Accounting Work Book

Fundamentals of Accounting 1.
Accounting Work Book Developing Corporate

Financial Accounting I Financial Statement 1
Chapter 1: Assets and Accounting Cycle

Group No:
Sr. Name Roll Number Effort Signature Marks
Marks Allotment
Sr Criteria Marks Marks
1 Timely Submission Date of Submission (Days) 10
Homework 1
Homework 2
Homework 3
Homework 4
Final
2 Complete Submission (No. of Incomplete Pages) 10
Homework 1
Homework 2
Homework 3
Homework 4
Final
3 Correct Submission (Final) (Random x pages) 10
4 Attachments (Write Serial Number behind each attachment) 35
Prize Bond 4
Financial Asset Document 3
Balance sheet and Intangible Note 2
Balance sheet and Operating Note 2
Building under Construction 2
Stock in trade 2
Stores, spares and loose tools 3
Trade Debt 4
Bank website and accrued interest 4
Rent Agreement 3
Real Estate 4
Balance sheet and Asset Accounts 2
5 Originality(Final) (Random x pages) 10
6 Cases Correctness 25
Juno Manufacturing 5
Scavenger Hunt 10
Chemalite Inc 10
Attachments and Cases 60
Submission, correctness and completeness 40
Total Marks 100
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Last Modified: 11-09-22 Muhammad Mobeen Ajmal Page 1 of 110
Fundamentals of Accounting 1. Accounting Work Book Developing Corporate
Notes:
1) If plagiarism is found then two submission will get zero marks. One of the person doing the
plagiarism and the other of the person facilitating plagiarism.
2) If a book is lost, you will not get marks for previous timely submissions.
3) Please attach the attachments in order so that I do not miss any of your attachment. Name the
attachment from the names given in the above list.
4) If four or more people have the same attachment, the attachments mark will be halved. I don’t
care how the attachment reached other people when you found it and only shared it with one of your
friends.
5) Select a different Balance Sheet for each attachment task. Thus, to get all six Balance Sheet associated
Marks, you should have Balance Sheet of three companies.
6) Select a different Balance Sheet for each attachment task. Thus, to get all six Balance Sheet associated
Marks, you should have Balance Sheet of three companies.
7) The homework will only be checked in the first fifteen minutes from the start of the class.
8) For those who submit the work late, you will not only loose the timely submission marks but also get
70% of the correctness marks and 70% of completeness marks to be fair with those who solved and
submitted before I shared the solution. I will share the solution in each class.
9) For homework, an incomplete page is a page in which a question is unanswered. All the tasks with
missing information must be answered. If you don’t understand the question, ask and write clear "??"
on the question.
10) Even after the homework is checked, you should continue answering and completing the book
since I will recheck the book at the time of final submission.
11) For Final submission, an incomplete page is a page in which a question is unanswered. All the
tasks with missing information must be answered. Since you have ample time before the final
submission to visit my office, there will be no provision for not understanding the material in final
submission.
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Chapter 1: Assets and Accounting Cycle
Cost
A cost is a sacrifice of resources. We incur costs whenever we give up (sacrifice) resources, regardless of
whether we account for it as an asset or an expense.
Answer the following questions

1 What is the cost when I buy a bottle of Coke? PKR 55 (2021)
2 What is the cost when I buy a packet of chips of Coke? PKR 50 (2021)
3 What is the cost when I buy a Toyota VX 4.6 Landcruiser? About 52 million PKR(2021)
4 What is the cost of coming to the class? 2 hours of Netflix Time
5 What is the cost of buying these notes? 20 Rs
Question Write the recipe of a food and how much will it cost to make it for five people?
Expense
An expense is a cost charged against revenue in an accounting period; hence, expenses are deducted from
revenue in that accounting period.
Expenses are decreases in economic benefits during the accounting period.
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Exercise Name some Expenses we are incurring in this class.
Electricity Cost Lights, Computer, AC
Depreciation Cost Wear and tear of the desks and chairs.
Rent Expense The rent on the usage of the room
Exercise List ten expenses you made over the last week.
Electricity Cost Travelling Cost
Depreciation Cost Telephone Mobile Costs
Pen Cost Hostel Rent Expense
Notes Cost Medicine Expense
Food Expense Fines (University/ Traffic Challan)
Exercise List six expenses of the university.

Wages Interest
Depreciation Cost Taxes
Rent Maintenance
Exercise List six expenses of Pakistan Team during the T20 World Cup (2021).
Flight Cost Food and Drinks
Hotel Stay Entertainment and Party
Travelling Wages of Players and others
Exercise List six expenses of a Hospital.

Nurses and support staff Salaries Tax
Doctor Salaries Interest
Depreciation Accountant's Salaries
Exercise List all the people along with their position whose Salaries should be counted in the
Accounting and Finance Departments, Wages and Salaries in the university
Name Position Name Position
Adeel Sheikh (CoD) Chair Person Mobeen Faculty
Abdul Rafay Faculty Ramla Faculty
Dr Saphia Faculty Saqib Faculty
Dr Tallat Faculty Bilal Faculty
Dr Zaheer Faculty Faizan Coordinator
Dr Ayaz Faculty Faran Coordinator
Mahmood Shah Faculty Abdul Qadir Coordinator
Tahseen Mohsin Faculty Maam IBF Coordinator
Others Research Associates Ovais Office Attendant
Dean HSM Part of his Salary Boys Sweepers/ Cleaners
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Asset
Assets are the resources a business owns. The business uses its assets in carrying out such activities as
production and sales. The common characteristic possessed by all assets is the capacity to provide
future services or benefits. In a business, that service potential or future economic benefit eventually
results in cash inflows (receipts).
An asset is only recognized if it satisfies all the four conditions
1) It is probable that the future economic benefits will flow to the entity
2) The asset has a cost or value that can be measured reliably in terms of money.
3) The asset is generated as a result of a past or present transaction
4) The asset is under the control of the accounting entity
Example: consider Campus Pizza, a local restaurant. It owns a delivery truck that provides economic
benefits from delivering pizzas. Other assets of Campus Pizza are tables, chairs, jukebox, cash register,
oven, tableware, and, of course, cash.
Questio Define Economic Benefits?
Economic benefit is the inflow of money or any other item which has value for the entity.
Economic benefit also include the reduction of costs and thus money outflow is reduced.
Questio What is monetary value?
Monetary value is the value of an item given in the currency that the people used to trade in.
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Exercise List ten things which you cannot put value on.
Love Brain
True Friends Any body Part
Family Health
Wisdom Long life
Happiness Respect
Question What is control?
Control does not mean ownership. Control means that the entity should have the power to decided
how and when to use the asset. Control also include when the entity has the right to give it or pass
it to someone else.
Answer the following questions True or False. Explain with reason.

1 Is your car (owned) or bike an asset? Yes
2 Is the cash in your pocket an asset? Yes
3 Are your clothes an asset? Yes
4 Is your handbag or book bag an asset? Yes
5 Is your laptop or computer an asset? Yes
6 I will buy a new jacket in one months time. Is the jacket my No. Only things I have already
asset? bought are an asset.
7 Is this packet of lays which I am eating an asset? No. No future benefit. Only
8 Is Sir Mobeen an Asset for the university? No. An asset must have a
9 Are you an Asset for your parents? No. An asset must have a
10 Is the parking area an asset for the university? Yes.
11 A few years ago the university's Parking area was disputed No. It was not in the
and could not be used by the university at all. Was it an asset university's control and thus
of the university at that time. was not the university's asset.
12 Your mobile is stolen and the police could not retrieve it. Is it No. It is not in your control or
still your asset. possession and thus not your
Personal vs Business Assets
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Exercise
a In the first column, write A if the listed item is an asset. Write NA if it is not an asset. Blank
cells will not get any marks.
b Explain why the listed item is your asset? Use the definition of the Asset to make the
argument.
Sr. Listed item Asset Reason

i You paid insurance for the Asset
next four months.
ii You bought stationary for the Asset

semester
iii You paid electricity bill for the Asset

month.
iv Your parents NA
v Your stolen bike is still your NA

asset.
vi The laptop you will buy in six NA

months.
vii Your cash in Bank that has NA

been put as collateral and
cannot be used as per the
terms of the loan.
viii Your brain NA
ix The dog you bought last Asset

month.
x Bill paid for food after your NA

birthday celebration at
Nando's.
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Future Benefits vs Current Benefits
Future benefits are expected to flow to the accounting entity if the entity has the asset or the benefit from
the asset for more than 1 accounting period.
Current benefits flow to the accounting entity if the entity gets the benefit within 1 accounting period.
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Question State whether the following are Assets or Expenses in the accounting period given
Sr Cost 1 week 1 month 1 quarter 1 year
1 House Asset Asset Asset Asset
2 Food you buy from the Cafeteria Expense Expense Expense Expense
3 Your bought and stored rice for 7 months Asset Asset Asset Expense
4 The petrol in your Car Expense Expense Expense Expense
5 Your Register/ Copy Asset Asset Expense Expense
6 You load a monthly internet Package on your
Asset Expense Expense Expense
mobile
7 Your Register/ Copy Asset Asset Expense Expense
8 You did grocery for 2 weeks Asset Expense Expense Expense
9 You paid rent (Prepaid Rent) for 4 months Asset Asset Asset Expense
10
The money in your pocket which you did not use Asset Asset Asset Asset
11 The money in your saving account which you will

Asset Asset Asset Asset
take out after 4 years.
12 Your winter clothes (Jackets and Sweaters) Asset Asset Asset Asset
13 You paid one years insurance premium Asset Asset Asset Expense
14 Your the university fees(3 months) instalment paid
Asset Asset Expense Expense
in June 2020
15 Your snooker club membership for two years Asset Asset Asset Asset
16 You paid electricity bill for the month. Expense Expense Expense Expense
Types of Assets
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Tangible Asset
Tangible assets are physical; they include cash, inventory, vehicles, equipment, buildings and
investments.
Real Asset
Real assets are physical assets that have an intrinsic worth due to their substance and properties. A
real asset has a tangible form, and its value derives from its physical qualities.
It can be a natural substance, like gold or oil, or a man-made one, like machinery or buildings. Real
assets include precious metals, commodities, real estate, land, equipment, and natural resources.
belonging naturally; essential.

Question
"access to Go
the on
artsgoogle and find
is intrinsic whatquality
to a high intrinsic means?
of life"
Similar: inherent, innate, inborn, inbred
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Consumable Real Asset
Consumable Assets means assets which, through use over a short period of time, become obsolete, worn
out or otherwise became in need of being replaced.
Non Consumable Real Asset

A non consumable real asset, such as land, furniture, or shares of stock, may be enjoyed without altering
its substance except for natural deterioration over time.
Question Name five consumable and non consumable assets you can see in this class
Consumable Non Consumable
Paint
Paper
Pen's Ink
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Question State whether the following are Consumable (C) or No consumable(NC) Real Asset
Sr Asset C NC
1 House NC
2 A packet of Dates C
3 Packet of Lays C
4 Car or Bike NC
5 Services Hospital's building NC
6 Petrol in the Bike C
7 The decorative heart monument in front of Punjab Cardiology NC
8 The class notes and pen C
9 The lift NC
10 The land of Faisal Masjid NC
11 The paint on the walls C
12 The register you are using. C
Financial Asset
A financial asset is a liquid asset that gets its value from a contractual right or ownership claim.
Financial assets do not necessarily have inherent physical worth or even a physical form. Rather, their
value reflects factors of supply and demand in the marketplace in which they trade, as well as the degree
of risk they carry.
Cash, stocks, bonds, mutual funds, and bank deposits are all are examples of financial assets.
Example What is the value of this 5 Rs Note today?
The Pakistan's government decide the

value of this note. If they say, it no more
has value, then its worth is zero.
Marketable Securities
Marketable securities are assets that can be liquidated to cash quickly. These short-term liquid
securities can be bought or sold on a public stock exchange or a public bond exchange. Marketable
securities include common stock, Treasury bills, and money market instruments, among others.
Question Is Cash Marketable Security?
No. Cash is a Financial Asset but not a Marketable Security.
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Example What will be the value of this 5000 Rs Note if the Government refuses to acknowledge it?
The Pakistan's government decide the

