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Account Notes
By
Binod Rijal
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Single Entry Book Keeping System
Single entry book keeping system is that system of book-keeping under which financial transactions are recorded without considering
dual aspect. This means only one aspect is affected while keeping the record of financial transactions. It is not possible for the small
organization to keep a record of a transaction using double entry system. So, it is better for them to use single entry system because
double entry system is expensive for small organization. This system helps to maintain only cash and personal account of debtors and
creditors. The impersonal account like purchase accounts, sales accounts, wages account, rent account, etc. are ignored.
Therefore, under single entry system every organization records receipts and payment as well as receivable and payable.
Single entry system can be used only by a sole trader or partnership firm organization. It can’t be used by a limited company
because of a legal provision.
This system avoids impersonal accounts. Thus, this system is defined as a system where only personal accounts are kept.
It is very common to keep cash book which mixes up business as well as private transactions.
It is quite often seen that, for information, one has to depend on original vouchers.
This system looks uniformity as it is a mere adjustment of double entry system according to convenience of the person.
It is more economical then double entry system because it maintains only personal accounts and cash book.
It does not take more time for recording and reporting the financial statements.
The profit can be determined easily in this system by comparing closing capital and opening capital.
This system is incomplete and unsystematic as it doesn’t record both the aspect of transactions.
It doesn’t prepare trading account because gross profit on sale can’t be known.
It can’t present net profit and net loss because it doesn’t prepare profit and loss account.
This system can’t disclose the financial position of the concern as it doesn’t prepare a balance sheet.
In this system, it is difficult to estimate the value of business for the purpose of sale due to an absence of balance sheet.
In this system, only personal accounts In this system, both personal and
Types of accountare kept & impersonal accounts are impersonal accounts are maintained.
avoided.
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Fin It can’t show the true financial position. It can show the true financial position.
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When accounts are kept under single entry system, profit made during the year is calculated by two methods. The methods are:
1. Conversion method: Under conversion method, the single entry system is converted to a double entry system. This method
prepares profit and loss account to ascertain profit or loss and balance sheet to know the financial position of the concern. In this
method, creditor, debtors, cash, bills receivable, bills payable, etc. are found so that trading account, profit and loss account and
balance sheet can be prepared.
2. Increase in net worth method or statement of affairs: Under single entry system, the profit and loss can be ascertained by
comparing the net worth at the beginning of the period and at the end of the period. The essential requirement for calculation of
profit is calculation of capital at the beginning and at the end through the preparation of statement of affairs in the beginning as
well as at the end. A statement of affairs, like balance sheet is a statement of assets and liabilities.
Drawing: The drawing is added to the capital at the end because the drawing made during the year will reduce the capital at the
end but not the profit.
Additional Capital: The additional capital is deducted from the capital of the end because any increase in the capital at the end
due to additional capital during the year is not to be mistaken for an increase in capital due to the profit made during the year.
Step 1: Calculate the amount of opening and closing capital (net worth) by preparing statement of affairs.
Step 2: Adjust the capital at the end by adding a drawing and deducting additional capital during the year.
Step 3: From the adjusted capital at the end, deduct capital in the beginning. The difference is either a profit or loss.
The formula for determining net income (profit or loss of the year)
Profit or loss of the year = Capital at end + Drawing during the year – Additional capital –
Opening capital
Particulars Amount
Total XXX
Less: New Additional Capital (XXX)
Book keeping is the process of recordingfinancial transaction ofa organization in a systematic and orderly manner. The financial
transactions of the business are identical, classified and recorded in the books of accounts. Normally, financial transactionare recorded
in two system that is single entry system and double entry system. The modern and scientific system of recording financial transaction
is double entry system. It was published by Luca Pacioli, in 1494. This system recognized that every financial transaction has two
aspect that is one is credit and the otherisdebit. The rule of double entry system is that in every debit there is a corresponding credit
ofsame amount. It helps to prepare ledger account, profit and loss account and balance sheet. The following definition helps to
highlight the meaning of double entry system ofbook keeping.
The special technique which reflects the concept of duality is known as double entry book keeping.
2. William Pickles
The double entry system seeks to record every transaction in money's worth in its double aspect. The receipt of a benefit by one
account and the surrender of a like benefit by another account, former entry are being to the debit of the account receiving and the later
to the credit of that accounting surrendering.
Every transaction involving money or money`s worth has a two-fold aspect, the receiving of a value on the one hand and giving of the
same value on other. The two – fold nature in all transactions must be recorded in the books and this gives rise to the term " Double
Entry Book Keeping".
4. Yuji Ijiri
Double entry book keeping is seen as predominantly a set of rules by which an increment in net assets is connected with its
corresponding decrement or with the balancing increment and or decrement in equity.
A business transaction is a transfer of money and money`s worth from one account to another. A transfer requires two accounts. For
complete record of transaction, it should be presented in both the accounts. For a complete record of the effects on two account in the
opposite directions, if one account receives a benefit there should be another account to impart the benefit.
