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Course Code: PCO- 01

Assignment Code: PCO-01/TMA/2017

1.      What do you mean by business? Explain various parties who assist in the flow of goods from producer to consumers.

Answer: The term ‘Business’ can be defined as production of goods and services that are involved in flow of goods from the point of consumption or final use with a view to earn profit.

So we can say that any activity carried with profit motive is business.

The various types of business activities are as follows:

1) Sole proprietorship

2) Partnership

3) Company

The manufacturer produces goods for the consumer. Sometimes there may not be anybody between the two, but often the manufacturer may take the help of middlemen like the wholesalers and retailers to distribute the goods to the consumers.

There exist other parties or things without which goods cannot be transferred to consumer, such as;

Warehousing: Storage is indispensable in these days of mass production. The goods should be stored carefully from the time these are produced till the time they are sold.

Insurance: The goods may be destroyed while in production process or in transit due to accidents, or in due to fire or theft etc. Insurance companies may cover these losses.  The undertake to compensate the loss suffered due to such risks.

Advertising: Advertising is an effective aid in selling the goods. The producer through advertisement communicates all information about his goods, to the prospective consumers and creates in them a strong desire to buy the product.

Banking:

Now-a-days we cannot think of business without banks. To start the business or to run it smoothly we require money. Banks supply money. Banks also provide many services required for the business.

So, in conclusion we can say that this things act as a medium in the flow of goods.

Q2. What do you understand by ‘Double Entry System’? How is it different from ‘Single Entry System’? Discuss.

Answer:

The Double entry system of accounting or book keeping means that every business transaction will involve two accounts (or more).  For example, when a company borrows money from its bank, the company’s Cash account will increase and its liability account Loans payable will increase.

            It is the fundamental concept underlying present day book keeping and accounting. Double entry account is based on the fact that every financial transaction has equal and opposite effects in at least two different accounts. It is used to satisfy the equation Assets= Liabilities + Equity, in which each entry is recorded to maintain the relationship.

            In double entry system, transactions are recorded in terms of debits and credits.

The main difference between single entry and double entry system of accounting are:

1.      Under single entry system, only one balance sheet is prepared which contains assets and liabilities. But, under Double entry system, the balance sheet is split up into two parts.

2.      Under single entry system, the purpose of preparing accounts is to show the financial position of a firm at a particular date, whereas, under double entry system, the purpose is to show the amount of capital received and the application of the same in fixed assets.

3.      In case of single entry system only one aspect of transaction is recorded, whereas in case of double entry system both the aspect of the transactions is recorded.

4.      In case single entry, errors are hard to identify.

But in case of double entry system of accounting errors are easy to locate.

5.      Single entry system of accounting known as incomplete type of recording, whereas double entry known as complete type of recording.

6.      Under single entry, only personal and cash account are considered. But in case of double entry Personal, Real and Nominal all are considered.

7.      Single entry is preferable for small enterprises, where double entry accounting is preferable for big enterprises.

8.      In case of single entry, financial position cannot be ascertained. Whereas, under double entry system it can be ascertained easily.

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