value of this note. If they say, it no more
has value, then its worth is zero.
Example Shares represent ownership and the right to future cashflow. The one with the shares get
dividends and money in the future. What happens when the company goes bankrupt and
closes? What is the value of this share now when the company went bankrupt and closed
in 2008?
The share is worth zero rupees since now it does not reflect any value.
When is a Share an Asset?
When you purchase a share of a company from its issuer or some other person it is an asset. To purchase
the share you have to give money.
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Example Habib Sugar Mills is functioning company in 2022. Its share is worth about 32 Rs. For
some unforeseen reasons, it goes bankrupt in 2024.
a Why does the share have a value of Rs 32 in 2022?
The value reflects that the shareholder will make money from the share. When the company will make
profit, the shareholder will receive a part of the profit.
b What is the value of this share now when the company went bankrupt and closed in
2024?
c What are dividends?
d What are Capital gains or losses?
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Name ten companies which have issued shares. All company's which haves traded on the Pakistan
Stock Exchange have issued shares. Go on google and find the name of the companies which are
listed on the Pakistan Stock Exchange.
Name of Companies Name of Companies
Lucky Cement
Meezan Bank
Habib Bank
Shakarganj Sugar Mills
Thattha Sugar Mills
Bonds
A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically
corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower
that includes the details of the loan and its payments. Bonds are used by companies, municipalities,
states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders,
or creditors, of the issuer.
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Example Bonds represent debt and the right to future cashflow. The one with the bonds get
interest and principal in the future. What happens when the issuer refuse to pay for this
bond?
The bond is worth zero rupees since now it does not reflect any value. All the four coupons are also
useless as you will not be receiving any money against them.
When is interest bearing bond an Asset?
When you purchase a bond from its issuer it is an asset. To purchase the bond, you have to give money.
Prize Bonds
Prize bonds are a unique method of investment that are essentially lotteries backed by the government.
Offered by National Savings under the State Bank of Pakistan (SBP), prize bonds have been around for
decades and are considered an incredibly safe form of investment.
Essentially, it does very much work like buying a lottery ticket, except in case you don’t win, you still
don’t lose any money. Let us say you go to the state bank and give them Rs 100, and in return they give
you a prize bond worth Rs 100. Now, every three months, the government draws lots to see if any prize
bonds win any money. If you happen to win, then you can cash in your prize bond and collect your
winnings. If you do not win anything, you can either wait for the next draw or simply turn in the prize
bond to the bank in exchange for the Rs 100 you paid for it. Since for the longest time prize bonds have
not been registered, you could trade them easily and even use them as cash.
When is a prize bond an Asset?
When you purchase a prize bond from the government or someone else it is an asset. To purchase the
prize bond, you have to give money.
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Example Prize Bond: Discontinuation of 40000 Rs Bonds in 2021. On the 30th of May this year,
the federal government announced that it had extended the last date for encashment,
conversion and redemption of prize bonds of denomination of Rs25,000 and Rs40,000
until Sept 30, 2021. What will happen if you don't convert your prize bond and
government don't extend the time anymore?
On the 30th of May this year, the federal government announced that it had extended the last date for
encashment, conversion and redemption of prize bonds of denomination of Rs25,000 and Rs40,000 until
Sept 30, 2021. Currently, there are four denominations of prize bonds in circulation: Rs 100, Rs 200, Rs
750, and Rs 1500.
There is a very particular reason for larger prize bonds being discontinued. In February 2017, Profit had
reported that ill-gotten money earned from illicit businesses by smugglers, abductors, drug peddlers,
blackmailers, and others was once again being whitened by the decades-old method of purchasing high
value prize bonds from bond winners. The way this scheme worked was that people that wanted to
launder money would pay prize bond winners more money than they had won, and would then use the
prize bonds to collect money from the government and claim that is how they acquired it – giving them a
verifiable money trail. Back then, it had been discovered that a man won 135 times on the country’s prize
bond schemes in a short period of 29 weeks.
Remember: Bonds and Prize Bonds are not the same thing
Attach: Buy a Rs 100 Prize Bond and attach it with the book
Question State two differences between Prize Bonds and Government bonds?
The government bonds have no lottery and no prize is given.
The prize bonds do not pay interest.
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Types of Financial Assets
Question State whether the following are Real (R) or Financial (F) Asset
Sr Asset R or F
1 House R
2 Cash F
3 Accounts Receivable F
4 Accounts Payable F
5 Table NC
6 Salaries Receivable F
7 Wages Payable F
8 Real Estate R
9 Plaza R
10 Lucky Cements Shares F
11 Bonds issued by Dawood Hercules F
12 The register you are using. R
13 Shares issued by Dawood Hercules F
14 $ 100 Prize Bond of Government of Nigeria F
15 Cheque for payment F
16 Your Car R
17 Car in the car showroom R
18 Inventory of Imtiaz R
19 Saving Certificate F
20 IOU F
Question Find a financial asset document other than cash and prize bond. Attach photocopy.
The government bonds have no lottery and no prize is given.
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Intangible Asset
Intangible assets do not exist in physical form.
The assets that cannot be touched are known as intangible assets, and the list includes brand value,
Goodwill, intellectual property like trademarks, patents, copyrights; intangible assets is further divided
into a few types like market-related, customer-related, contract-related and technology-related intangible
assets which include assets like logos, self-developed software, customer data, franchise agreements,
Newspaper Mastheads, license, royalty, Marketing Rights, Import Quotas, Servicing Rights, etc.
Question Why is the computer software Microsoft Office a Intangible Asset?
You cannot touch the software but you can touch

the computer hardware. The software is an
intangible asset while computer hardware is tangible
asset.
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Question Why is the McDonalds Trade Mark and Logo an Intangible Asset? (If you notice that
people can touch the logo and the trademarks.)
Logos and Trademarks are part of the brand that

consumers associate with the company's products
and services. The logo is the image in customers
mind and their ability to recognize McDonalds from
just that M. The extra price customers pay is
because of this association and thus these are
intangible assets.
Intangible Assets vs Tangible Assets
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Patent
A patent is an exclusive right granted for an invention. In other words, a patent is an exclusive right to
a product or a process that generally provides a new way of doing something, or offers a new technical
solution to a problem.
Question Why is Patent an Intangible Asset? (If you notice that people can touch the Paper
Certificate Patent is printed on.)
The Patent Paper or Certificate is not the asset it is a recognition of the asset. No one else can produce
the same good for another 15 years and thus the producer can charge extraordinary prices thereby by
having a patent more money is expected to come to the entity.
Prince William's Sherhwani in 2019
Question When a company invests in SAP or Oracle, are the making investment in Intangible
assets or tangible one? Explain.
SAP and oracle software's are intangible so the company is making an investment in intangible assets.
However, they also have to invest in computers to support the software's so they also make investment in
tangible assets.
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Example Treet Corporations intangible assets can be seen from the Financial statements.
Example Soneri Bank's intangible assets can be seen from the Financial statements.
Question Take any Pakistani company's financial statements. Check the balance sheet. Does the
company have any intangible assets. Are the intangible assets explained in a note. If so
which one. Attach the print of the balance sheet and the intangible note. What is the
value of intangible assets of the company?
SAP and oracle software's are intangible so the company is making an investment in intangible assets.
However, they also have to invest in computers to support the softwires so they also make investment in
tangible assets.
Natural Resources
Natural resources or commodities are the raw inputs used to manufacture and produce all of the
products in the world. These resources are found in the earth including those extracted from the earth
and those that have yet to be extracted. They grow naturally without any help from humans.
List ten non biological natural resources

Name of Resource Name of Resource
Iron Oil
Coal Natural Gas
Diamond Crude Oil
Ruby Minerals
Gold Salt
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Example OGDCL (Oil and Gas Development Cooperation Limited ) produces products from the
natural resources as can be seen from the Financial statements.
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Example Pakistan Mineral Development Corporation Limited produces minerals as can be seen
from the Financial statements.
Example Sindth Engro Coal Mining company produces coal as can be seen from the Financial
statements.
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Biological Assets
Biological Assets are assets that are living – for example, trees, animals, or cannabis. A biological asset
is any living plant or animal owned by the business.
List ten Biological Assets
Name of Asset Name of Asset
Planted Trees Sheep
Forest Animals Cows and Buffaloes
Forest Trees Hen and poultry
Crops Fish
Goats Birds
If a person fishes in the ocean, can he treat the ocean fish as a agricultural or biological
Question:
asset?'
No. Harvesting biological assets from unmanaged sources, such as ocean fishing, is not
agricultural activity
Question: Is the produce or harvest from a biological asset another biological asset?
No. The produce or harvest from a biological asset (for example, milk, tea leaves and
lumber) is inventory. The harvested produce is transferred to inventory at fair value
less costs to sell; it is thereafter accounted for in accordance with IAS 2, ‘Inventories’.
However, while the produce is still growing or still attached to the biological asset, its
value forms part of the value of the biological asset.No. Harvesting biological assets from unmanaged
sources, such as ocean fishing, is not
agricultural activity
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Example Mitchell Farms have Biological Assets as can be seen from the Financials.
Example Lucky Foods have Biological Assets as can be seen from the Financials.
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Example JDW Sugar mills have Biological Assets as can be seen from the Financials.
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Liquidity of Assets
Liquidity refers to the ease with which an asset, or security, can be converted into ready cash
without affecting its market price. Cash is the most liquid of assets, while tangible items are less liquid.
Question Rank the following assets from Most Liquid(1) to Least Liquid(8).
Asset Rank Asset Rank Asset Rank
Shares and Marketable Car 6 Prize Bond 3
4
Securities Cash 1 Residential Plot 7
Specialized Machinery 8 Bank Balance 2 Inventory 5
Current Assets
Current assets are all the assets of a company that are expected to be sold or used as a result of
standard business operations over the next year. Current assets include cash, cash equivalents,
accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets
Example Nishat Mills Current assets can be seen from the Financials.
a What is the value of current assets of Nishat Mills in 2021?

40676368000
b Why is cash a current asset? If a company wants, it can keep the cash for ages.
ot necessary that they will be used within a year. They are expected to give benefit in the next one year but if the company wants,
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Example Lucky Cements Current assets can be seen from the Financials.
Non Current Assets

Noncurrent assets are a company's long-term investments for which the full value will not be
realized within the accounting year. They are typically highly illiquid, meaning these assets cannot
easily be converted into cash.
Example Lucky Cements Non Current assets can be seen from the Financials.
Question Rank the following assets from Most Liquid(1) to Least Liquid(9).
Asset Rank Asset Rank Asset Rank
Cash and Bank Balance 1 Accrued Return 3 Property 9
Short term investments 2 Trade Debts 4 Cars 8
Long Term Investments 7 Stores and Spares 6 Stock in trade 5
Question Why are deposits assets? Differentiate between long term deposits and short term
deposits? Explain why one is current asset and another is non current asset?
When you place you money with another organization as security, it is an asset as you can get benefits from
this money and later you will be returned this money. Long term deposits will be returned after at least
one year while short term deposits will be returned within a year. Since the short term deposits are
Question returned within a year, they are a current asset.
Is your security deposit with the university a non current deposit or a current deposit?
If the deposit is to be returned after a few years, then it is non current. It will give benefit and security for
many years.
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Question In the year of your graduation, would the security deposit with the university be a non
current deposit or a current deposit?
Since the deposit will be returned within a year, it will be current deposit.
Example Nishat Mills Non Current assets can be seen from the Financials.
List current and non current assets which are common in both Lucky Cement and Nishat Mills.
Current Assets Non current Assets

Cash and Bank Balance Property Plant Equipment
Other receivables Long term investments
Stock in trade Long term loans
Stores and Spares Long term deposits
Trade Debts
Short term deposits and prepayments
Question Why are intangible assets non current asset?
Most intangible assets are used for more than 1 year.
Question Why are treasury bonds (T. Bonds) a non current assets for the company which have
bought them but Treasury Bills (T. Bills) a current asset?
T. Bills have short maturity of less than 1 years while a T. Bond is a long term government loan so it will
continue to give benefit to the company for many years.
Question Are the funds held with bank current or non current?
Funds held in bank accounts may or may not be current assets depending on for how long the account is
held. A current asset is any asset that is expected to provide an economic benefit for or within one year.
Questionheld
Funds In in bankfinancial
which accounts for less thanwould
statement one year
themay be considered
Current and Noncurrent
currentassets.
assetsOn
bethe otheruse
found; hand
the
name approve by IASB.
Balance sheet or Statement of Financial Position
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Question Which assets are more illiquid; the current assets or the non current assets? Why?
The non current assets are more illiquid since they cannot be converted into cash quickly also the company
gets their benefit for a longer period of time before their value is returned to the company.
Question What is cash crunch?

A "cash crunch" occurs when a company is running low enough on cash so that it starts to have an impact
on their operations. A "cash crunch" doesn't necessarily mean that a company is going bankrupt - instead,
it can simply mean that they need to convert some of their non-liquid assets into cash.
Question Why are Biological Assets listed as Current assets by JDW Sugar Mills but Non Current
assets by Mitchell Foods (Hint: What is in their biological assets?)
JDW Sugar Mills
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Mitchell Foods
JDW biological assets contain plants and agriculture which will be cultivated within a year. On the
other hand, Michells foods biological assets have trees and livestock's which will be there after an
year
Question What happens when non current assets of a company increase drastically compared to
the current assets?
A noncurrent asset is an asset that is not expected to be consumed within one year. If a company has a high
proportion of noncurrent to current assets, this can be an indicator of poor liquidity, since a large amount
of cash may be needed to support ongoing investments in noncash assets. This mean there is a possibility
that the company can have a cash crunch.
Question What happens when current assets of a company increase drastically compared to the
non current assets?
Current assets earn lower return compared to non current assets. For example, Cash has no return. When
a company has many current assets then it is inefficiently holding low return current assets compared to
higher return non current assets.
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Operating Asset
Operating assets are those assets acquired for use in the conduct of the ongoing operations of a business;
this means assets that are needed to generate revenue. Examples of operating assets are cash, prepaid
expenses, accounts receivable, inventory, and fixed assets. If there are recognized intangible assets, such
as technology licenses needed to manufacture goods, these should also be considered operating assets.
Investors like to compare the amount of total assets recorded by a business to the total amount of
operating assets, to see if the business is operating with the correct proportion of operating assets. If not,
they may push management to liquidate some non-operating assets and return the funds to investors in
the form of a dividend or stock buyback. It is also useful to divide sales by total operating assets and
observe on a trend line the ability of management to minimize its asset investment for each dollar of
revenue.
Non Operating Asset

Assets not considered to be operating assets are those used for long-term investment purposes, such as
marketable securities. Assets no longer used for operations, such as assets held for sale, are also not
considered to be operating assets. Further, a non-cash asset that is held for investment purposes, such as
an investment property, is not considered an operating asset.
Question State whether the following are Operating Assets (O) or Non Operating (NO) Assets of
the university
Sr Asset
1 House O
2 Cash O
3 Fees Receivable O
4 Consultancy revenue receivable O
5 Table used in classroom O
6 Lift in the main building O
7 A bus which is held for sale and not used for students NO
8 Real Estate investment in DHA Gwadar NO
9 Land bought for the university Quaid e Azam Campus O
10 Purchase Lucky Cements Shares NO
11 Purchase Bonds issued by Dawood Hercules NO
12 The bank building NO
13 Shares issued by Dawood Hercules NO
14 $ 100 Prize Bond of Government of Nigeria NO
15 Cheque from student O
16 Projector O
17 Library Books O
18 The chemicals in the Chemistry Lab O
19 Saving Certificate NO
20 Money in the university's current account O
21 Prepaid Subscriptions of Journals O
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Question State whether the following are Operating Assets (O) or Non Operating (NO) Assets for
Lucky Cement
Sr Asset
1 Factory O
2 Stock in trade O
3 Trade Debts O
4 Long term deposits O
5 Long term investments NO
6 Short term investments NO
7 Leasehold hold O
8 Freehold land O
9 Factory on leasehold land O
10 Factory on freehold land O
11 Generators O
12 Plant and Machinery O
13 Air craft used by Directors O
14 Office Equipment O
15 Computer and Accessories O
16 Long term Loans and Advances NO
17 Computer Software's O
18 Patents O
19 Investment in Lucky holdings limited NO
20 Loan to Lucky Electric Power Company NO
21 Shares bought of ICI Pakistan Limited NO
22 Loan given to Younus Energy Limited NO
23 Loans given to employees NO
24 Stores and Spares O
25 Inventory NO
Question Pick a company of your choice and list their operating and non operating assets? Attach
the balance sheet and the relevant notes from where you got the information.
Operating Assets Non Operating Assets
Question Long term loans are non operating fixed assets for lucky cement but for Bank Al Habib
long terms loans are operating fixed assets. Explain why?
Operating fixed assets are assets related to the business so since giving loans is the business of
banks, long term loans are their assets while giving loans is not the business of Lucky cement, it is
not a part of their long term loans.
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Fixed Asset
Fixed assets are long-term assets that a company has purchased and is using for the production of
its goods and services. Fixed assets are noncurrent assets, meaning the assets have a useful life of more
than one year.
Fixed assets include completed and operating property, plant, and equipment (PP&E) and are recorded
on the balance sheet. Fixed assets are also referred to as tangible assets, meaning they're physical assets.
Fixed assets are not readily liquid and cannot be easily converted into cash. They are not sold or
consumed by a company. Instead, the asset is used to produce goods and services.
Example
Question: Why are cars fixed assets of a company?