The principal of double entry is based on the fact that there can be no giving without receiving nor can be receiving without some one
giving. The receiving aspect is known as " Debit" and is entered on the debit side of the account. The giving aspect is called " Credit "
and is entered on the credit side of the account. The principal under which both debit and credit aspect are recorded is known as the
principal of double entry. Every debit must have the corresponding credit and vice versa. Double entry is only scientific system of
maintaining the books of aaccount.
Thus, in the nutshell, the system under which every two equal aspect of transaction were recorded under the name of Debit and Credit
is known as Double entry Book Keeping.
The features of double entry system of book keeping are given below:
The rule for double entry is that every debit should have credit and every credit should have debit. Recording of transaction under
double entry system is made with two fold effect. It means each and every transaction affect two accounts simultaneously.
2. Equal effect
The two fold effect of the transaction must be equal in term of monetary value under double entry system. It means double entry rule
states that when recording each transaction, the total amount of the debit entries must be equal to the total amount of the credit entries
for that transaction.
It is the most comprehensive and flawless system of book keeping which is the written records of business transaction. Its usefulness
has been improved because of its deep-seated rule that every debit must have an equal and corresponding credit.
Importance and advantage of Double entry system can be illustrated through the following points:
Scientific
The double entry book keeping system is a scientific system of book keeping. Double entry book keeping system has its own set of
principle and rules. Under those principles and rules, two aspect of every financial transaction are recorded.
Systematic
A systematic technique is followed in recording financial transaction in double entry book keeping system. It records financial transactions in
a systematic and chronological order with situation narration of the financial transaction.
Complete
Double entry book keeping system is a complete system of book keeping. It records not only each and every financial transaction, but also
each aspect of the transaction.
Accuracy
Double entry book keeping system is based on the double entry principle which means for every debit amount, there is a corresponding credit
amount. Such a method of debit and credit can help to ensure arithmetical accuracy of the recordings of the financial transaction.
Profit or loss
Double entry book keeping system helps to ascertain the true profit or loss of the business by preparing the profit or loss account for a given
period.
Financial position
Double entry book keeping system also helps to reveal information about the financial position of the business by preparing a statement
called balance sheet.
Control
Double entry book keeping system keeps a detailed record of financial transactions. Thereafter, the recording of financial transaction in the
books provides necessary information for the purpose of costs control.
Decision making
Double entry book keeping system communicates financial information that is necessary for making decision by a business. Double entry
book keeping system also provides necessary information to different users such as owners, managers and creditors for their decision
making purposes.
Book Keeping and Accounting
Bookkeeping is the recording of financial transactions like sales, purchase, income, receipts and payment by an individual or
organization. Bookkeeping is usually performed by a book-keeper. The accountant creates reports from the financial transactions
recorded by the book-keeper and files from the government agencies. Single entry book-keeping system and the double-entry book-
keeping system are the methods of book-keeping.
A book-keeper, also known as an accounting clerk or accounting technician, is a person who records day to day financial transaction of
an organization. A book-keeper usually records the transaction in daybooks. The daybooks consist of purchases, sales, receipts, and
payments. The bookkeeper is responsible for ensuring all transactions recorded in the correct day books, suppliers ledger, customer
ledger and general ledger.
According to R.N Carter, "Book-keeping is the science and art of correctly recording in books of all those business transactions that
result in a transfer of money or money`s worth."
The origin of book-keeping cannot be exactly traced out. However, it can be said that the book-keeping history is as old as of money. It
has been practiced from the ancient period. In ancient period, business are in small scale and book-keeping was not essential to that
extent. The increasing demand and needs of human beings, as well as the practice of currency gradually, began to influence the
business activities. Scientific book-keeping system was commenced in Italy some 500 years ago. Luca pacific published a book entitled
"Sum Made Arithmetical" for the first time which deal with the modern principal of book-keeping . Venetian monk "Luca Pacioli" is
known as "The father of modern book-keeping". In that bookkeeping, he included the following provision about the book-keeping.
Owners and managers are different person in an organization. They both have their own different interest. So, there may occur different
disputes between them due to the difference in their interest. So, written records supported by documentary evidence are essential to
avoid any mistrust or doubt among the owners and managers.
Business wants to know the profit earned or loss suffered during the year and its financial position at the end of the year. This is
disclosed by income statement i.e. trading account, profit and loss account and balance sheet respectively. Book-Keeping records all
the necessary data for preparing these statement.
The capacity of human beings is limited as how much one can remember and that too for how long? Proper recording of records helps
the business with the need of remembering.
Book keeping is very important for the financial information and data are needed for cost ascertainment, planning, budgeting, and
forecasting because it is the main source of such information.
Book – keeping records are regarded by the tax authorities as authentic and reliable for determination of tax liability.
According to R.N Anthony, " An accounting system is a means of collecting, summarizing, analyzing and reporting in monetary terms
to the information of the business."
A reporting system that communicates relevant financial information to interested persons which allow them to assess
performance, make decisions and control the economic resources in the organization.
Accounting covers the act of recording transactions in the journal and other related books of accounts and analyzing it.
