Accounting for Financial Services- JAIBB

BANKING DIPLOMA EXAMINATION

Banking Diploma Courses in Bangladesh under The Institute of Bankers, Bangladesh (IBB) 

Accounting for Financial Services- JAIBB

Introduction to Accounting

Q.1. What is meant by Accounting? Give two objectives of Accounting.
Ans. According to the American Institute of Certified Public Accountants (AICPA) in theirAccounting Terminology Bulletin No. 1, “Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events
which are, in part at least, of a financial character and
interpreting the results thereof.”

Two objectives of Accounting are:—

(i) To keep systematic records: Its main objective is to keep complete record of business transactions. It avoids the possibility of omission and fraud.

(ii) To calculate profit or loss: Accounting helps to ascertain the net profit earned or loss suffered on account of business transactions during a particular period. To ascertain profit or loss at the end of each accounting period Trading and Profits & Loss of the business is prepared.

Q.2. What do you mean by Accounting Concepts?

Ans. Accounting Concepts provide a base for accounting process every enterprise has to consider basic concepts at the time of preparing its financial statements. According to Kohler concept as, “A series of assumptions constituting the supposed basis of a system of thought or an organized field of an endeavour.

Q.3. What is separate entity concept?
Ans. According to this concept, the business and businessman are two separate and distinct entities.Business is treated as a unit separate and distinct from its owners, managers and others. Therefore,proprietor is treated as a creditor of the business to the extent of capital invested by him in the business. It is applicable to all forms of business organizations, i.e., sole proprietorship, partnership or a company.

Q.4. What do you understand by going concern concept?
Ans. According to this concept it is assumed that the business will continue to exist for a long period in the future. According to this concept we record fixed assets at their original cost and full cost of the asset would not be treated an expense in the year of its purchase itself.

Q.5. What do you understand by convention of consistency?
Ans. According to this convention accounting principles and methods should remain consistent from one year to another. The rationale for this concept is that changes in accounting treatment would make the Profit & Loss and Balance Sheet unreliable for end users. For example there are several methods of providing depreciation on fixed assets i.e. fixed installment method, diminishing balance method etc., But it is expected that the business entity should be consistent to follow accounting method.

Q.6. Explain Accounting Equation.
Ans. Accounting equation is also termed as balance sheet equation. It signified that the assets of a business are always equal to the total of capital and liabilities.

It can be represented as:
                                       Assets = Liabilities + Capital
                                       Capital = Assets + Liabilities

Short: Question-Answer

Q.1. Give advantages of Accounting.

Ans. Advantages of accounting are:—

(i) Provides Complete and Systematic Record: In business there are so many transactions therefore it is not possible to remember all transactions. Accounting keeps a systematic record of all the business transactions and summarized into financial statements.

(ii) Information Regarding Financial Position: Accounting provides information about the financial position of the business by preparing a balance sheet at the end of each accounting period.

(iii) Helpful in Assessment of Tax Liability: Accounting helps in maintaining proper records. With the help of these records a firm can assessed income tax of sales tax. Such records are trusted by income tax and sales tax authorities.

(iv) Information Regarding Profit or Loss: Profit & Loss Account is prepared at the end of each accounting period to know the net profit earned or net loss suffered at the end of each accounting period.

Q.2. Give limitations of Accounting.

Ans. Limitations of Accounting are:—

(i) Possibilities of Manipulation: Accounts can be manipulated, so that the financial statements may disclose a more favourable position then the actual position for example closing stock may be overvalued in accounts.

(ii) It includes only Economic Activities: Non-monetary transactions are not recorded in accounts.    Transactions which can not be expressed in money cannot find place in accounts. Qualitative aspects of business units like management abour relations, efficiency of management etc. are wholly omitted from the books of accounts.

(iii) Price Level Changes not Considered: Fixed assets are recorded in accounts at their original cost. Sometimes assets remain undervalued particularly land and building. Effect of price level changes is not considered at the time of preparing accounts.

(iv) Influenced by Personal Judgments: An accountant has to use his personal judgment in respect of many items. For example, it is very difficult to predict the useful life of an asset.