The company can use it for more than 1 financial year
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Property Plant and Equipment
Property, plant, and equipment (PP&E) are long-term assets vital to business operations. Property, plant,
and equipment are tangible assets, meaning they are physical in nature or can be touched; as a result, they
are not easily converted into cash.
Examples of property, plant, and equipment include Operating Fixed Assets and Capital Work in
Progress
Example: The Property Plant and Equipment of Nishat Mill Limited is shown.
a What is the value of Property Plant and Equipment of Nishat in 2021?

43724143000
Example: The Operating Fixed Assets of Nishat Mill Limited is shown.
a Why is kitchen equipment and crockery a part of Nishat Mills Operating Fixed Assets?
Any asset that is used in business for a longer than 1 year is an operating fixed asset.
Example: The Property Plant and Equipment of Lucky Food Company is shown.
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Example: The Operating Fixed Assets of Lucky Food Company is shown.
Capital Work in Progress

Capital work in progress represents costs incurred to date on a fixed asset that is still under construction
at the balance sheet date. On completion and readiness of asset these are transferred to “Operating Fixed
Assets” account.
Capital work in progress represents costs incurred to date on a fixed asset which is still under
construction at the balance sheet date.
This concept is more relevant immovable assets like “Building” where an organization is in the process
of constructing it or the phase of procuring and setting up “Plant and Machinery” which may take longer
periods of time.
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Example Nishat Mills Capital Work in Progress can be seen from the Financials.
a What does Building on freehold land in Capital Work in Progress means?

A building is being constructed on a land belonging to Nishat Mills.
b What does Advance against purchase of land in Capital Work in Progress means?
A land is being bought by the company and some part of the money is given while the rest will be paid.
b What does Electric Installations in Capital Work in Progress means?

The company is installing or upgrading their electric installations in their old plants. It does not mean
regular maintenance.
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Example The Property Plant Equipment note of JDW is shown.
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a Why does JDW Sugar Mills treat Sugar Cane roots as operating fixed asset?
Sugar cane roots give fruit for more than 1 year so they are treated as fixed assets. The sugar cane roots
give fruits three times before they have to be changed so these roots will give benefit for three years. A
bearer plant is a living plant that (defined under IAS 16):
– is used in the production or supply of agricultural produce;
– is expected to bear produce for more than one period; and
– hasb a remote
Whatlikelihood of being
is a bearer plant sold.
and why is sugar cane roots a bearer plant?
A bearer plant is a living plant that (defined under IAS 16):
– is used in the production or supply of agricultural produce;
– is expected to bear produce for more than one period; and
– has a remote likelihood of being sold.
c Why are bearer plant treated as property plant and equipment?

Bearer plants are used solely to grow produce over several periods and therefore meet the definition of
PPE. The use of bearer plants to produce agricultural produce is similar to the use of machinery to
manufacture goods. The manner in which an entity derives economic benefits from bearer plants
and a production plant is similar. Further, the progressive decline in the future earning potential of a
bearer plant over its life is also similar to other depreciable assets, for example, plant and machinery. The
landdupon What
which does
bearercapital
plantswork
are growing, the structures
in progress means for used to support
sugar their growth and the
cane root?
The plants are harvested and maintained until they are ready to bloom for the first time. Before the bearer
plants are in the location and condition necessary to be capable of operating in the manner intended by
management, i.e. before they reach maturity and bear produce, they are accounted for as self constructed
items of property, plant and equipment – akin to capital work in progress Then they are transferred to
operating fixed assets.
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e What does addition to capital work in progress means for sugar cane root?
The capital work in progress additions of sugar can root are new roots which are being grown by the
company but are not mature, and maybe not in the location o condition to bear fruit.
f What amount of Sugar Cane roots were cultivated in 2020 to 2021?

500,485,895
g What amount of Sugar Cane roots were matured and transferred to PPE in 2020 to
2021?
498,972,202
h What was the closing amount of Capital Work in progress sugar cane roots?
1,596,253
i What amount of Sugar Cane roots were removed or discarded in 2020 to 2021 after three
or four years of use or because they had died?
467,166,679
j What is the amount of long tern biological assets of JDW Sugar mills in 2021?
777,832,529
This includes the matures plants which bear fruit of Rs 77,6236,276 and the immature plants which do
not bear fruit of the amount 1,596,253
l Use the internet to find two more examples of bearer plants?
Tea bushes, grape vines, oil palms, fruit trees and rubber trees
m Use the internet to find two examples of non-bearer plants?

Wheat, rice paddy, potatoes
n Why is a wheat not considered as a property plant and equipment?

Crops such as paddy, wheat are not bearer plants because these do not bear produce for more than
one period
o What is the amount of JDW's building under construction in 2021?

11,579,326
p What is the amount of JDW's buildings completed and ready to use in 2021?
14,551,040
q Why is advances for vehicle a Capital Work in Progress?

When you are buying a new Fixed asset, until it is acquired and ready to use, it is considered as a Capital
work in progress.
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Capital Expenditure
Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain
physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used to
undertake new projects or investments by a company.
Making capital expenditures on fixed assets can include repairing a roof, purchasing a piece of
equipment, or building a new factory. This type of financial outlay is made by companies to increase the
scope of their operations or add some economic benefit to the operation.
The capital expenditure is the value of Capital work in progress.
Question
Which of the following are capital expenditure and which are normal operating
expenses? (Hint: If you get a new fixed asset as a result of an expense, then it is a CapEx)
Sr. Cash Outlay for Expense Type
1 Bought a second-hand laptop CapEx
2 Bought paper for Photocopy Normal
3 Assembly worker Food for Dinner on Company's Account Normal
4 Electric Installations in a new building CapEx
5 Salaries of Builders CapEx
6 Builder's Food for Dinner on Company's Account CapEx
7 Bricks and Mortar for new building CapEx
8 Lift for new building CapEx
9 Electricity bill of operating factory Normal
Question Visit a building under construction in Lahore and lists the costs being incurred. All these
costs while the building is under construction are part of Capital Expenditure. Take
Pictures of the building and the material used and workers working. Attach the pictures.
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How to get Fixed Assets?
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Specific Asset Definitions
Cash and Bank Balances

Cash and bank balances heading generally includes following:
Cash in hand
Balances available with banks
Demand deposits (funds kept in bank account which can be withdrawn at any time without prior
notice);
Cash Equivalents: Any other short term highly liquid investments that are readily convertible to known
amount of cash e.g. term deposits, prize bonds etc.
Example Lucky Cement Cash and Bank Balance can be seen from the Financials.
Example: The Cash and Bank Balance of Nishat Mill Limited are shown.
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Question Which of the following should be a part of Cash and Bank Balance (C&B)? If they are
not a part of cash and Bank Balance, suggest a suitable alternative.
Sr. Cash Outlay for C&B Alternative
1 Coins and currency Yes
2 Treasury Bonds No Financial Asset
3 Deposits in foreign banks Yes
4 Post Dated Checks No Receivable
5 Deposit in Transit Yes
6 Cash in hand Yes
7 Petty Cash Yes
8 Certificate of Deposit No Financial Asset
9 Term Deposit Receipts Yes
10 Foreign Currency Yes
11 Saving Account Yes
Inventory (Stock in Trade)

Inventory are the stock of a company that is a current asset. And Inventory as a current asset includes raw
materials, in-process products, and finished goods that are ready for sale.
Example: The Stock in Trade of Nishat Mill Limited are shown.
Example: The Stock in Trade of Pakistan Minerals Development Corporation are shown.
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Example: The Stock in Trade of JDW Sugar Mills are shown.
Question Indicate which of the following can be included in the Stock in Trade account of the
company.
Sr Item Yes/No (Reason if No)
1 Tractors held by Millat Tractors Yes
2 Tractors held by Lucky food Farm No(For use not sale)
3 Land held by Bahria Town for sale Yes
4 Land held by Bahria Town for Malik Riaz' office building No (for use)
5 Apartments for sale with Zameen.com Yes
6 Mall of Lahore shops for sale Yes
7 Surf Excel with Unilever Yes
8 Surf Excel with Imtiaz Yes
9 Surf Excel in your house No(For use not sale)
10 Oranges on the Rehri (food cart) Yes
Question Visit a shop of your choice and take picture of their stock in trade. Attach the picture.
Describe the stock in trade in the picture.
DETERMINING OWNERSHIP OF GOODS

One challenge in computing inventory quantities is determining what inventory a company owns. To
determine ownership of goods, two questions must be answered:
Do all of the goods included in the count belong to the company?
Does the company own any goods that were not included in the count?
Goods in Transit
A complication in determining ownership is goods in transit (on board a truck, train, ship, or plane) at
the end of the period. The company may have purchased goods that have not yet been received, or it
may have sold goods that have not yet been delivered. To arrive at an accurate count, the company
must determine ownership of these goods:
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Goods in transit should be included in the inventory of the company that has legal title to the goods.
Legal title is determined by the terms of the sale
FOB Shipping point: When the terms are FOB (free on board) shipping point, ownership of the
goods passes to the buyer when the public carrier accepts the goods from the seller.
FOB Destination: When the terms are FOB destination, ownership of the goods remains with
the seller until the goods reach the buyer.
If goods in transit at the statement date are ignored, inventory quantities may be seriously miscounted.
CONSIGNED GOODS
In some lines of business, it is common to hold the goods of other parties and try to sell the goods for
them for a fee, but without taking ownership of the goods. These are called consigned goods.
For example, you might have a used car that you would like to sell. If you take the item to a dealer, the
dealer might be willing to put the car on its lot and charge you a commission if it is sold. Under this
agreement, the dealer would not take ownership of the car, which would still belong to you. Therefore, if
an inventory count were taken, the car would not be included in the dealer’s inventory because the dealer
does not own it.
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Many car, boat, and antique dealers sell goods on consignment to keep their inventory costs down and to
avoid the risk of purchasing an item that they will not be able to sell. Today, even some manufacturers
are making consignment agreements with their suppliers in order to keep their inventory levels low.
Example: The Stock in Trade of Unilever Pakistan are shown.
a What is the value of the goods in transit for 2021?

135.7 million Rs
b What is the value of the consigned goods for 2021?

556.99 million Rs
c What is the value of the inventory for 2021?