(source www.mbhweb.com)
Main objective of accounting is to keep the systematic record of financial transactions. In the absence of accounting, there would have
been traffic burden on the human memory which makes the business organization impossible to bear.
Accounting helps in ascertaining the net profit earned or loss suffered by an account while carrying the business. This is done by
keeping a proper record of revenues and expenses during a particular period. While preparing profit and loss account, if the amount of
revenue is more than the expenditure incurred in earning, then there is said to be a profit. In case if expenditure exceeds the revenue,
there is said to be a loss.
The profit and loss account gives the amount of profit or loss made by the business during a particular period. However, it is not
enough. The businessman must know about his financial position that is where he stands or what he owes and what he owns. This
objective is served by the balance sheet or position statement.
Accounting these days has taken upon itself the task of collection, analysis, and reporting of information at a particular time to the
required levels of authority in order to facilitate a rational decision.
Information system
Accounting functions as an information system for collecting and communicating economic information about the business enterprise.
This information helps the management in taking appropriate decisions.
Scope of accounting
The scope of accounting means the areas or field system. In other words, it may be defined as all those sectors where the accounting
is applied.
1. Government: Government should keep vouchers, forms and book as journal, budget sheet, cash book, statement of
expenditure, etc.
2. Non-trading organization: Non-trading organization prepares a financial statement as well as balance sheet to ascertain the
financial position and other efficiencies.
3. Trading concerns: Trading concerns are established to generate profit and also ascertain the profit or loss of the firm.
4. Professionals and individual: Professionals can be doctor, engineers, contractors, lawyers, etc. Thus, such different
professionals and individuals should keep different books of accounts to find out the profit or loss account.
Importance of accounting
Accounting provides information to the management to enable it to do its work properly. Such organizational information helps in
planning, decision making and controlling.
A systematic record enables a business to compare each year result with those of other years and locate significant factors leading to
the change if any.
As acoounting keeps the proper records of financial transactions, the accounting records reflects the results of operations as well as
statement of financial position. Also various balance sheet and profit & loss accounts ratios are calculated which help user of financial
statements to analyze the performance of an entity. For example debt equity ratio, Current ratio, Turnover ratio etc. Also we can
compare previous period accounting data with current period as well as budgeted figures for variance analysis.
The working capital and cash requirement of an enterprise can be duly taken care by proper accounting system. It also helps to
manage and control the cash flow by properly maintaining the income and expenditures of an organization.
Proper business accounting ensures timely recording of our liabilities which needs to be paid within the prescribed time line. This
includes provident fund, pension fund, VAT, sales tax, Income tax. Timely payment of liabilities helps enterprises to be statutory
compliant.
Accounting data helps an enterprise to prepare budget and forecast for future period. Business trends are projected based on past data
produced by accounting system. So, accounting helps to take proper decision of future based on the financial records of past and
present data.
Helps in filing financial statements with regulators, stock exchanges and filing of tax returns –
Enterprises are required to file the financial statements with ROC. In case of listed entities the same is required to be filed with stock
exchanges as well. For both indirect and direct tax filing purposes, financial statements and other financial information are required.
Bikash bhandari
Mar 14, 2017 Reply 0 Replies
Relationship between book kiping, accounting and
accountancy
AND YOUNG LEARNERS
Accounting Equation
The relationship of different assets, capital and liabilities of the business expressed in an equation form is called the accounting
equation. In other words, accounting equation is the foundation of double entry accounting. It expresses the relationship between what
is owned by an entity.
Accounting equation shows that all assets are either financed by borrowing a loan or paying with the loan of the company's
shareholders. Therefore, accounting equation shows the relationship between the elements of accounting. Thus, the accounting
equation is: Assets = Liabilities +Owner's Equity
Another method of demonstrating the mathematical relationship involves a simple variation in the equational form. The accounting
equation is the statement of equality between the total assets and total claims. There are three basic elements like assets, liabilities and
capital.
Mathematically:
OR
Accounting measurements reflect the changes in the composition of firm's assets, liabilities and equity subject to the conservation rule
reflected in the fundamental equation. The conservation rule is simply that, any net change up or down of a firm's assets must be offset
by an equal change to the combination of the liabilities and the equity. If there is any increase in assets, there must be an increase in
the total of liabilities and equity. If there is a decrease in asset, there must be a decrease in a total of liabilities and equity.
Assets
Assets are a company's resources that the company owns. Assets can be tangible or intangible. Tangible assets are those assets
which have a physical form. Tangible assets include both fixed and current assets. Intangible assets are the opposite of tangible
assets. Intangible assets lack physical substances. Examples of intangible assets include patents, copyrights, trademark and franchise
licenses.
Liabilities
Liabilities are a company's obligations that the company owes. Liabilities are the existing debts of a company and obligations owned to
the third parties. For example, the amount owed to the suppliers for the goods and services received (account payable).
Owner's Equity
Owner'sEquity represents the amount owed to the owners by the company. Algebraically, the amount is calculated by subtracting
liabilities from each side of the accounting equation. Owner's equity also represents the net assets of the company.
