Accounting Simulation PDF

Accounting Simulation VIPUL MEHTA The outcome of accounting Outcome of accounting is to know a company’s: Revenue (or sales) Expenses (or costs) Profit Assets Liabilities Equity At the end of each quarter and every year, accountants prepare the financial statements of the company Start of business...

Accounting Simulation VIPUL MEHTA The outcome of accounting Outcome of accounting is to know a company’s: Revenue (or sales) Expenses (or costs) Profit Assets Liabilities Equity At the end of each quarter and every year, accountants prepare the financial statements of the company Start of business Owner puts capital of ₹60,000 Borrows ₹40,000 from bank for 5 years at 10% per annum Business operations Bought fixed assets worth ₹50,000 with cash Business operations Bought inventory with cash: 1000 units at ₹30 per unit Business operations Sold 100 units at ₹50 per unit, collects cash Cost of goods sold includes only those inventory items which are actually sold Business operations Sold 300 units at ₹50 per unit, collects cash Profit is connected with shareholder’s equity Business operations Sold 300 units at ₹50 per unit, on credit (did not receive the money immediately) Introducing receivables! Receivables are amount to be received in future for sales already done Business operations Bought inventory with cash: 500 units at ₹30 per unit Profit/loss is governed by sales and expenses only Business operations Payday! Paid salary of ₹5000 with cash Introducing expenses! Expenses are payments made which help in generating sales. Alternatively, expenses are payments made for a service that has already expired. Business operations Sold 500 units at ₹50 per unit, on credit (did not receive the money immediately) Ballooning receivables… trouble! Business operations Paid rent of ₹4000 with cash Rent is another expense if you are paying at the end of the month. Business operations Bought inventory on credit: 500 units at ₹30 per unit Payables are amount business needs to pay in future for inventory that has been purchased Business operations Paid interest to bank @10% of loan amount with cash Interest is an expense like any other… Business operations Paid kid’s school fee ₹5000 with cash Dividend is not an expense as it does not aid in generating sales Kharche pe kharcha :/ Business operations Fire! Half of inventory burnt due to fire :/ Extraordinary loss… inventory loss to be shown as an expense Business operations Paid electricity bill of ₹2000 with cash All expenses are part of profit and loss statement and impact profitability Business operations Took short-term loan of ₹20,000 for 1 year at 15% per annum Had to take loan to survive the business Business operations Bought inventory with cash: 300 units at ₹30 per unit Need to keep the minimum level of inventory Business operations Sold 500 units at ₹50 per unit, collects cash Sales generate much needed cash Business operations Received cash from receivables in full Finally, some relief! Business operations Paid off payables in full Suppliers happy! Business operations Bought inventory with cash: 500 units at ₹30 per unit Need to keep the minimum level of inventory Business operations Paid interest @10% on long-term debt and & 15% on short-term debt Business operations Paid off short-term debt in full Let go of high interest loan