1327888000
Example: Policy of Daraz for Sellers using the platform

Daraz Express: Fulfilment model whereby the Seller's Products are stored at a Daraz Fulfilment Centre.
The ownership of the product remains with the seller.
Daraz may offer additional promotions/discounts over and above a Sellers Listed Price via multiple
channels and the Seller agrees that this does not constitute a change in the ownership of the
Product(s).
In case the Seller raises a dispute about the condition of a returned Product (e.g. Product is damaged),
Daraz will reimburse the Seller for the Product in question given the case is reviewed and accepted by
Daraz in favour of the Seller. For such a reimbursement, title of ownership of said Product shall only
pass to Daraz in the case Daraz decides to hold the Product for commercial purposes. Daraz may
also hold the Product temporarily in order to claim insurance or settlement with a 3PL. This does not
mean ownership of Product transfers to Daraz.
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Seller shall remain the sole and undisputed owner of the sold Product(s) until it is successfully
delivered to the Customer, at which point title and ownership shall be transferred to the
Customer. In case any Product is returned or rejected by a Customer, the title and ownership of the
Product shall, immediately upon return or rejection, revert to the Seller who shall be the sole and
undisputed owner
a (True or false) Any seller who uses Daraz platform, will treat the inventory with Daraz
as inventory with third party (consigned inventory).
True. The ownership is with the seller.
b With regards to the customers, are the Daraz sales terms FOB shipping point or FOB
Destination?
FOB Destination as the ownership will only transfer when the goods are received by the owner.
Question Maaldar Company completed its inventory count. It arrived at a total inventory value of
$200,000. As a new member of Maaldar’s accounting department, you have been given
the information listed below. Discuss how this information affects the reported cost of
inventory.
a Maaldar included in the inventory goods held on consignment for Falls Co., costing
$15,000.
The goods of $15,000 held on consignment should be deducted from the inventory
count.
The company did not include in the count purchased goods of $10,000 which were in
b
transit (terms: FOB shipping point).
The goods of $10,000 purchased FOB shipping point should be added to the inventory count.
The company did not include in the count sold inventory with a cost of $12,000 which
c
was in transit (terms: FOB shipping point)
Sold goods of $12,000 which were in transit FOB shipping point should not be included in the ending
inventory.
Question Indicate which of the following can be included in the Stock in Trade account of the
company.
Sr Item Yes/No (Reason if No)
1 Goods out on consignment to another company's store Yes (Consignment)
2 Goods sold on instalment No(Sold)
3 Goods purchased FOB Destination which are in transit No(FOB Destination)
4 Goods purchased FOB Destination which are received Yes
5 Goods purchased FOB Shipping point are in transit Yes (FOB Shipping point)
6 Goods purchased FOB Shipping which are received Yes
7 Freight charges on goods purchased Yes (all costs till warehouse)
8 Cost incurred to advertise goods held for sale No(Advertising cost)
9 Material on hand not yet placed for production by a Yes (Raw Material)
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10 Goods held on consignment from another company No (Others)
11 Goods sold FOB Destination which are in transit Yes(FOB Destination)
12 Goods sold FOB Destination which are received No
13 Goods Sold FOB Shipping point are in transit No
14 Costs identified with units completed but not sold Yes(Finished goods)
15 Costs identified with units still being worked upon. Yes(Work in progress)
Stores, Spares and Loose Tools

Stores and spares are items that are used or consumed in the production process or while providing
services either to customers or internally to departments. For example nails, glue, screws are items that
are used in making chair.
Stores: Non manufacturing raw material such as stationary or printing papers
Spares: Material used as spares to an asset such as spare parts.
Loose Tools: Small tools used in repair work such as hammers, spanners, and blades etc.
Question Visit an office or factory of your choice and take picture of their stores, spares or loose
tools. Attach the picture. Describe the items.
Example: The Stores, Spares and Loose Tools of JDW Sugar Mills are shown.
a What could be the Spares of JDW sugar Mill?
Machine Spare parts of the sugar processing plant
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Example: The Stores, Spares and Loose Tools of JDW Sugar Mills are shown.
b At JDW, what amount of Stores are kept at the sugar factory in 2021? Name two things
which can be a part of these stores.
716958741
Receivables
A receivable is created any time money is owed to a firm for services rendered or products
provided that have not yet been paid. This can be from a sale to a customer on store credit, or a
subscription or instalment payment that is due after goods or services have been received.
Account Receivables (Trade Debts)

Accounts receivable, are debts owed to a company by its customers for goods or services that have
been delivered or used but not yet paid for.
Accounts receivable usually occur because of credit sales. It arises as a result of buying goods or services
on credit. In general, the payment period ranges from one to two months.
Remember: When a sales occur on credit, the select will recognize a receivable (trade debt) which
is an asset. On the other hand a buyer will recognize a liability, trade payable or accounts payable.
Exercise: Guddo sold 10 Kg of Rice to Jugno for Rs 4500. Jugno paid Rs 3500 on spot and the rest
on credit.
a Who recognizes a trade debt asset? Of what amount?
Guddoo of Rs 1000
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b Who recognizes a trade payable liability? Of what amount?
Jugno of Rs 1000
Example: The Trade Debts of Lucky Cement are shown.
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Example: The Trade Debts of JDW Sugar Mills are shown.
Question Which of the following is not true about Trade Debts and why?
a The amount of credit given to each customer is the same.
False. The credit given to any customer depends on past experience, customer credibility and ability to
pay. Thus, different customers are given different amount of credits.
b All customers return the money they owe to the company.

False. Not all the customers return the money. This is why the companies have bad debts. The customers
sometimes don’t have the money to pay back, their are trade disputes and other reasons..
Question Use google to define the following:

a Bad Debts
Bad debt is the term used for any loans or outstanding balances that a business deems uncollectible. For
businesses that provide loans and credit to customers, bad debt is normal and expected. There will likely
be customers who can't pay their debts back.
b Credit Terms
A Credit Term also called payment terms, is the term or terms stated in invoices stating the agreement of
when a buyer must pay for the goods or services received. It usually outlines the percentage of payment
to be made at a particular date and other information as necessary.
c Trade Credits
Trade credit means many things but the simplest definition is an arrangement to buy goods and/or
services on account without making immediate cash or cheque payments.
Credit Terms
Trade credit is a business-to-business (B2B) agreement in which a customer can purchase goods without
paying cash up front, and paying the supplier at a later scheduled date. Usually, businesses that operate
with trade credits will give buyers 30, 60, or 90 days to pay, with the transaction recorded through an
invoice.
Trade credit can be thought of as a type of 0% financing, increasing a company’s assets while deferring
payment for a specified value of goods or services to some time in the future and requiring no interest to
be paid in relation to the repayment period.
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Example: Trade Credit Terms of a company:
a) What does 2/10, n/30 means?

2/10 Net 30 refers to the trade credit offered to a customer for the sale of goods or services. 2/10 net 30
means that if the amount due is paid within 10 days, the customer will enjoy a 2% discount. Otherwise,
the amount is due in full within 30 days.
Exercise: On 1st January, a customer bought Rs 50,000 worth of goods from JMI. They paid Rs
10,000 in cash and for the rest of the amount, the credit term was 2/10, n/30.
a What was the amount of trade debt?
40000
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b What is trade discount which is equal to 2% of the trade debt?
800
c What was the amount due if the payment was made on any of the following dates:
1 5th January 39200
2 9th January 39200
3 10th January 39200
Exercise: On 15th March, a customer bought Rs 720,000 worth of goods from Dunia Traders.
They paid Rs 129,000 in cash and for the rest of the amount, the credit term was 3/7, n/15.
a What was the amount of trade debt?
591000
b What does 3/7 and n/15 means?

The customer will get a 3% discount in the next seven days over wise he will have to pay full
amount in 15 days.
b What is trade discount?
17730
c What was the amount due if the payment was made on any of the following dates:
1 17th March 573270
2 20th March 573270
3 22nd March 573270
4 23rd March 591000
Exercise: Nany Co. uses the gross method to record Sales made on credit. On 1 June 2025, the
company made sales of 40,000 Rs with terms 3.5/10, n/45. On June 12th, the company received
cash for the sale of June 1st.
a What was the amount received in cash by the company?
38600
Question Visit a shop, office or factory of your choice and ask them whether they sell on credit. If
they do, ask them for a picture or a copy of a receipt which clearly states the total
amount, the amount paid in cash and the amount due. Attach the receipt.
a What was the total sales amount?
b What was the amount paid in cash?
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c What was the credit amount?
d What percentage of the total sales amount was the credit?
e Do you think, the company gives the same amount of credit to all customers?
Other Receivables
This receivable is of a broader type, as it includes interest receivables, salary receivables, employee
advances, and tax refunds. Due to their general nature, notes can be reported separately on the balance
sheet.
Sal
Inte ary
rest Rec
Rec eiv
eiv Tax
abl
abl Refe
e und
s
Other
Receivables
Question Use google to find out what tax refund means? Can you get a tax refund in Pakistan?
As per section 237, if any person satisfies the Assessing Officer that the amount of tax paid by him or on
his behalf or treated as paid by him or on his behalf for any year exceeds the amount of tax payable by
him, he shall be entitled to a refund of the excess tax paid by him. Refund can be only claimed if the
person has filed their Income Tax Return electronically.
Example: The Other Receivables of Nishat Mills are shown.
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Example: The Other Receivables Note of Lucky Cement is shown.
a What was the other receivables amount for Lucky Cement in 2021?
$ 3,690,639,000
b Why was money due from Collector of Customs?
The company imported cement bulkers. The company claimed exemption of duty, however the collector
of custom said that the duty will be waived after FBR's decision, However, three post dated cheques
were submitted. While The FBR approved through SRO, the collector of custom encashed the cheques.
The company has also won the case in Sindh high court. So, it is very likely that they will get their
money back in 20.
If a judgement is challenged in the Supreme court, should the company still recognize it
c
as an receivable?
It is likely that the company may win the case like they did in high court so it should still be recognized
as an asset. However, if was unlikely they would win the case, then it should not be counted as a asset.
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Loans and Advances (Given)
Short term loans and advances are current assets. Advances on asset side are those advances which are
paid for now but realize at future date, so it is an assets to the company. The Loan on assets side are
those loans which are given by the company and to be recovered in future with interest.
Example: The Loans and Advances of Nishat Mill Limited are shown.
a When are loans considered an asset of the company?
When a loan or advance is given, it is considered as an asset of the company.

b When are loans considered a liability of the company?
When a loan or advance is taken then the loan is considered as the liability of the company.
c Would interest be received or paid on a loan that is treated like an asset by the company?
If the loan is given, then it is an asset of the company. If the company gave the loan, then it will
receive interest.
Question In each of the following indicate, for whom is the loan and asset and for whom is it a
liability?
Sr Item Asset Liability
1 ABC company takes a loan from UBL Bank. UBL ABC
2 Maaldar deposited money in a Meezan Bank Maaldar Meezan Bank
3 Millat gives advance to a supplier Rhosan tools Millat Rhosan tools
4 City Bank gave loan to a customer Raheel City Bank Raheel
5 Lums borrowed money from Packages Packages LUMS
6 Lums deposited the loan money in HBL LUMS HBL
7 HBL deposited money with the SBP HBL SBP
8 SBP gave a loan to the government of Pakistan SBP Gov of Pakistan
9 Gov of Pakistan took loan from IMF IMF Gov of Pakistan
10 IMF deposited money in the world bank IMF World Bank
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Prepayments or Prepaid Expenses
These refer to the money that a firm pays in advance. They serve to receive certain goods or services in
the future. It is quite logical that a company, in this case, cannot convert the money into cash
immediately. Prepaid rent and insurances are good examples or pre-paid expenses.
Example: The Trade Deposits and Short term prepayments of Lucky Cement are shown.
Accrued Expenses
Question Google the word Accrued. What does it mean?
(of a benefit or sum of money) received or accumulated in regular or increasing amounts over time.
"the accrued interest"
Accrued Salary
Accrued salaries refers to the amount of asset a person a has earned by the end of the reporting period but
has not been paid for.
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Example A person worked for 30 hours at $32 per hour. He also did overtime of six hours at $49
per hour. He received cash payment for only three fourth of the regular time. What is
the accrued salary of the person?
Salary Hours Hourly Rate Total Salary

Regular time 30 $ 32 $ 960
Overtime time 6 $ 49 $ 294
Total Salary Earned $ 1,254.00
Salary received in cash $ 720.00
Accrued Salary $ 534.00
The company has paid 720$ of the salary and still has to pay $534 of the salary.
Example Every week a company has to pay Rs 110,000 for the employees who work a five-day
workweek. In your company, employees are paid every Friday. Thus, every Friday, the
Cash account decreases and the Salaries Expense increases. Assuming that the month of
July starts on Monday, you will owe your employees $110,000 on July 5th. On the 12th,
19th, and 26th day of the month, the same thing would happen and you will increase
your Salaries Expense account and lower the Cash. The last week of the month, where
July 31st falls on Wednesday. As of the end of the month, you owe salaries for the 3 days
your employees worked, but this will not be paid until the next month (August 2nd). One
employee did not work on any of these three days while another 2 were absent for one
day each. Thus, the company will not have to pay them. Their daily wage rate is Rs 2000.
What is the accrual salary recognized by the company on 31st June?
Salary Days Worked Daily Rate Total

Regular time (no Absences) $ 5 $ 22,000 $ 110,000
Absent Employee ( days) $ 5 $ 2,000 $ 10,000
Accrued Salary $ 56,000
Example An employer has a salary expense of Rs 72,000 in June and Rs, 70,000 in July. Assume
that in any month, the workflow is smooth so the monthly daily rate is constant. Assume
a 30 day month. The employer pays salary on the 25th of each month till the 20th of the
month.
Since, the financial years ends on 30th June, what was the accrued salary for the year on
a
the Balance Sheet?
Absent Employee ( days) $ - $ 2,000 $ -
Accrued Salary $ 24,000
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b What would be the amount of cash paid on July 25th?
Accrued Salary of June $ 24,000
Regular time for July $ 30 $ 2,333 $ 70,000
Salary of July paid $ 20 $ 2,333 $ 46,667
Total Paid $ 70,667
Accrued Interest
In accounting, accrued interest refers to the amount of interest that has been incurred, as of a specific
date, on a loan or other financial obligation but has not yet been received out.
Exercise Think of an example where you can earn accrued interest? Support your analysis from a
bank's website and loan information. When is interest paid on saving account? When
will your interest be paid in your account? What will be the accrued interest in such a
case? Attach the print of banks website where you get such information.
Exercise A person invested Rs 1 million in a bank on January 1st. The person earns Rs 30 per
day which is paid at the end of the month.
Date 10th Jan 20th Jan 30th Jan 31st Jan 1st Feb 10th Feb 20th Feb 28 the
Feb
Days in a month
Interest Earned by
date
Transfer to
customer on date
Accrued Interest
b Comment on the pattern of Accrued Interest recognized by the person?
The accrued interest shows a cyclical nature. The Accrued Interest increase and the drop as soon
as interest is paid. Then accrued interest start accumulating again.
Example: Accrued Interest in a Bond
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Example: The accrued interest or accrued return of Lucky Cement is listed as shown.
a What is accrued Return?

The return accumulated in a bank but not received by the company yet.
b What is the value of accrued return for Lucky Cement in 2021?

22309
Example: The accrued interest or accrued return of Pakistan Mineral Development Corporation is
listed as shown.
a When is accrued return an asset?

A loan is an asset when the entity has given a loan. When the loan is asset, any interest earned by
not received in cash is accrued return receivable and thus an asset.
b When is accrued return a liability?