If a company keeps accurate records, the accounting equation will always be "in balance," meaning both the debit and credit side of
account are equal. The balance is maintained because every business transaction affects at least two of a company's accounts. For
example, when a company borrows loan from a bank, the company's assets will increase as well as liabilities will also increase by the
same amount. Every transaction affects two or more account. So, the accounting system is referred to as double-entry accounting.
The effect of transaction upon the accounting equation can be illustrated by taking a brand – new business as an example
Example 1
Assume that, Mr. Naveed decided to start a "shoe business" of his own to be known as "Naveed Shoe Company ". The new business
was started on 1st January, 2005, when Mr. Naveed invested Rs. 500000 in his business. Recall that the business entity is kept
separate from its owner.
The business unit has borrowed Rs. 500000 from its owner. This is the first transaction of the business. It brought the double change in
the financial position of the business – an asset (cash) increased by Rs. 500000 and a liability (owner`s equity or capital ) increased
also by Rs. 500000. In other words, this transaction is consisting of two elements:
The initial accounting equation of the new business then appeared as follows;
Cash Capital
Example 2
Mr. Naveen purchased a building for Rs. 200000. This transaction brought two changes – cash assets decreased by Rs. 200000 and
the building ( a new asset) increased by Rs. 200000. Now the equation will be ;
Assets = Liabilities + Owner`s equity
It may be noted that there is no change on the right side of the equation. Simply one asset (cash ) has been converted into another
asset (Building). The two sides of the equation remain equal.
Example 3
He purchased a furniture for Rs 30000. This transaction brought two changes cash (assets) decreased by Rs 30000 and furniture and
(a new asset) increased by Rs 30000. The equation will be
Again, there is no change on the right side of the equation and cash asset is converted into a new asset furniture.
Accounting Equation
The relationship of different assets, capital and liabilities of the business expressed in an equation form is called the accounting
equation. In other words, accounting equation is the foundation of double entry accounting. It expresses the relationship between what
is owned by an entity.
Accounting equation shows that all assets are either financed by borrowing a loan or paying with the loan of the company's
shareholders. Therefore, accounting equation shows the relationship between the elements of accounting. Thus, the accounting
equation is: Assets = Liabilities +Owner's Equity
Another method of demonstrating the mathematical relationship involves a simple variation in the equational form. The accounting
equation is the statement of equality between the total assets and total claims. There are three basic elements like assets, liabilities and
capital.
Mathematically:
OR
Accounting measurements reflect the changes in the composition of firm's assets, liabilities and equity subject to the conservation rule
reflected in the fundamental equation. The conservation rule is simply that, any net change up or down of a firm's assets must be offset
by an equal change to the combination of the liabilities and the equity. If there is any increase in assets, there must be an increase in
the total of liabilities and equity. If there is a decrease in asset, there must be a decrease in a total of liabilities and equity.
Assets
Assets are a company's resources that the company owns. Assets can be tangible or intangible. Tangible assets are those assets
which have a physical form. Tangible assets include both fixed and current assets. Intangible assets are the opposite of tangible
assets. Intangible assets lack physical substances. Examples of intangible assets include patents, copyrights, trademark and franchise
licenses.
Liabilities
Liabilities are a company's obligations that the company owes. Liabilities are the existing debts of a company and obligations owned to
the third parties. For example, the amount owed to the suppliers for the goods and services received (account payable).
Owner's Equity
Owner'sEquity represents the amount owed to the owners by the company. Algebraically, the amount is calculated by subtracting
liabilities from each side of the accounting equation. Owner's equity also represents the net assets of the company.
If a company keeps accurate records, the accounting equation will always be "in balance," meaning both the debit and credit side of
account are equal. The balance is maintained because every business transaction affects at least two of a company's accounts. For
example, when a company borrows loan from a bank, the company's assets will increase as well as liabilities will also increase by the
same amount. Every transaction affects two or more account. So, the accounting system is referred to as double-entry accounting.
The effect of transaction upon the accounting equation can be illustrated by taking a brand – new business as an example
Example 1
Assume that, Mr. Naveed decided to start a "shoe business" of his own to be known as "Naveed Shoe Company ". The new business
was started on 1st January, 2005, when Mr. Naveed invested Rs. 500000 in his business. Recall that the business entity is kept
separate from its owner.
The business unit has borrowed Rs. 500000 from its owner. This is the first transaction of the business. It brought the double change in
the financial position of the business – an asset (cash) increased by Rs. 500000 and a liability (owner`s equity or capital ) increased
also by Rs. 500000. In other words, this transaction is consisting of two elements:
The initial accounting equation of the new business then appeared as follows;
Cash Capital
Example 2
Mr. Naveen purchased a building for Rs. 200000. This transaction brought two changes – cash assets decreased by Rs. 200000 and
the building ( a new asset) increased by Rs. 200000. Now the equation will be ;
Assets = Liabilities + Owner`s equity
It may be noted that there is no change on the right side of the equation. Simply one asset (cash ) has been converted into another asset
(Building). The two sides of the equation remain equal.
