Collected from customers, `1,200.

7 Collected from customers, `1,600.

8 Paid for fuel, `6,100.
8 Collected from customers, `2,400.
9 Collected from customers, `2,200. A customer did not pay a bill of `900 and will pay next month.
10 Collected from customers, `1,300.
11 Collected from customers, `1,700.
11 Bought a mobile phone for cash for business use, `12,000.
12 Collected from customers, `1,100.
13 Collected from customers, `1,800.
14 Collected from customers, `1,100.
15 Collected from customers, `600.
15 Paid for fuel, `5,300.
16 Collected from customers, `1,800.
17 Collected from customers, `1,900.
17 Paid a fine for speeding, `500.
18 Collected from customers, `1,100.
19 Collected from customers, `1,100.
20 Collected from customers, `4,500.
21 Paid for fuel, `3,400.
21 Collected from customers, `4,400.
22 Collected from customers, `2,100.
23 Collected from customers, `2,600.
24 Collected from customers, `2,900.
25 Collected from customers, `3,700. Change of `120 not returned will be adjusted next time.
26 Collected from customers, `3,100.
27 Filled fuel for `3,920 and paid `3,240. The balance will be paid next time.
27 Collected from customers, `3,200.
28 Collected from customers, `2,900.
29 Repaired a side-view mirror damaged in an accident, `750.
29 Collected from customers, `4,700.
29 Paid taxi drivers’ union subscription for the month, `500.
30 Collected from customers, `4,100.
30 Withdrew for personal purposes, `11,200.
30 Paid substitute driver’s salary, `8,000.
30 Earned interest of `130 on bank balance.
30 Paid the bank, `17,500.

Required
1. Analyze the effects of the transactions on the accounting equation.
2. Prepare the financial statements for April 20XX.
3. Evaluate the performance of the business.

On August 1, 20XX, Ajay and Jeevan quit as senior executives in a mutual fund to set
up MoneyCare Company, an investment advisory service. Each of them deposited `50,000 in
MoneyCare’s bank account in exchange for 5,000 shares. Also, they raised an interest-free loan of
`20,000 for the company from their friend. They rented an office for the company in the city, costing
`5,000 per month payable on the last day of the month. At the landlord’s insistence, they paid a deposit
of `70,000, refundable on MoneyCare vacating the place.
They leased two computers for one year on a monthly rental of `6,000 per computer and subscribed
to a financial database for a fee of `11,000 per month. Computer rental and database fee were payable
at the beginning of the month. They appointed a secretary on a monthly salary of `9,000 and an
assistant on a monthly salary of `5,000.
Depending on their credit rating, MoneyCare’s customers paid in one of the following ways:
1. Before receiving service.
2. Immediately on receiving service.
3. Within one month after receiving service.
During August, MoneyCare provided services for `70,800 and raised invoices with the following
payment terms:

Fifteen customers with invoices totalling `62,100 could pay until end of September.
Two customers with invoices totalling `8,700 had to pay immediately. MoneyCare’s other
transactions in August were as follows:
Paid computer rental, database fee, office rent and salaries as agreed.
Received from customers amounts totalling `24,100 including `15,400 from customers
who chose to pay early.
Paid for office supplies costing `1,800 but did not use them.
Received `9,000 from a customer for service to be provided in September.
Earned interest income of `460 on the bank account.

Required
1. Prepare MoneyCare’s financial statements for August.
2. What do you think of the company’s financial performance?

Jet Airways (India) Ltd. is a major airline in India. The following items appeared in the
company’s recent financial statements:
1. Aircraft fuel consumed 2. Employee benefits
3. Deferred tax liability 4. Travel agents’ commission
5. Purchase of investments 6. Provision for gratuity
7. Proceeds from sale of fixed assets 8. Net cash from operating activities
9. Share capital 10. Repayment of term loans and subordinated debt
11. Interest and finance charges 12. Frequent flyer points not availed of
13. Inventories 14. Aircraft lease rental
15. Wealth tax paid 16. Capital expenditure – aircraft and others
17. Dividend paid 18. Short-term borrowings
19. Unpaid dividend 20. Deposit with service tax department
Required
1. Identify the financial statement – balance sheet, statement of profit and loss, statement of changes in
equity, or statement of cash flows – in which you would expect to see each of the items and
indicate whether it is a revenue, expense, asset, liability, equity, operating cash flow, investing
cash flow, or financing cash flow.
2. Give any five items that do not appear in the above list but you would expect to see in the financial
statements.
3. Verify your answers with the help of the information in the financial statements.

Look through the financial statements of five companies, all from different industries.
Required
1. Identify items in the financial statements that are special to each company.
2. Read the notes to the financial statements to see if they explain the items adequately.

Read the auditors’ reports of 25 companies. Your sample should have Indian (private
sector and public sector) and foreign (US, UK, Australian) companies.
Required
1. Identify the key points from these reports and compare them across companies and countries.
2. Write in your own words what you understand from the reports.
3. In your opinion, what additional information would be useful to investors?
4. Interview auditors to find out whether they agree with your understanding of the reports and why their
reports do not give the additional information.

Answers to One-minute Quiz

2.1 a, b.
2.2 a, c.
2.3 b, d. (Note: Dividend payable is an equity item because it is payable to owners, not creditors.)
2.4 b.
2.5 c.

Answers to Test Your Understanding

2.1 (a) Bought a building on credit; (b) Collected trade receivables; (c) Owner invested capital in cash;
(d) Paid trade payables; (e) Owner withdrew cash from business for personal purposes.
2.2 Net profit = EquityDec. 31, 20X2 – EquityDec. 31, 20X1 – Investments20X2 + Drawings20X2
= (`99,000 – `71,000) – (`85,000 – `67,000) – `35,000 + `24,500
= Net loss, `500.
THE ACCOUNTING SYSTEM

Accounting systems should respond effectively to the ever-rising

demand for information from management, investors, lenders, government,
regulators, and others. The starting point is to group transactions in keeping with the
information needs of the users of financial statements.
An account is an individual record of increases and decreases in an item of interest