A loan is an liability when the entity has taken a loan. When the loan is liability, any interest
expense recognized by not paid in cash is accrued return payable and thus a liability.
c When is accrued salary an asset?
When a person or entity has provided the services and payment is due but not paid yet, the
accrued salary is receivable and thus an asset.
d When is accrued salary a liability?
When a person or entity has received the services and payment is due but not paid yet, the accrued
salary is payable and thus a liability.
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Right-of-use assets
A right-of-use asset, or ROU asset, represents a lessee's authority to utilize a leased item, typically
property or equipment, over the duration of an agreed-upon lease term. In other words, the lessee is
granted the right to obtain the economic benefit from the usage of an asset owned by another entity.
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IFRS 16 defines a lease as “A contract, or part of a contract, that conveys the right to use an asset for a
period of time in exchange for consideration”. In order for such a contract to exist the user of the asset
needs to have the right to:
Obtain substantially all of the economic benefits from the use of the asset.
The right to direct the use of the asset.
Identified Asset:
One essential feature of a lease is that there is an ‘identified asset’. This normally takes place through the
asset being specified in a contract, or part of a contract. For the asset to be ‘identified’ the supplier of
the asset must not have the right to substitute the asset for an alternative asset throughout its period
of use.
Question In each of the following indicate, whether the asset is identified or not:
Sr Item Identified
1 Rehman rents a house to Aslam Identified
2 KFC has agreement with Food panda for 20 delivery bikes. No(The bikes and
3 Nico Paints rented a factory building. Identified
4 Adeel Sheikh rented a rice harvester. Identified
5 Saqib made a agreement with UBER for pick and drop on 5 days No(Cars can be
Exercise Under a contract between a local government authority Lahore Waste Management
Company LWMC (L) and a private sector provider Oz Pak (P), P provides L with 20
trucks to be used for refuse collection on behalf of L for a 6-year period. The trucks,
which are owned by P, are specified in the contract. L determines how they are used in
the refuse collection process. When the trucks are not in use, they are kept at L’s
premises. L can use the trucks for another purposes if it so chooses. If a particular truck
needs to be serviced or repaired, P is required to substitute a truck of the same type.
Otherwise, and other than on default by L, P cannot retrieve the trucks during the six-
year period.
a Is there a lease agreement?
Yes. The trucks are owned by P but working for L.
b Is the asset Identified?

Yes, 20 waste collection trucks. The trucks are with L and only changed if they are not working.
c Does L have the right to direct the Use of the asset?

L has the right to send any truck to any place at any given time for any use. So, it has the right to
direct the asset.
c Is a right of use asset recognized?
Yes, it is recognized since LWMC has all the economic benefits of the trucks over the life of the
contract. The trucks are with L all the time.
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Example: The Right of Use Assets of Nishat Mill Limited (Consolidated) are shown.
a What is the value of Nishat Mills right of Use Assets?

2030736000
b What is the underlying of the right of lease asset?
Warehouse, Godowns and shops
c Does Nishat Mill have ownership of these asset?

No ownership
Why are these then considered as asset for Nishat Mills when it does not have the
d
ownership?
Because the economic benefits throughout the life of use of the asset is with Nishat or Nishat has
the ability to direct the use of the godowns or shops
Exercise Have you ever rented any item (Car, Phone, House, Bulding, Land, Shop, etc)? If so,
would you recognize it as a right of use asset? If so, why? If you think, it is not a right of
use asset, why not? Attach a print of the lease document.
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Example: The Right of Use Assets of JDW Sugar Mills are shown.
Long term investments
Long term investments

Long-term investments are any securities that are held for more than a year, generally. This includes
investment in subsidiaries, associates, real estate and shares or bonds of other companies.
Example: The Long term investments of JDW Sugar Mills are shown.
Exercise Real Estate is a common long term investment vehicle. Visit any society under
development, talk to the property dealers and make a plan of how you can invest in the
property. Attach pictures of the developing society and any investment plan that you can
get from property dealer.
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Example: The Long term investments of Lucky Cement are shown.
a What is the value of Lucky Cement Long term investments in 2021?

53194485
b Google: What are subsidiaries of a company?
In the corporate world, a subsidiary is a company that belongs to another company, which is
usually referred to as the parent company or the holding company. The parent holds a controlling
interest in the subsidiary company, meaning it has or controls more than half of its stock.
c Why is Lucky Electric Power Company a subsidiary of Lucky Cement?

Lucky Cement controls 100% shares of Lucky Electric Power Company.
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Exercise
The company has following assets. Based on the information, answer the following questions.
Cash $ 30,000 Freehold Land $ 24,000
Shares of other company's $ 140,000 Computer Software's $ 5,000
Patent $ 25,000 Factory Equipment $ 150,000
Prize Bonds $ 12,000 Livestock $ 12,000
Buildings $ 154,000 Trees $ 13,000
a What is the value of company's Biological assets?
$ 25,000
b What is the value of company's Financial assets?
$ 182,000
c What is the value of company's Intangible assets?
$ 30,000
d What is the value of company's Property Plant and Equipment?
$ 328,000
e What is the value of company's non current assets?
$ 358,000
f What is the value of company's total assets?
$ 565,000
g The company's main business is production of cement. Name one non-operating asset of
the company.
Shares of other company, livestock's

h Name two current assets of the company?
Cash, shares, prize bonds

i Which is the most liquid asset in the list? Which is the most illiquid asset of the
company?
Liquid Asset Cash
Illiquid Asset Building
j Describe patent and explain why it is an asset of the company?
Cash, shares, prize bonds
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g Prepare the Asset Section of the Balance Sheet:
Non Current Assets
Property Plant and Equipment $ 328,000
Intangible Assets $ 30,000
Biological Assets $ 25,000
Total Non Current Assets $ 383,000
Current Assets
Marketable Securities $ 152,000
Cash and Bank Balance $ 30,000
Total Current Assets $ 182,000
Total Assets $ 565,000
Exercise
Cash is King Band owns the following assets on June 30th, 2024.
Cash in Saving Account $ 30,000 Current Account $ 24,000
Shares $ 14,000 Post Dates Cheques $ 5,000
Foreign Currency Account $ 25,000 Certificate of Deposit $ 15,000
Prize Bonds $ 12,000 Term Deposit $ 12,000
Cash in hand $ 14,000 Treasury Bonds $ 13,000
a What amount should be reported as Cash and Bank Balance?
$ 105,000
Exercise
The assets of a company are listed.
Cash in Saving Account $ 190,000 Work In Process Inventory $ 24,000
Equipment $ 1,100,000 Accounts Receivables $ 5,000
Prepaid Insurance $ 41,000 Patents $ 110,000
Raw Materials $ 335,000 Finished Goods $ 150,000
Cash in hand $ 14,000 Goods in Transit (FOB,
$ 13,000
Investment in Subsidiaries $ 135,000 Shipping) for sold items
a Prepare the Current Asset Section of the Balance Sheet:
Current Assets
Stock in Trade $ 509,000
Prepaid Expenses $ 41,000
Trade Debt $ 5,000
Marketable Securities $ -
Cash and Bank Balance $ 204,000
Total Current Assets $ 759,000
b Why was the goods in Transit not added to the Stock in Trade Inventory?
The term of sale is FOB shipping so as soon as the product was shipped, ownership was
transferred.
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Exercise
The assets of a company are listed.
Finished Goods $ 614,112 Leasehold land $ 456,471
Prepaid Telecom Services $ 403,492 Investment in Subsidiaries $ 153,744
Shares of other Companies $ 256,700 Electric Installations $ 432,541
FOB Shipping Raw Material $ 33,200 Work in Progress Inventory $ 445,672
Prepaid Rent $ 178,094 PLS Saving Account $ 643,863
Marketing Rights $ 416,999 Trees $ 234,048
Cash in hand $ 543,880 Prize Bonds $ 148,077
T-Bonds $ 201,098 Buildings $ 594,929
Raw Material $ 551,371 Accrued Interest $ 327,112
Equipment $ 392,835 Good Will $ 387,442
Accounts Receivable $ 332,500 Accrued Consulting Revenue $ 53,200
T-Bills $ 468,686 Foreign Currency Account $ 758,743
Freehold land $ 941,496 Right of Use Assets $ 773,854
Real Estate Investment $ 935,542 Trademarks and Logos $ 333,654
Cows and Buffalos $ 418,958 Camels $ 144,709
a Prepare the Asset Section of the Balance Sheet:
Non Current Assets
Property Plant and Equipment $ 2,818,272
Intangible Assets $ 1,138,095
Biological Assets $ 797,715
Right of Use Assets $ 773,854
Long term Investments $ 1,290,384
Total Non Current Assets $ 6,818,320
Current Assets
Stock in Trade $ 1,644,355
Accrued Revenue $ 380,312
Prepaid Expenses $ 581,586
Trade Debt $ 332,500
Short term investments $ 873,463
Cash and Bank Balance $ 1,946,486
Total Current Assets $ 5,758,702
Total Assets $ 12,577,022
b What was the value of Total Equity and Liabilities for the year?
c What is the value of the financial assets of the company?
$ 3,174,791
d What is the difference between Accrued Revenue and Prepaid Expenses
####################################################################################
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Verification of Assets
Does the asset actually exist?
As an asset manager or as an auditor, it is your responsibility to verify that the assets reported in the
books actually exist, are of the value reported and they are in the organization's control.
Existence – means that assets and liabilities really do exist and there has been no overstatement – for
example, by the inclusion of fictitious receivables or inventory. This assertion is very closely related to
the occurrence assertion for transactions.
Case: Juno Manufacturing
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Unencumbered
What Is Unencumbered? Unencumbered refers to an asset or property that is free and clear of any
encumbrances, such as creditor claims or liens.
Creditors do not have claims to unencumbered assets as there are no associated debts. As a result,
these assets are the full property of the person(s) listed as the owner(s) in an official capacity, such as on
a title or deed. Unencumbered assets are not listed as collateral for any debt and are not subject to
competing claims, such as past-due property taxes.
Unencumbered assets are easier to transfer because only the property owner, acting as the seller, and the
party interested in purchasing the property, acting as the buyer must approve the sale. Further, there will
be no predetermined required sale price, allowing the seller to set the price at his or her discretion.
Encumbered assets can be sold, but the sale process requires approval by the buyer and seller, as well as
any other entity that has a claim to the asset, such as the bank that issued the loan for the collateralized
asset.
Encumbered Cash
A company may have restricted cash, cash that is not available for general use but rather is restricted
for a special purpose. For example, landfill companies are often required to maintain a fund of restricted
cash to ensure they will have adequate resources to cover closing and clean-up costs at the end of a
landfill site’s useful life.
Encumbered Land
A land that is used as a collateral by the company would be encumbered land. To verify that the land is
totally in the control of the company, it is necessary to ensure that no one has senior rights to its sale. So,
to ensure that the land is unencumbered, the following steps can be taken:
1) Review the title certificates for the land to verify the ownership.
2) Review the loan covenants for collateralizing the Property, plant and equipment (PPE)
3) Review the board of director's meetings to verify authorization for land acquisition or disposal
Encumbered Trade Debts

Encumbered securities (or encumbered assets) are securities that are owned by one entity, but which are
at the same time subject to a legal claim by another. So, the company might have sold the trade debts to
another company or they might have collateralized the trade debts for another loan. So, to ensure that the
land is unencumbered, the following steps can be taken:
1) Review the sales and cash receipt invoices to ensure the existence of trade debts.
2) Review the loan covenants for collateralizing the Trade Debts.
3) Review the board of director's meetings to verify authorization for sale of Trade Debts
Question State two more assets that could be encumbered?

Theoretically, any current or non current asset could be encumbered. However, banks prefer the assets
over which they can have control thus accrued or prepaid expenses are not preferred assets as collateral.
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Exercise: Fill in the table below to explain how you will confirm the existence, completeness,
correct reported cost and unencumbered ownership of the following assets.
a Existence will be assured by the physical presence of the asset.
b Completeness is when all the asset reported is still there.
c Correct Reported Figure refers to the company's account showing the correct value.
d If an asset is unencumbered, that means it is free and clear from any liens or claims from the
government or financial institutions.
Correct Reported Unencumbered
Asset Existence Completeness
Figure Ownership
Count any cash in hand Count any cash on Review all recent Review any loan
hand. bank statement document for
reconciliations for restricted cash
Send letters to banks
accuracy. requirements
Cash requesting accounts and Send letters to
In confirmations
balance verification banks requesting
letters sent to bank
accounts and
for any restrictions
balance verification
on cash.
Land
Inventory
Trees
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Scavenger hunt
Directions
1) There should be separate picture for each item. (Don’t reuse picture)
2) Half the marks are for speed and the other half for accuracy.
3) There should be at least three pictures of each person in the collection (Faces are not compulsory for
marks to be awarded, you can use mask when taking pictures.)
4) Write the Serial number of task (Sr) for which the picture was taken on the picture.
5) Arrange the pictures in an order and make a pdf file. Attach a copy.
Selected Asset for Picture (Be

Sr Task
specific in naming the asset)
0 Take Picture of a PPE of the university Main Building
1 Take a picture with a biological asset of the university.
2 Take a picture with a financial asset.
Take a picture outside a building which will generate non-
3 operating revenue for the university.
4 Take a picture on a freehold land.
5 Take a picture with a fixed asset of the university.
Take a picture with a intangible Asset that the university has
6 developed.
Take a picture with an item that the university keeps as stores
7 and spares.
Take a picture with a fixed asset of the university which
8 moves.
9 Take a picture with an asset that is tangible.
Take a picture with an asset that does not generate revenue for
10 the university.
11 Take a picture with a depreciable asset.
12 Take a picture with a non depreciable asset.
Take a picture of a thing which other management courses
call an asset but is not recognized as an asset in financial
13 accounting.
14 Take a picture with a consumable asset of the university.
Take a picture of the work in progress inventory of the
15 cafeteria of the university.
16 Take a picture with an intangible asset.
17 Take a picture of a non biological natural asset.
Take a picture of a receipt which corresponds to an expense
18 made today.
19 Take a picture of a non current asset of the university.
Take a picture of the raw material stock of the cafeteria of the
20 university.
21 Take a picture of the operating asset of the university.
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22 Take a picture of an asset that is on the university premises
but is not owned or controlled by the university.
23 Take a picture of capital work in progress of the university.