Example 3
He purchased a furniture for Rs 30000. This transaction brought two changes cash (assets) decreased by Rs 30000 and furniture and (a
new asset) increased by Rs 30000. The equation will be
Yadav Raj et.al., Principles of Accounting-XI, Asmita Books Publication, Kathmandu Shrestha,
Jogindar Goet, Bhesh Raj Banjade, Rajesh Kumar Dutta. (2012). Principal of Accounting, Dreamland Publication, Kalamati, Kathmandu
Accounting Cycle and Accounting Terminologies Meaning and Concept of Journal Entries
Meaning and Concept of Journal Entries
Every organization uses different types of books for recording their financial transactions. The books which are used by an organization
for recording financial transactions are called books of account. Generally, there are two sets of a book of account which an
organization issue to record the various business transactions. They are:
1. Journal
2. Ledger
Journal
Journal is a book which records day to day financial transaction of a business organization. The financial transactions are firstly
recorded into a journal in chronological order. It is known as "Book of Original Entry".
The word 'journal' is derived from the French word 'jour' which means a diary or long book. It means a daily record. A journal may,
therefore, be defined as a book which records the daily transaction. It is an important book based on the principle of double entry
system of book-keeping.
According to L.C. Cropper,"A journal is a book, employed to classify or sort out a transaction in a form convenient for their subsequent
entry in the ledger."
Journalising
Simply, an act of recording financial transactions in the journal book is said journalising. It is a process of systematic recording of
financial transactions in the book of prime or original entry.
The following steps are taken while journalising the transactions in the journal book.
Identifying the appropriate accounts for the two aspects of the transactions.
Debit and credit the accounts relevant to the transaction by using the rules of debit and credit.
Writing the entry in the journal in chronological order. Such an entry is called journal entry.
Advantage of Journal
All the business pecuniary transaction are entered in a journal in chronological order that is an order of occurrance.
Since, transaction is recorded in a journal as and when these takes place, it ensures that nothing shall be omitted which should be
recorded.
Each transaction before recording in a journal, it is analyzed for the aspects involved; accounts to be debited and credited. Totalling of
the amount columns on each page ensures that the basic rule of debit having equal and corresponding credit has been followed.
4. Reliable evidence
As the transaction taking the place and recording is the same time, therefore, the chances of cooking or manipulating the facts are
minimized. Thought out of alternations or insertions are not possible.
Journal is directly written on the basis of vouchers. So, the information contained in the journal contained is a primary source of
financial statistics of the business.
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-
entry bookkeeping system in which every debit transaction must have a corresponding credit transaction(s) and vice versa.
Debits and credits are a system of notation used in book-keeping to express how to record any financial transaction. In financial
accounting or bookkeeping, "Dr" (Debit) means the left side of a ledger account and "Cr" (Credit) is the right side of a ledger account.
Journal and ledger are interlinked because next step after journal is the ledger
There are 2 concepts about the rules of debit and credit. They are:
1. Traditional concept
2. Modern concept
1. Traditional Concept
In traditional concept, the account is divided into two and they are a personal account and impersonal account.
i. Personal account
This account is related to the natural person. For example ; (Ram and company, Shyam and brother, Debtors, creditors etc) and
Artificial person they are (firm, organization, company, institution, bank etc)
This account is divided into two; Real account and Nominal account
Real account: This account is related to assets. There are two types of assets. Tangible Assets and Intangible Assets. An
example of Tangible assets is all Fixed assets (like land building, plant, and machinery, furniture, vehicle, loose equipment,
investment, etc) and all current assets(like cash, bills receivable, inventory, short-term investment etc). An example of intangible
assets is (Goodwill, patent, copyright, trademark etc.
Nominal account: This account is related with Expenses or losses and income or gain. For example: salary, wages, discount,
commission, rent, bad debts, interest, Depreciation, Advertisement, etc.
Nowadays, modern concept is often used than traditional concept because people find it very convenient than traditionalconcept.
Debit Credit
ii. Liabilities and capital Decreases ii. Liabilities and capital Increases
Preparation of journal
Specimen of journal
Cash a/c Dr
Simple journal
Whenever there is an involvement of only two different accounts in certain transactions, then journal need to be passed, such journal is
known as a simple journal. In this type of journal, one account should be debited and another account should be credited.
Compound journal
Whenever there is involvement of three or more than three accounts in a certain journal, such type of journal should be known as
Compound Journal. Generally, in a debit side or in credit side two or more than two accounts are involved.
2. Capital/Drawing:
Whenever a businessman invested his personal property to his business to run smoothly, such amounts of properties are known as
capital. And similarly, if businessman withdraws some of the properties of business for his personal use such amounts are known as
drawing.
In courses of business, it is necessary to purchase a different type of goods from their creditors either in cash or in credit. Similarly,
creditors are paid in cash for their dues and sometimes, due to different reason goods may be returned to his creditor.
