Dr. Abhay Prasad wrote a book on accountancy and gave the right of its printing and sale to Shiv Prakasan on the following terms. The account of Shiv Prakasan are closed on 31 December each year: i) Royalty is paid @ 10% on printed price of sold books.
(ii) Price of printed book is 7 60.
(iii) Each year's royalty is paid on 31st January of the following year.
Following account is given by Shiv Prakashan to Dr. Abhay Prasad :
Year Printed Books Specimen given Unsaleable Books
2010
4,000
200
100
2011
5,000
300
100
2012
7,500
500
200
Closing Stoc
700
600
300
Open the necessary accounts in the books of Shiv Prakashan
Answers
The purpose of preparation of Trading, Profit and Loss Account and Balance Sheet to ascertain the profit or loss made by business and to know the financial soundness of the concern as a whole. In order to achieve the objectives of the firm, it is essential to maintain several books and records. The number of books and records are maintained by an -enterprise for the evidence of the recording business transactions. Cash Receipts, Invoice, Cash Memo, Cheque and other vouchers are the examples of documentary evidence supported for preparation of income statements. According to double entry system of accounting each transaction is recorded in the books of accounts to ascertain the profits earned during a particular period. "Transaction" of a business refers to an event the recognition of which gives rise to an entry in account records. While analyzing the review of accounting cycle, the whole process of accounting consists of the following important stages : (1) Recording the transactions are done through Journals or Subsidiary Books. (2) Classifying the transactions are achieved by Ledger. (3) Summarizing the transactions are done through Trial aalance. (4) The last stage is concerned with preparing Income Statements (Trading, Profit and Loss Account and Balance