Topic to be tested:
Mr. Aslam is an owner of wholesale business for spare parts. He has been running this small scale business since last two years. Recently, Mr. Aslam divided his business into two different shops i.e. Shop-A & Shop-B which are located in two different areas of the same city. Shop-A is handled by Mr. Aslam himself and he has given responsibility to his son Mr. Ali for managing Shop-B against fixed monthly salary of Rs. 30,000 per month.
During the year, the accounts of Shop-A reflects total sales of Rs. 600,000 out of which Rs. 300,000 has been received just at the time of sales, Rs. 120,000 received after three months following the sales, while remaining amount of Rs. 180,000 not received till the end of accounting period. Mr. Aslam reported the revenue amounting to Rs. 420,000 for a current accounting period instead of reporting Rs. 600,000.
On the other hand, the accounts of Shop-B reflects total sales of Rs. 450,000 out of which Rs. 400,000 related to credit sales and that amount is not received till the end of accounting period. Mr. Ali reported revenue for Shop-B amounting to Rs. 450,000 instead of reporting Rs. 50,000. This policy of reporting revenue is not in line with policy of Shop-A.
Concern of Mr. Aslam:
Revenue of whole business is not shown as per the expectation of Mr. Aslam. He reviewed the accounts of Shop-B and found different recording policy than Shop-A. He was confused about two different basis of record keeping so he wanted to select one basis of accounting for his business. His son is a business graduate and suggested his father to adopt recording policy in Shop-A similar to Shop-B. His father agreed and switched to new basis of record keeping in Shop-A.
By considering the above mentioned scenario, you are asked to answer the following questions:
1. Which form of commercial organization is running by Mr. Aslam with his son?
2. Identify the basis of accounting (Cash or Accrual) used by Mr. Aslam and his son for “Shop- A” & “Shop-B”.
3. What is the main and logical reason considered by Mr. Ali to suggest similar record keeping in both shops?
plzzzzzz give some ideas to solve this GDB
please go through the hand out lecture no. 2 & 3.
soleproprietorship, cash and accrual accounting system
discussion will give solution
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The cash method and the accrual method (sometimes called cash basis and accrual basis) are the two principal methods of keeping track of a business's income and expenses. In most cases, you can choose which method to use. Learn how they work and the advantages and disadvantages of each so you can choose the better one for your business.
In a nutshell, these methods differ only in the timing of when transactions, including sales and purchases, are credited or debited to your accounts. Here's how each works:
The cash method. The cash method is the more commonly used method of accounting in small business. Under the cash method, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.
The accrual method. Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when you receive the goods or services. You don't have to wait until you see the money, or actually pay money out of your checking account, to record a transaction
sole proprietor :
The organization which is owned, managed, supervised and controlled by one person is known as Sole Trading Concern. This organization is as old as human civilization. It is simple type of organization in which one person brings his capital, controls the business and bears all the risks. The profit and losses are also enjoyed by one person only. The formation of sole trading concern is very simple i.e. It can be started at any time, at any place, for any business permitted as per the law of land and registration is also not required. It is one man show business, the owner of this organization is known as Sole Trader and the liability of sole trader is unlimited. This organization is not controlled or regulated by Law / Act.
This might help.
I would appreciate any upcoming queries.
Saqib ye ans sahi h? apka i meran exactly yahi pucha gaya h?
thanx bro and this is answer GDB MGT101 FANANCIAL ACCOUNTING'S ?
@ Saqib Hanif is this scenario in the GDB Q. No.1 ya humain khud say koi scenario write kerna ho ga? plzz reply ...Thnx
very nice job....!!! buhat ku
Actually this is an explanation of how you have to deal with your answer. Actually it is a trick question that tricks the students into believing that both of the people are partners. Ap ne simply ye batana e, k his son is not the partner, he is actually paid a salary, which makes him an employee of the company.