Dr xxx To cash
a/c xxx
Creditors a/c
Dr xxx To cash
a/c xxx
In the course of the business transaction, there is a lot of transaction relating to sales of the product for which business has been
started. Such sales may be in cash or credit. Some of the customers may return goods and some of the customer pay cash or
cheque against previous dues.
Cash a/c
Dr xxx To
sales a/c
xxx
Debtors a/c
Dr xxx To
Cash a/c Dr
xxx To
debtors a/c
xxx
Cash a/c Dr
8000 To
sales a/c
8000
Cash a/c Dr
6000 To
sales a/c
6000
Bibliography
Joginder Goet , Bhesh Raj Banjade. (2012). Principal of Accounting. Kalimati, Kathmandu: Dreamland publication.
Journal entries and its preparation
1. Assets /Liabilities
For smooth operation of business, it may purchase different types of assets and put into use for tong term. It may purchase in cash or
credit. If credit purchase is available, such credit to be discharged by the business in future. Actually, such assets are purchased by
business to use and for the same, it may charge certain amount of depreciation following different method of depreciation. But,
sometimes, due to different reason likewise obsolescence, useless or replacement or breakdown date to accident such assets need to
be disposed off. At that time, business may suffer loss for the transactions or sometimes may earn certain amount of profit. Similarly, to
purchase fixed assets or to maintain working capital, business may need some of the financial assistance and may borrow loan from
the different financial institute or lender. At that time, it may contains certain rate of interest that should be charged on amount of
finance or loan. In future, such amount of loan may be discharged in cash.
Furniture a/c Dr xx
To cash a/c xx
Cash a/c Dr xx
2. Expenses / Income
In business, there are lot of expenses raised and similarly, different type of indirect incomes generated. Such expenses are to be paid
in time, otherwise, it may remain outstanding. Similarly, incomes may also receive by the business, otherwise, it may remain
outstanding.
Salary paid
Salary a/c Dr xx
To cash a/c xx
Commission received
Cash a/c Dr xx
To commission a/c xx
Wages a/c Dr xx
To cash a/c xx
3. Banking transactions
For assist of business transactions and to follow the government rules also, business open the bank account in bank and perform lots
of transaction through bank. Among them, some transaction are illustrated below;
Bank account Dr xx
To cash a/c xx
Bank account Dr xx
To cash a/c xx
Cash a/c Dr xx
To bank a/c xx
For the goods sold in credit, certain customers became bad debt and bad debt amount could not be recovered. Such amount is known
as bad debt. Due to different reason, certain customer can be declared as insolvent (Bankrupt) and certain portion of debt only could
be recovered and that time also unrecovered portion of debt should be written off as "Bad Debt". Similarly, management may assume
that certain amount of credit sales could not be recovered and management need to make provision for same. Such amount is known
as provision for Bad Debt. Sometimes, the amount already written off as bad debt but received in current accounting year, need to
show in account. Such amount can be shown in account as indirect income as "Bad Debt Recovered".
Cash a/c Dr xx
To Debtor a/c xx
Cash a/c Dr xx
Sometimes, particular type of disaster may occurred and caused losses for the business and for the same, business may have take
insurance policy. If such disaster occurred in business, it may claim to the insurance company. Insurance company may admitted such
claim either in full or in part and sometimes rejects also.
To purchase a/c xx
Goods destroyed by accident and insurance company admitted the full claim
To purchase a/c xx
Goods were stolen by theft and insurance company admitted claim part only
To purchase a/c xx
To promote the business, sometimes business may distribute some of goods as free sample in form of advertisement. Similarly,
sometimes some of the goods may be distributed as donation to certain group. Such type of transactions also may take place in
business and could be presented in following term
Advertisement a/c Dr xx
To purchase a/c xx
Business may have some of personal transactions of businessman. If businessman invested his personal property into business then
such amount is termed as "Capital". In such amount, proprietor may charge certain rate of interest and those interest may burden to it.
Similarly, sometimes, proprietor may use business property for his personal use and those are termed as "Drawing". In such amount,
business may charge certain rate of Interest . This type of Interest may be income for the .business. Transactions can be illustrated as
follows:
To capital a/c xx
Interest on drawing
Drawing a/c Dr xx
8. Bill of Exchange
The bill of exchange, commonly referred to as the draft or the bill, is an unconditional order in writing signed and addressed by the
drawer (the exporter usually) to the drawee (the confirming writing, issuing bank usually), requiring the drawee to pay the drawer a
certain sum of money at sight or at a fixed or determinable future time.
Bill of exchange normally is customary where the supplier of goods has sold goods on credit to the buyer of goods. Here is the list of
parties to a bill of exchange:
Drawer — It is the person who is the maker of the bill of exchange. It is the person who has sold the goods and for receiving the
payment from the debtor he draws a bill of exchange.
Drawee or Acceptor — It is the person on whom the bill of exchange is drawn and he has to make payment to the supplier of
goods.
Payee — It is the person to whom the payment has to be made. It may be the drawer himself if he has not discounted the bill
with any third party.