Take a picture with a non consumable real asset of the
24 university.
Take a picture of the finished goods inventory of the cafeteria
25 of the university.
Q1 Explain why one picture could answer many of the above requirements.
Use one picture of yours and justify how that picture fulfils the requirements of multiple
Q2 tasks. Which ones?
Picture Selected of Sr. Number The picture is of
Task Satisfied Reason
Based on your work, make a sample for the Accounts that will be visible on the Asset
Q2 Section of the Balance Sheet of the University.
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Financial or Accounting Transaction
A transaction involves exchange of economic benefits such as goods, services or cash for some other
benefits
Accounts
An account is a record in an accounting system that tracks the financial activities of a specific asset,
liability, equity, revenue, or expense.
There is an account for all the general classes of assets an entity holds.
List ten Assets Accounts
Name of Asset Account Name of Asset Account
Cash Building
Property Stores
Inventory Prepaid Rent
Biological Assets Accrued Interest
Right of use Assets Loans paid
Are the following appropriate asset accounts for the university

Sr Account Yes/ No Sr Account Yes/ No
1 Class room MC 103 No 6 Free hold Land Yes
2 Masjid No 7 Intangible Assets No
3 Door Knobs No 8 Teachers/ Faculty No
4 Markers No 9 President No
5 Computers and Laptops Yes 10 Stores and Spares Yes
Exercise Indicate which of the following are asset accounts

Number Account Asset Account Number Account Asset Account
Description (Yes/No) Description (Yes/No)
1010 Cash Yes 1092 Real Estate Yes
2010 Accounts Payable No 1020 Accounts Yes
1043 Lab Supplies Yes Receivable
1040 Lab Equipment Yes 4010 Fees Earned No
3010 Doris Agarwal's No 1070 Prepaid Insurance Yes
Equity
1090 Computers Yes 4030 Rent Expense No
Exercise Pick a Company of your choice, look at its Balance Sheet and the notes. Then list ten
asset account the company have. Attach the Balance sheet and cross reference the asset
account on the Balance sheet.
Sr Asset Accounts Sr Asset Accounts
1 6
2 7
3 8
4 9
5 10
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Double Entry Accounting
Double entry, a fundamental concept underlying present-day bookkeeping and accounting, states that
every financial transaction has equal and opposite effects in at least two different accounts.
In the double-entry system, transactions are recorded in terms of debits and credits.
The increase of Asset is a debit entry
A decrease in asset is a credit entry
Type of Account Debit Credit

Assets Increase Decrease
Liability Decrease Increase
Equity Decrease Increase
Revenue Decrease Increase
Expenses Increase Decrease
Question: Is it true that debiting an account means increasing the accounts value.
No. Debit only increases assets and expense accounts
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Question Complete the table stating Debit (Dr) or Credit (Cr)
Sr Type of Account Increase Decrease
1 Assets Dr Cr
2 Liability Cr Dr
3 Equity Cr Dr
4 Revenue Cr Dr
5 Expenses Dr Cr
Question Indicate whether the change in the following will be a debit or a credit.
Sr Change Debit or Credit
1 Increase in Cash Debit
2 Decrease in bank loan Debit
3 Increase in stock in trade Debit
4 Made revenue from consulting Credit
5 Increase in owner's investment Credit
6 Increase in Advertising expense Debit
7 Decrease in loans liability Debit
8 Decrease in buildings Credit
9 Expense of Sales Staff commission Debit
10 Paying dividends Debit
11 Decrease in biological assets Credit
12 Increase in payable Credit
13 Increase in receivable Debit
14 Decrease in payable Debit
15 Decrease in receivable Credit
Indicate which two accounts will the following transactions effect. What will be debited and what
will be credited.
Transaction Debit Credit
1 The owner invested money to start his business Cash Owner's Investment
2 The owner borrowed money from his friends Cash Loan
3 The owner bought a factory Factory Cash
5 The company bought land Land Cash
6 The company took a bank loan Cash Loan liability
8 The company paid electricity bill Electricity Expense Cash
11 Owner invested equipment in the business Equipment Cash
12 Paid rent for the office space for the month Rent Expense Cash
13 Purchased Equipment on credit Equipment Payable
16 Paid interest on the bank loan Interest Expense Cash
17 Repaid banks loan Loan liability Cash
18 Owner withdrew cash for personal use Withdrawals Cash
19 Provide services on credit Receivable Service Revenue
20 Paid telephone bill buy taking a loan from bank. Telephone Expense Loan liability
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Recording of Accounting Transactions
An account is an individual accounting record of increases and decreases in a specific asset, liability, or
owner’s equity item. In its simplest form, an account consists of three parts: (1) a title, (2) a left or debit
side, and (3) a right or credit side.
Most companies have a chart of accounts. This chart lists the accounts and the account numbers that
identify their location in the ledger.
Companies initially record transactions in chronological order (the order in which they occur). Thus, the
journal is referred to as the book of original entry. For each transaction, the journal shows the debit and
credit effects on specific accounts of the transaction shown in the source document.
Source documents identify and describe transactions and events entering the accounting process
The entire group of accounts maintained by a company is the ledger. The ledger provides the balance in
each of the accounts as well as keeps track of changes in these balances. Companies may use various
kinds of ledgers, but every company has a general ledger. A general ledger contains all the asset,
liability, and owner’s equity accounts
Transferring journal entries to the ledger accounts is called posting. This phase of the recording process
accumulates the effects of journalized transactions into the individual accounts.
A trial balance is a list of accounts and their balances at a given time. Customarily, companies prepare a
trial balance at the end of an accounting period. They list accounts in the order in which they appear in
the ledger. Debit balances appear in the left column and credit balances in the right column. The trial
balance proves the mathematical equality of debits and credits after posting.
TriFin
Ge an
Ge al cial
SonernerB
ural al al Sta
ceJouLeda te
D rnager ncme
ocl e nts
u
m
en
Question Indicate whether
ts the following can serve as a source document:
Sr Document Source Document
1 Bank Statement Yes
2 Sales Ticket Yes
3 Income Statement No
4 Telephone Bill Yes
5 Invoice from Supplier Yes
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Sample Chart of Accounts
Benefits of Chart of Account

The Chart of Accounts organizes and bring clarity to the accounting process.
To make it easier for readers to locate specific accounts, each chart of accounts typically contains a
name, brief description, and an identification code. Each chart in the list is assigned a multi-digit
number; For example, all asset accounts generally start with the number 1.
It ensures a definite number of accounts since all accounts are listed and reduces redundancy in account
titles.
It does away with the need to remember every single account that the company follows.
Since every accounts is separate, it makes it easier to follow the accounting standards.
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Question Make an Accounting Entry for Each of the following situations when the
payment is made:
1 A person buys a 80000 Rs Laptop with Cash.
Dr Laptop 80,000
Cr Cash 80,000
2 A spot transaction to buy a 280000 Rs Car

Dr Car 280,000
Cr Cash 280,000
3 A person uses a current account cheque to buy 27000 Rs worth of Raw materials.
Dr Raw Material 27,000
Cr Current Account-Bank 27,000
4 A person uses a mobile online banking app to buy 39000 Rs worth of Raw materials.
Dr Raw Material 39,000
Cr Current Account-Bank 39,000
5 A person pays for his house from his savings account. The price of House is 2 million $.
Dr House 2,000,000
Cr Saving Account-Bank 2,000,000
6
A person lives in a rented house. The monthly rent is 4000. He pays rent of 4 months.
Dr Prepaid Rent 16,000
Cr Cash 16,000
7
A person lives in a rented house. The annual rent is 12000. He pays rent of 4 months.
Dr Prepaid Rent 4,000
Cr Cash 4,000
8
A person lives in a rented house. The annual rent is 16000. He pays rent of 8 months.
Dr Prepaid Rent 10,666.67
Cr Cash 10,666.67
9
A person lives in a rented house. The monthly rent is 5000. He pays rent of 8 months.
Dr Prepaid Rent 40,000.00
Cr Cash 40,000.00
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10 A person pays the car insurance at the start of the year for three months. The monthly
insurance is $70:
Dr Prepaid Insurance 210
Cr Cash 210
11 A person pays the car insurance at the start of the year for three months. The three
months insurance is $70:
Dr Prepaid Insurance 70
Cr Cash 70
12 A person pays the car insurance at the start of the year for three months. The annual
insurance is $70:
Dr Prepaid Insurance 17.50
Cr Cash 17.50
13 A person pays the car insurance at the start of the year for five months. The annual
insurance is $90:
Cr Cash 37.50
14 A person bought stores and spares for 7000Rs from his friend.
Dr Stores and Spares 7,000.00
Cr Cash 7,000.00
15 A person bought a goat for 35000 Rs and its food for Rs1000.
Dr Biological Assets 35,000.00
Dr Raw Material 1,000.00
Cr Cash 36,000.00
16
A person bought a car for 5m, a house for 5b and a yacht of 2b from the same person.
Dr Vehicles 2,005,000,000.00
Dr House 5,000,000,000.00
Cr Cash 7,005,000,000.00
17 A person bought a stores and spares for 7$, finished goods for 10$, raw material for 2$
and work in process for 4$ from the same person.
Dr Stores and Spares 7.00
Dr Finished Goods 10.00

Dr Raw Material 4.00
Dr Work in Process Inventory 2.00
Cr Cash 23.00
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18 The person paid 80$ for 3 month insurance and 200$ for 2 months rent to the owner of
the house
Dr Prepaid Rent 200.00
Cr Cash 280.00
19 The company gave a loan of Rs 200000 to one of its employees.

Dr Loans and Advances ######
Cr Cash ######
20 The company received cash against accounts receivable of 70000.

Dr Cash 70,000.00
Cr Accounts Receivable 70,000.00
21 The company received cash against trade debts of 2000.

Dr Cash 2,000.00
Cr Trade Debts 2,000.00
22 The company was paid back its security of 200$

Dr Cash 200.00
Cr Security and Deposits 200.00
23 The company paid two months extra wages to its employee Mr Sher Khan. Mr Khan's
monthly salary was $190.
Dr Cash 380.00
Cr Security and Deposits 380.00
23 The company deposited Rs 30000 in HBL saving account.

Dr Saving Account Bank 30,000.00
Cr Cash 30,000.00
Question Make the Chart of Account that you used to answer the above questions. Also add a
three digit identifier or reference number to each account
Number Account Number Account
101 Cash 109 Prepaid Rent
102 Current Account-Bank 110 Prepaid Insurance
103 Saving Account-Bank 111 Stores and Spares
104 Laptop 112 Biological Assets
105 Vehicles 113 Accounts Receivable
106 Raw Material 114 Finished Goods
107 House 115 Work in Progress inventory
108 Loans and Advances 116 Security Deposit
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Question Write a transaction of your own in which an asset is increasing and another asset is
decreasing.
General Ledger and T Accounts

The entire group of accounts maintained by a company is the ledger. The ledger provides the balance in
each of the accounts as well as keeps track of changes in these balances. Companies may use various
kinds of ledgers, but every company has a general ledger. A general ledger contains all the asset,
liability, and owner’s equity accounts
Transferring journal entries to the ledger accounts is called posting. This phase of the recording process
accumulates the effects of journalized transactions into the individual accounts. Posting involves the
following steps.
1. In the ledger, in the appropriate columns of the account(s) debited, enter the date, journal page, and
debit amount shown in the journal.
2. In the reference column of the journal, write the account number to which the debit amount was
posted.
3. In the ledger, in the appropriate columns of the account(s) credited, enter the date, journal page, and
credit amount shown in the journal.
4. In the reference column of the journal, write the account number to which the credit amount was
posted.
A T-account is an informal term for a set of financial records that use double-entry bookkeeping.
It is called a T-account because the bookkeeping entries are laid out in a way that resembles a T-shape.
The account title appears just above the T.
In an account, where a debit is an increase, the difference between total debits and total credits for an
account including the beginning balance is the account balance.
Prepared by:
In an account, where a credit is an increase, the difference between total credits and total debits for an
account including the beginning balance is the account balance.
An account has zero balance when the sum of debits equal the sum of credits.
Question Indicate whether the following will typically have a debit balance or a credit balance:
Sr Account Normal Balance

1 Service fees Earned Credit
2 Accounts Payable Credit
Prepared by:
3 Office Supplies Debit
4 Owner's Cash withdrawal Debit
5 Cash Debit
6 Prepaid Rent Debit
7 Utilities Expense Debit
8 Repair Service revenue Credit
9 Salaries Expense Debit
10 Interest Revenue Credit
11 Interest Payable Credit
12 Accounts Receivable Debit
13 Owner's Capital Credit
14 Prepaid Insurance Debit
15 Dividends Debit
Exercise: Dagha Baz Incorporation had the following transactions in the year 2023.
Sr Date Transaction
1 01-Oct The owner invested Rs 9,500 cash, Rs 22500 worth of Land and
10,000 worth of Building.
2 04-Oct Paid Rs 3000 cash for an insurance policy covering next 24 months.
4 06-Oct Purchases office Supplies for $2,650.
Part of Bandit Queen's Chart of Accounts is shown.

