benefits. Every payment may not be for buying assets. We get service, so, we have to pay. This is our expenses. These services, we may get in the form of employee's duty, lighting, calling on the mobile and using of internet. For this, we have to pay salary, lighting bill, recharge bill and internet bill. Incomes are the benefits which we get from other party. When we sell the goods, we get its money, it is also part of our income. When we provide any service, we get its fees. It is also our income.

2. Knowledge of Debits and Credits 

Knowledge of debits and credits are also important to know accounting basics. Debits and credits are two parts of any transaction. Debit is just taking the benefit and credit is just giving the benefit. For example, you started business with Rs. 1,00,000. Debit is cash and credit is capital. It means business is getting the benefit of money in the form of cash. So, it will be debit. Business is also giving the benefit to businessman my converting his money in the form of capital. You remember that there is big difference money in pocket and money in the form of capital. Money in the form of capital will increase day by day by adding profit in it. But your pocket money will be same without any change. So, debit and credit is just like take and give theory. Debit and credit is just + and - theory. Debit and Credit is the way to balance every transaction.

3. Knowledge of Accounting Concepts and Principles 

Knowledge of accounting concepts and principles will make you enrich to understand accounting. Accounting concepts and principles are not fix regulation. From time to time, it needs modernization. For example, accounting equation is assets equals to liabilities. But know this concept became more clear with following expand formula

Total assets = capital + incomes - expenses - drawing + outside liabilities 

4. Knowledge of Accounting Rules 

Accounting rules are also called journal entry rules. There are six rules in every nature of account. In personal accounts, debit will be the person who receives anything from business and credit will be the person who gives anything to the business. In real account, every asset which comes in the business will be debit and every  assets which goes from business will be credit. In nominal account, every expense or loss of business will be debit and every income or gain will be credit.

5. Knowledge of Making journal, ledger and trial balance 

On the basis of above accounting rule, journal is made. One the basis of posting rule, we make ledger account. Trial balance is just list of debit and credit balance of ledger accounts. With trial balance, we know our mathematical mistake in journal and ledger.

6. Knowledge of Making Final Accounts 

Final accounts is the summery of all financial records which shows the result of financial position and performance. In final accounts, we make profit and loss account and balance sheet. Both are important financial statements. One more important financial statement is also prepared which is called cash flow statement. It shows the changes in the cash position for a particular period. 

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