City
Stamp Account
1
Three months after the date pay to Z order the sum of amount only for value received.
To
1. Acceptance or bill of exchange:It is the rocess by which a buyer (called a 'drawer') accepts the seller's bill of exchange by
signing under the words 'accepted' on face of the bill. By this act, the drawer becomes the acceptor and converts the bill into a
post-dated check an unconditional obligation to pay it on or before its maturity date.
2. Payment of bill or Honour of a bill: When the drawer pays the bill on the maturity date, it is called payment of a bill or honour
of a bill.
3. Discounting of bill: If the drawer of the bill does not want to wait till the due date of the bill and is in need of money, he may sell
his bill to a bank at a certain rate of discount. The bill will be endorsed by the drawer with a signed and dated order to pay the
bank. The bank will become the holder and the owner of the bill. After getting the bill, the bank will pay cash to the drawer equal
to the face value less interest or discount at an agreed rate for the number of days it has to run. This process is known as
discounting of a bill of exchange.
4. Endorsement of bill: If the holder of the bill puts his signature on the back of the bill with a view to transfer the property
contained in it (right to receive money from the acceptor), then he becomes endorser, and the person to whom the bill of
exchange is transferred will become endorsee. This procedure by which a bill is transferred from one person to another person
for the settlement of debts is called "endorsement".
5. Dishonour of bill: If a bill is not accepted or if the bill is not paid on the due date, it is said to have been dishonoured. In such a
case notice of Dishonour must be given by the holder to the drawer and each prior endorser whom he seeks to make liable. If
this is not done, the holder will lose his right to recover the amount from the prior parties.
Bibliography
All financial transactions are ultimately settled in cash. Some transactions are settled immediately after purchase and sale and the rest
after few days. In fact, business transactions are settled sooner or later either in cash or through bank. Usually, small sum of money are
settled in cash and large sum are settled through bank. There is a greater chance of misappropriating cash while performing cash and
banking transactions. Cash can be misappropriated by showing no record or less record of cash receipts. Hence, in order to have
proper information and control over cash and banking transactions, every business maintains a separate cash book.
Cash Transactions
Cash transactions refer to cash receipts and payments. The receipts of cash from various sources and payment of cash on various
heads are important routine transactions of a business. The main sources of cash receipts are sale of goods and services, sale of old
assets, contribution of capital, can borrowed, interest, rent, commission and other receipt from customers. The main heads of
payments are purchase of goods, wages, rent, stationary, interest on loan borrowed, and drawing, repayment of liabilities, advertising
and payment to suppliers.
Banking Transactions
Banking transactions refer to all receipts and payment made through bank. It is inconvenient and risky affair to get and make payment
of large sum directly in cash. A modern business operates bank account to settle all receipts and payment. It issues cheque for making
payments and accepts cheque for getting amount. It may also instruct its bank to pay and collect amount on its behalf. In fact, the bank
is treated by the business as its agent for collecting all receipts and making all payments. Except the balance in petty cash account, no
cash balance is maintained in the office of a modem business. The following are the types of bank accounts in which amount can be
deposited or cash transactions can be operated.
1. Current Account
A current account is one in which there is no restriction in respect of the number of withdrawals and extent of the amount to be drawn.
Mostly, it is operated by businessmen for the sake of convenience and safety in handling cash transactions. No interest is allowed by
the bank on the deposit made in current account. The trader is required to maintain a minimum balance in current account all the time.
The minimum balance may vary depending upon the policy of individual bank. The business deposits cash and cheques in its current
account and withdraws amount from it as and when required. The bank does not give credit to the current account for the cheque
deposited until it collects the amount from the drawee bank. The business is required to fill in a pay-in-slip and submit to the bank at
the time of depositing cash and cheques.
2. Saving Account
A saving account is one in which there is restriction in respect of the number of withdrawals and the extent of the amount to be drawn.
Saving account is not suitable for business. Usually, it is opened by individuals. An individual prefers to open saving account to earn
moderate interest. The depositor or the account holder is required to maintain the minimum balance all the times. The amount of
minimum balance is usually less than that of the current account. Banks do not restrict for number of withdrawals provided daily
withdrawals do not exceed the maximum limit. They require pre-information to withdraw more than the limit specified. They provide the
facility of debit card from which amount can be withdrawn at any time not exceeding the limit fixed by the bank without issuing cheque.
The -account holder can draw the money by using debit card from any branch bank where the ATM service is available.
Cheque
Cheque is an important negotiable instrument which can be transferred by mere hand delivery. Cheque is used to make safe and
convenient payment. It is less risky and the danger of loss is minimized. „
Cheque is an instrument in writing containing an unconditional order, addressed to a banker signed by the person who has deposited
money with the banker requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer
of instrument.
Features of cheque
1. Cheque is an instrument in writing: A cheque must be in writing. It can be written in ink pen, ball point pen, typed or even
printed. Oral orders are not considered as cheques.
2. Cheque contains an unconditional order: Every cheque contains an unconditional order issued by the customer to his bank. It
does not contain a request for payment. A cheque containing conditional orders is dishonoured by the bank.