101 Cash 132 Prepaid Insurance
145 Land 303 Owners Investment
152 Supplies 147 Building
a Journalize the transactions in the General Journal given
General Journal
Date Account Title Ref# Debit Credit
01-Oct Cash 101 9500
Building 147 10000
Land 145 22500
Owners Investment 303 42000
04-Oct Prepaid Insurance 132 3000

Cash 101 3000
06-Oct Supplies 152 2650

Cash 101 2650
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d Post the entries in the General Ledger Given
General Ledger
101 Cash 132 Prepaid Insurance

Date Debit Credit Date Debit Credit
01-Oct 9500 04-Oct 3000
04-Oct 3000
06-Oct 2650
Balance 3850 Balance 3000
145 Land 303 Owners Investment

01-Oct 22500 01-Oct 42000
152 Supplies 147 Building

06-Oct 2650 01-Oct 10000
Trial Balance
A trial balance is a list of accounts and their balances at a given time.
Customarily, companies prepare a trial balance at the end of an accounting period. They list accounts in
the order in which they appear in the ledger. Debit balances appear in the left column and credit balances
in the right column.
The trial balance proves the mathematical equality of debits and credits after posting. Under the
double-entry system, this equality occurs when the sum of the debit account balances equals the sum of
the credit account balances.
A trial balance may also uncover errors in journalizing and posting.
In addition, a trial balance is useful in the preparation of financial statements

The steps for preparing a trial balance are:
1. List the account titles and their balances in the appropriate debit or credit column.
2. Total the debit and credit columns.
3. Prove the equality of the two columns.
Prepared by:
Exercise
The following accounts come from the ledger of Spotted Tiggers at December 31, 2022.
157 Equipment $ 108,488 301 Owner's
$ 150,783
306 Withdrawals $ 1,949 Investment
201 Trade Payables $ 40,921 200 Prepaid Rent $ 1,299
726 Salary Payable $ 209,512 732 Other payables $ 4,006
112 Trade Debts $ 44,052 120 Electricity Expense $ 39,779
400 Sales Revenue $ 442,219 101 Cash $ 651,874
Prepare a trial balance.
Spotted Tigers
Trial Balance
December 31,2022
Debit Credit
Equipment $ 108,488
Withdrawals 1,949
Trade Payables $ 40,921
Salary Payable 209,512
Trade Debts 44,052
Sales Revenue 442,219
Owner's Investment 150,783
Prepaid Rent 1,299
Other payables 4,006
Electricity Expense 39,779
Cash 651,874
$ 847,441 $ 847,441
Prepared by:
Exercise
The following accounts come from the ledger of Dill Jale Co at Jule 31, 2012.
157 Cash $ 17,400 427 Owner's
$ 20,001
123 Trade Debt $ 1,900 Investment
137 Supplies $ 2,000 537 Trade Payable $ 1,299
Prepare a trial balance.
Dil Jale Co.
Trial Balance
July 31,2012
Debit Credit
Cash $ 17,400
Trade Debt 1,900
Supplies 2,000
Owner's Investment 20,001
Trade Payable 1,299
$ 21,300 $ 21,300
MCQ
Answer the following MCQ about the Accounting cycle
1 Which of the following statements 2 A trial balance:
d about a journal is false: b
(a) It is not a book of original entry. (a) proves the journalized transactions are correct.
(b) It provides a chronological record of
transactions. (b) is a list of accounts with their balances at a given
(c) It helps to locate errors because the debit and time.
credit amounts for each entry can be readily (c) will not balance if a correct journal entry is
compared. posted twice.
(d) It discloses in one place the complete effect of a (d) proves that all transactions have been recorded.
transaction
3 The trial balance of Jeong Company 4 Before posting a payment of $5,000, the
a had accounts with the following a Accounts Payable of Senator
131000 normal balances: Company had a normal balance of $16,000. The
Cash $5,000, Service Revenue $85,000, Salaries balance after posting this transaction is:
and Wages Payable $4,000, Salaries and Wages (a) $21,000. (c) $11,000.
Expense $40,000, Rent Expense $10,000, (b) $5,000. (d) Cannot be determined.
Owner’s Capital $42,000, Owner’s Drawings 5 A ledger:
$15,000, and Equipment $61,000. In preparing a C
trial balance, the total in the debit column is: (a) contains only asset and liability accounts.
(b) should show accounts in alphabetical order.
(a) $131,000.
(b) $216,000. (c) is a collection of the entire group of accounts
(c) $91,000. maintained by a company.
(d) $116,000. (d) is a book of original entry
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Exercise: Bandit Queen Incorporation had the following transactions in the year 2033.
Sr Date Transaction
1 July 7th Bandit Queen begins business as a real estate agent with a cash
investment of $30,000
2 July 8th Paid rent for the next three months, $700, on office space
3 July 9th Paid a security deposit of $200 with the real estate regulator.
4 July 11th Purchases office equipment for $2,800.
5 July 12th Bought stores and spares worth $250.
Part of Bandit Queen's Chart of Accounts is shown.

102 Security Deposit 303 Owners Investment
154 Equipment 123 Stores and Spares
General Journal
Jul-07 Cash 101 30000
Jul-08 Prepaid Rent 132 700

Cash 101 700
Jul-09 Security Deposit 102 200

Cash 101 200
Jul-11 Equipment 154 2800

Cash 101 2800
Jul-12 Stores and Spares 123 250

Cash 101 250
b How are the General Journal and Chart of Accounts Related?

The Journal Entries use the account titles from Chart of Accounts. The account reference numbers are
given in the Chart of accounts
c Shatir Bibi, a fellow student, contends that the double-entry system means each
transaction must be recorded twice. Is Shatir Bibi correct? Explain.
No. As can be seen, it means two accounts are effected by each transaction
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General Ledger

Jul-07 30000 Jul-08 700
Jul-08 700
Jul-09 200
Jul-11 2800
Jul-12 250
102 Security Deposit 303 Owners Investment

Jul-09 200 Jul-07 30000
154 Equipment 123 Stores and Spares

Jul-11 2800 Jul-12 250
e How are the General Journal and General Ledger related?

The General Journal posts the entries into separate accounts in the Ledger to find the ending balance of
each account.
f How many T-accounts will you open in the General Ledger?

The number of T-accounts will be equal to the number of accounts in the Chart of Accounts
h If there are more accounts mentioned in the General Journal than the T-accounts in
General Ledger, what should you do?
Start new T accounts for each accounts in the General Ledger which does not already have a T-account
Prepared by:
i Prepare a Trial Balance at July 12th
Bandit Queen Corporation
Trial Balance
12-Jul-33
Debit Credit
Cash $ 26,050
Security Deposit 200
Equipment 2,800
Prepaid Rent 700
Owners Investment $ 30,000
Stores and Spares 250
$ 30,000 $ 30,000
j How are the General Ledger and Trial Balance related?
The ending value of the General Ledger is posted in the Trial Balance
k What would you have done if the Trial Balance was not Balanced?
Find the error
l Make an Income Statement for Bandit Queen Company till July 12.
Bandit Queen Company
Statement of Profit and Loss
For the period ended 12 July 2033
Revenue $ -
Expenses $ -
Net Income $ -
m Make a Statement for Changes in Equity for Bandit Queen Company till July 12.
Statement of Equity
For the period ended 12 July 2033
Starting Equity $ -
Additional Contribution $ 30,000
Net Income $ -
Dividends $ -
Ending Equity $ 30,000
k Why are we making IS and SOCE when their balances are zero?
The procedure is to make the two statements before Balance Sheet.
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Make a Balance Sheet for Bandit Queen Company as at July 12. In the Balance Sheet,
m divide the assets between Current and Non-current.
Statement of Financial Position
As at 12 July 2033
Equipment 2,800 Liabilities 0

Total Non-current 2,800
Stores and Spares 250 Owners Investment $ 30,000
Prepaid Rent 700 Total Equity $ 30,000
Security Deposit 200
Cash $ 26,050
Total Current 27,200
Total Assets 30,000 Total Liabilities and Equity $ 30,000
n “The terms debit and credit mean increase and decrease, respectively.” Do you agree?
Explain.
No. The debit is an increase in Asset, and Expenses but a decrease in liability and Equity
o When entering a transaction in the journal, should the debit or credit be written fi rest?
Which should be indented, the debit or credit?
Debit should be written before and credit should be indented
p Should business transaction debits and credits be recorded directly in the ledger
accounts?
No, they should be recorded in the Journal first.
q Victor Grimm is confused about how accounting information flows through the
accounting system. He believes the Fl ow of information is as follows.
(a) Debits and credits posted to the ledger.
(b) Business transaction occurs.
(c) Information entered in the journal.
(d) Financial statements are prepared.
(e) Trial balance is prepared.
Is Victor correct? If not, indicate to Victor the proper flow of the information.
No, the correct flow is b--> c-->a--> e-->d
r Describe a compound entry, and provide an example?

Any entry that has more than one debit or credit is a compound entry. For example a person purchases
different items from the same shop and thus, the entry will be a compound entry.
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Case
Prepared by:
Part of Chemalite's Chart of Accounts is shown.

101 Cash 132 Patent
102 Materials 303 Owners Investment
154 Machinery 123 Incorporation fees
General Journal
02-01-03 Cash 101 500000
02-01-03 Patent 132 125000

Cash 101 125000
15-01-03 Incorporation fees 123 7500

Cash 101 7500
15-06-03 Machinery 154 62500

Cash 101 62500
24-06-03 Materials 102 75000

Cash 101 75000
b What type of Assets are Patents?

Intangible Assets
c Why does Mr Larson says that Incorporation Costs should be treated as an asset?
Since the company has not stated operations, the preoperating costs are investments to start the business
and should be treated like an asset since it is because of these investment that the business will give
future benefits
Prepared by:
General Ledger
101 Cash 132 Patent

1-2 500000 1-2 125000
1-2 125000
1-15 7500
6-15 62500
6-24 75000
102 Materials 303 Owners Investment

6-24 75000 1-2 500000
154 Machinery 123 Incorporation fees

6-15 62500 1-15 7500
e Prepare a Trial Balance at June 30,2003

Chemalite Inc
Trial Balance
30-Jun-03
Debit Credit
Cash $ 230,000
Materials 75,000
Machinery 62,500
Patent 125,000
Owners Investment $ 500,000
Incorporation fees 7,500
$ 500,000 $ 500,000
Prepared by:
f Make an Income Statement till June 30.
Chemalite Inc
Statement of Profit and Loss
For the period ended 30 June 2003
Revenue $ -
Expenses $ -
Net Income $ -
g Why are the profits, revenues and expenses zero in the given period?
The Business is starting. It has not started selling so revenue is zero. Since expenses have to be matched to revenue, e
Make a Balance Sheet for as at June 30. In the Balance Sheet, divide the assets between
h Current and Non-current.
Chemilite Inc
Statement of Financial Position
As at 30 June 2003
Machinery 62,500 Liabilities 0

Incorporation fees 7,500
Patent 125,000
Total Non-current 195,000 Owners Investment $ 500,000
Materials 75,000 Total Equity $ 500,000
Cash $ 230,000
Total Current 305,000
Total Assets 500,000 Total Liabilities and Equity $ 500,000
i Has the company's cash decreased to $230,000?

Yes. It can be seen in the Balance Sheet
j Is Mr Larson Correct that the company had made a loss of $145000 in the last six
months?
The company is making assets which will get benefits in the future for the company. The company has no expenses o
Prepared by:
Errors from Trial Balance
A trial balance is a necessary checkpoint for uncovering certain types of errors. For example, if only the
debit portion of a journal entry has been posted, the trial balance would bring this error to light.
Limitations of a Trial Balance

A trial balance does not guarantee freedom from recording errors, however.
Numerous errors may exist even though the totals of the trial balance columns agree. For example, the
trial balance may balance even when:
1. A transaction is not journalized.
2. A correct journal entry is not posted.
3. A journal entry is posted twice.
4. Incorrect accounts are used in journalizing or posting.
5. Offsetting errors are made in recording the amount of a transaction.
An error is the result of an unintentional mistake; it is neither ethical nor unethical. An
irregularity is an intentional misstatement, which is viewed as unethical
As long as equal debits and credits are posted, even to the wrong account or in the wrong amount, the
total debits will equal the total credits and thus finding error will be difficult.
The trial balance does not prove that the company has recorded all transactions or that the ledger
is correct.
Reason why company's should not misstate their Financial Statements
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Locating Errors in the Trial Balance

Errors in a trial balance generally result from mathematical mistakes, incorrect postings, or simply
transcribing data incorrectly. What do you do if you are faced with a trial balance that does not balance?
First, determine the amount of the difference between the two columns of the trial balance.
After this amount is known, the following steps are often helpful:
1. If the error is $1, $10, $100, or $1,000, re-add the trial balance columns and recompute the account
balances.
2. If the error is divisible by 2, scan the trial balance to see whether a balance equal to half the error has
been entered in the wrong column.
3. If the error is divisible by 9, retrace the account balances on the trial balance to see whether they are
incorrectly copied from the ledger. For example, if a balance was $12 and it was listed as $21, a $9 error
has been made. Reversing the order of numbers is called a transposition error.
4. If the error is not divisible by 2 or 9, scan the ledger to see whether an account balance in the amount
of the error has been omitted from the trial balance, and scan the journal to see whether a posting of that
amount has been omitted.
Dollar Signs and Underlining

Note that dollar signs do not appear in journals or ledgers. Dollar signs are typically used only in the trial
balance and the financial statements. Generally, a dollar sign is shown only for the first item in the
column and for the total of that column.
A single line (a totalling rule) is placed under the column of figures to be added or subtracted. Total
amounts are double-underlined to indicate they are final sums.
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Exercise c A trial balance will not balance if:
(a) a correct journal entry is posted twice.
(b) the purchase of supplies on account is debited to Supplies and credited to Cash.
(c) a $100 cash drawing by the owner is debited to Owner’s Drawings for $1,000 and credited to Cash
(d) a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.
If a $4000 debit to equipment in a journal entry is incorrectly posted to a ledger as a

Exercise $4000 credit and the ledger has a resulting balance of $20000, what is the effect of this
error on the trial balance columns' total?
What is happening?
Dr Equipment 4000 T Account
Dr Cr
x 4000
y a
The T accounts balance was under stated by 4000 as it
z
should have been 24000.
Balance 20000
When this goes into the trial balance, the Debits would be 4000 less than the credits. Since the
debit accent is understated and credits are over stated due to this error. The trial balance will not
balance.
The bookkeeper for Junoon Equipment Repair made a number of errors in journalizing
Exercise
and posting, as described below.
For each error:
(a) Indicate whether the trial balance will balance (Column A).
(b) If the trial balance will not balance, indicate the amount of the difference (Column B).
(c) Indicate the trial balance column that will have the larger total (Column C).
(d) Indicate the accounts that will be impacted by this error (Column D).
(e) Indicate whether the accounts will be overstated (OV) or understated (UN) (Column E).
Difference in Debit and
Account(s) incorrectly stated
Credit Columns of TB
Column
Sr. Description of Error
Differen with
Yes/No Account OV/UN
ce larger
total
A credit posting of $525 to
1 Accounts Receivable was Yes 525 Debit Account Receivable Over
omitted.
A debit posting of $750 for
Prepaid Insurance Under
Prepaid Insurance was
2 No 0 No
debited to Insurance
Insurance Expense Over
Expense.
A credit posting of $415 to Tax Expense Over
3 Property Taxes Payable was No 0 No Property Tax
Over
made twice. Payable
Prepared by:
Column
Differen with
ce larger
total
A collection from a customer
Service Revenue Over
of $100 in payment of its
account owed was journalized
4 No 0 No
and posted as a debit to Cash
$100 and a credit to Service Accounts receivable Over
Revenue $100.
A cash purchase of supplies

Supplies Under
for $250 was journalized and
5 No 0 No
posted as a debit to Supplies
Cash Over
$25 and a credit to Cash $25
Advertising
A debit of $625 to Advertising Over
6 Yes 27 Debit Expense
Expense was posted as $652.
Rent Expense Under

$2400 debit on rent expense
7 Yes 810 Credit
was posted as 1590
4050 Credit to cash was Cash Under

8 posted twice as two credits to Yes 4050 Credit
cash

Service Revenue Over
9 No 0 No
$100 and a credit to Service Accounts receivable Over
Revenue $100.
Owner's
9900 debit to owner's Under
Withdrawal
10 withdrawal is debited to No 0 No
owner's capital Owner's Capital Over
Machinery Under
420000 debit to Machinery
11 was posted as a debit to No 0 No
Accounts payable Accounts Payable Under
Prepared by:
Column
Differen with
ce larger
total
$4950 Credit to sales revenue Sales Revenue Under
12 Yes 4455 Debit
is posted as 495 Credit
Suppled Under
1440 debit to Supplies is not
13 No 0 No
posted

Service Revenue Under
14 No 0 No
$1350 and a credit to Accrued Accrued Revenue Over
Revenue $1350.
Owner's
900 debit to owner's Under
Withdrawal
10 withdrawal is credited to Yes 1800 Credit
owner's withdrawal
b Which of the above are Transposition Errors?

6) A debit of $625 to Advertising Expense was posted as $652. 12)
$4950 Credit to sales revenue is posted as 495 Credit
You are told that the column balance in the trial balance are not equal. After Careful
Exercise
analysis, you discover only one mistake.
Specifically, a correctly journalized credit purchase of a computer for $16950 is posted from the
journal to the ledger with a $16950 debit to office Equipment and another $16950 debit to
accounts payable. The balance of the office equipment has a debit balance of $40100 on the trial
balance. Answer each of the following questions and compute their dollar amount of any
misstatement.
a Is the balance of Office Equipment account over stated or under stated.
Neither. The Amount in Equipment is correctly posted as a debit.
b Is the balance of Accounts Payable account over stated or under stated.
Understated. Accounts Payable is incorrectly debited by 16950 decreasing the credit balance.
c Is the debit balance of Trial Balance over stated or under stated.

Overstated. The Amount in Equipment is correctly posted as a debit. However, Accounts Payable is
incorrectly debited by 16950 increasing the debit balance.
Prepared by:
d Is the credit balance of Trial Balance over stated or under stated.
Understated. Accounts Payable is incorrectly debited by 16950 decreasing the credit balance.
e If the debit column balance of the trial balance is $360000 before correcting the error,
what is the total of debit column after correction?
343050
f What is the total of Credit column after correction?

343050
g What is the total of Credit column before correction?

326100
You are told that the column balance in the trial balance are not equal. After Careful
Exercise
analysis, you discover only one mistake.
Specifically, a correctly journalized prepayment of rent for $12000 is posted from the journal to
the ledger with a $12000 credit to prepaid rent and another $12000 credit to cash. Answer each of
the following questions and compute their dollar amount of any misstatement.
a Is the balance of Prepaid Rent account over stated or under stated.
Understated. The prepaid rent is credited by 12000 thereby decreasing the amount of prepaid rent
b Is the balance of Cash account over stated or under stated.

Neither. Cash is correctly credited.
c Is the debit balance of Trial Balance over stated or under stated.

Understated as the prepaid rent has been decreased.
d Is the credit balance of Trial Balance over stated or under stated.

Overstated as the prepaid rent is incorrectly posted as credit entry.
e If the credit column balance of the trial balance is $39850 before correcting the error,
what is the total of credit column after correction?
27850
f What is the total of Debit column after correction?

27850
g What is the total of Debit column before correction?

15850
Prepared by:
Account Classification and Presentation
Prepared by:
Prepared by:
Question 1
Answer the following questions on the answer sheet provided.
From the list of words given, pick one word that suits each of the following situations.
List of words
Computer Software Bonds Shares
Retained Earnings Dividends Cash Basis of Accounting
CASC IASB Accrual Basis of Accounting
Counting Sample External User
Computer hardware Accrued Salary Internal User
Enron Accrued Interest FASB
Stock in trade Current Assets Akbar Fish Farms
Accounts receivable Deliotte Recording
Accounts payable KPMG Communication
Unqualified Opinion False Measurement
Qualified Opinion True Identification
Adverse Opinion Future Predictability Non Current Assets
a 1 Name a company in Pakistan which has biological assets?
b 1 Another name for inventory of a company.
c 1 The existence of goats can be assured by_____________ them.
d 1 Interest that a person has earned but is not paid yet is known as:
e 1 The mirror is a financial Asset
f 1 An auditors opinion that assures that the Financial Statements give a true and
fair view of the previous years activities except for a few matters is called:
g 1 The company buys a product, pays part of the money in cash and for the rest
of the money it will recognize ___________ .
h 1 Deciding whether a transaction is Financial in nature and should be recorded
is part of which activity in the Financial accounting process:
i 1 Which big four auditing firm is operational in Pakistan?
j 1 Owners part of net income that is reinvested in the company?
k 1 The accounting body that issued ASBE.
l 1 The auditors verify information by taking a ______________ of all the
transactions.
m 1 From investor's perspective, which audit opinion is the best?
n 1 The Express Tribune is an example of what type of user of Financial
Information.
o 1 A company involved in a financial fraud
p 1 One limitation of Financial Accounting is:
q 1 An accounting system that recognizes expenses when they are incurred.
r 1 An equity instrument which pays dividends to the holder until held.
s 1 A company's only biological assets are trees so with regards to expectation of
usage, the biological assets will be listed as __________ in company's balance
sheet.
Prepared by:
Question 2
Indicate whether the company follows the cash basis of accounting (CA) or accrual basis of
accounting (AC)?
In, January, Mr. Jack ordered stationary and paid for it in advance. The
a 1 Stationary was received in February. The expense was recognized in month of
January
b 1 The company bought a factory and expensed the entire amount.
c 1 Receivables are not recognized.
Indicate in which Financial Statement would each of the following items would most likely appear;
Statement of Profit and Loss (P&L), Statement of Financial Position (FP), Statement of Cashflow
(CF) and Statement of Changes in Equity(SOCE)
d 1 Interest Payable
e 1 Withdrawals
f 1 Cash received from Bank Loan
g 1 Total Liabilities
The definition of an asset is given below.

An asset is only recognized if it satisfies all the four conditions
1) It is probable that the future economic benefits will flow to the entity (Benefit)
2)
The asset has a cost or value that can be measured reliably in terms of money (Measurable).
3) The asset is generated as a result of a past or present transaction (Past)
4) The asset is under the control of the accounting entity (Control)
Using the definitions four points; Benefit, Measurable, Past and Control; explain why the
following are not assets?
h 1 Last month's electricity bill
i 1 Your Friends
j 1 The property under a case which cannot be used.
Indicate whether the following are Financial Assets (FA) or Real Assets (RA)
k 1 Cheque for Payment
l 1 Raw Materials
m 1 Loose Tools
Indicate whether the following are Operating Assets (OA) or non Operating Assets (NA) of Kohat
Builders Company.
n 1 The tractor
o 1 Bonds of Dawood Hercules
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Question 3
The company has following assets. Based on the information, answer the following questions.
Cash $ 4,500 Freehold Land $ 4,000
Shares of other company's $ 120,000 Computer Software's $ 1,000
Good will $ 15,000 Factory Equipment $ 150,000
Bonds $ 1,700 Copyrights $ -
Computer Hardware $ 25,000 Stock in Trade $ 12,200
IOU $ 12,000 Livestock $ 2,000
Fish $ 1,200 Trees $ 3,000
d 1 What is the value of company's Biological assets?
e 1 What is the value of company's Financial assets?
f 1 What is the value of company's Intangible assets?
g 1 What is the value of company's Property Plant and Equipment?
h 1 The company's main business is food production. Name one operating asset of
the company.
i 1 Name one non current assets of the company?
j 1 Which is the most liquid asset in the list?
k 1 An asset that gives the holder the exclusive right to copy, adapt, hold, sale
creative work.
l 1 Name on debt instrument that the company owns.
m 1 What is another name of Withdrawals
Prepared by:
Question 4
An auditor report is given.
a 2 What is the audit opinion?
b 1 Write A on the paragraph where the auditors state what they have audited.
c 2 Underline 3 to 5 words (use marker or red pen) which support your audit
opinion.
Prepared by:
Answer Sheet
Question 1 Question 2
a 1 Akbar Fish Farms a 1 CA
b 1 Stock in trade b 1 CA
c 1 Counting c 1 CA
d 1 Accrued Interest d 1 BS
e 1 False e 1 SOCE
f 1 Qualified Opinion f 1 CF
g 1 Accounts payable g 1 BS
h 1 Identification h 1 Benefit
i 1 KPMG i 1 Measurement
j 1 Retained Earnings j 1 Control
k 1 CASC k 1 FA
l 1 Sample l 1 RA
m 1 Unqualified Opinion m 1 RA
n 1 External User n 1 OA
o 1 Enron o 1 NA
p 1 Future Predictability
q 1 Accrual Basis of Accounting
r 1 Shares
s 1 Non Current Assets
#REF! 1 Computer Software
Question 3
d 1 $ 6,200
e 1 $ 138,200
f 1 $ 16,000
g 1 $ 179,000
h 1 Fish/ Livestock/Trees
i 1 Factory Equipment/Hardware/ Land/Trees/Livestock/Goodwill/Bonds/ Software/Copyrights
j 1 Cash
k 1 Copy right
l 1 Bonds/IOU
m 1 Dividends
Prepared by:

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Accounting Work Book

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Fundamentals of Accounting 1.

Accounting Work Book Developing Corporate

Chapter 1: Assets and Accounting Cycle

Answer the following questions

Exercise List six expenses of the university.

Exercise List six expenses of a Hospital.

Questio What is monetary value?

Question What is control?

Answer the following questions True or False. Explain with reason.

Personal vs Business Assets

Sr. Listed item Asset Reason

ii You bought stationary for the Asset

iii You paid electricity bill for the Asset

v Your stolen bike is still your NA

vi The laptop you will buy in six NA

vii Your cash in Bank that has NA

viii Your brain NA

ix The dog you bought last Asset

x Bill paid for food after your NA

11 The money in your saving account which you will

belonging naturally; essential.

Non Consumable Real Asset

Example What is the value of this 5 Rs Note today?

The Pakistan's government decide the

Question Is Cash Marketable Security?

No. Cash is a Financial Asset but not a Marketable Security.

The Pakistan's government decide the

When is a Share an Asset?

a Why does the share have a value of Rs 32 in 2022?

c What are dividends?

d What are Capital gains or losses?

When is interest bearing bond an Asset?

The government bonds have no lottery and no prize is given.

The prize bonds do not pay interest.

Question Why is the computer software Microsoft Office a Intangible Asset?

You cannot touch the software but you can touch

Logos and Trademarks are part of the brand that

Intangible Assets vs Tangible Assets

Prince William's Sherhwani in 2019

List ten non biological natural resources

a What is the value of current assets of Nishat Mills in 2021?

Non Current Assets

Current Assets Non current Assets

Question What is cash crunch?

Non Operating Asset

Operating Assets Non Operating Assets

Question: Why are cars fixed assets of a company?

a What is the value of Property Plant and Equipment of Nishat in 2021?

Example: The Operating Fixed Assets of Nishat Mill Limited is shown.

Capital Work in Progress

a What does Building on freehold land in Capital Work in Progress means?

b What does Electric Installations in Capital Work in Progress means?

c Why are bearer plant treated as property plant and equipment?

f What amount of Sugar Cane roots were cultivated in 2020 to 2021?

m Use the internet to find two examples of non-bearer plants?

n Why is a wheat not considered as a property plant and equipment?

o What is the amount of JDW's building under construction in 2021?

q Why is advances for vehicle a Capital Work in Progress?

Cash and Bank Balances

Inventory (Stock in Trade)

Example: The Stock in Trade of Nishat Mill Limited are shown.

DETERMINING OWNERSHIP OF GOODS

Example: The Stock in Trade of Unilever Pakistan are shown.