3. Cheque is drawn by a customer on his bank: A cheque is always drawn on a specific bank mentioned therein. Cheque drawn
by stranger are of no meaning. Cheque book facility is made available only to account holder who are supposed to maintain
certain minimum balance in the account.
4. Cheque must be signed by customer: A cheque must be signed by customer (Account holder) . Unsigned cheques or signed
by persons other than customers are not regarded as cheque.
5. Cheque must be payable on demand: A cheque when presented for payment must be paid on demand. If cheque is made
payable after the expiry of certain period of time then it will not be a cheque.
6. Cheque must mention exact amount to be paid: Cheque must be for money only. The amount to be paid by the banker must
be certain. It insist be written in words and figures.
7. Payee must be certain to whom payment is made: The payee of the cheque should be certain whom the payment of a
cheque is to be made i.e. either real person or artificial person like joint stock company. The name of the payee must be written
on the cheque or it can be made payable to bearer.
8. Cheque must be duly dated by customer of bank: A cheque must be duly dated by the customer of bank. The cheque must
indicate clearly the date, month and the year. A cheque is valid for a period of six months from the date of issue.
Parties of cheque
Types of cheque
1. Bearer Cheque:
When the words "or bearer.' appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer
cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques
are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.
1. Order Cheque: When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order"
is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified
therein as the payee, or to any one else to whom it is endorsed (transferred).
2. Uncrossed / Open Cheque: When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The
payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order
one.
3. Crossed Cheque: Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional
words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank
but it can only be credited to the payee's account.
4. Anti-Dated Cheque: If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated
cheque". Such a cheque is valid upto six months from the date of the cheque.
5. Post dated cheque: if a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post
dated cheque cannot be honoured earlier than the the date of cheque.
6. stale cheque: if the cheque is presented for the payment after six months from the date of cheque it is called stale cheque. A
stale cheque is not honoured by the bank.
Bibliography
A business must have strict financial rules and accounting system to perform, record, report and control the cash and banking
transactions. Proper recording and accounting of cash and banking transactions are important to achieve the following objectives:
To have systematic and permanent record of all cash and banking transactions in a separate book.
To obtain reliable and detailed information of all cash receipts and payments easily and immediately.
To help to prepare cash budget and to avoid the possibility of having excess or shortage of cash.
To make the cashier and other concerned officers accountable for all cash and banking transactions.
Single column cash book records only cash receipts and payments. It has only one money column on each of the debit and credit sides
of the cash book. All those cash receipts are entered or posted on the debit side and the cash payments are entered or posted on the
credit side of the cash book.
While writing a single column cash book, the following points should be kept in mind:
The pages of those cash book are vertically and equally divided into two parts.
On the left hand sideof the column, receipts are recorded and on the right hand side of the column, payments are recorded.
It shows at the top of the left side as "To Balance" or "To Capital" in case of a new business.
Record the transactions according to the order of date.
When any amount of cash is been received on the account, then the name of that account is entered in the particulars column by
the word "To" on the left hand side of the cash book.
If any amount is paid on account, the name of the account is written in the particulars column by the word "By" on the right hand
side of the cash book.
It should be balanced at the end of a given period.
Receipt payment
Cash A/c and Bank A/c are two busiest accounts in ledger and they are removed from the ledger to reduce or decrease the volume and
size of a ledger. Cash A/c are removed from ledger and replaced bythe Single Column Cash Book which are to kepp the record of
cash transactions. In the same way, no Bank A/c is opened in ledger for recording transactions of bank, but an extra amount of column
is provided on each side of 'Single Column Cash Book' for recording bank transactions. One more column for amount is provided on
the debit side of single column cash book and one on the credit side of Single Column Cash Book. Those both two amount of columns
on debit side and credit side will serve as Bank A/c and so, it will not be necessary to open the Bank A/c in ledger. The Cash Book
which has two Amount of the Columns on its both sides is called the 'Double Column Cash Book'.
Advantages:
The following advantages are derived from Double Column Cash Book:
All the entries thet are made in "Bank" Column of Double Column Cash Book form a part of double entry system and hence a
separate Bank A/C need not be opened in ledger.
It saves our labour, time and the cost.
Both the cash transactions and the bank transactions are all recorded at the same book. So, both cash balance and bank
balance are easily available from the same book. Thus,we can say that the Double Column Cash Book has two accounts in it,
the Cash A/C and the Bank A/C.
Contra Entry
In any account, we can only have one half of a double entry. An account cannot be both debited and credited at the equal time. For
example, when a person sells goods for cash, and the cash that he or she received will be recorded on the debit side of Cash Book and
the goods that are sold will be posted on the credit side of the Sales Account. But, in the Double Column Cash Book, we have two
accounts, and they are called Cash A/c and the Bank A/c, and it is not possible to have both a debit entry and a credit entry at the same
time. For example, cash of Rs.5,000 is deposited into the bank. In this transaction, both Bank A/c and Cash A/c are involved and they
will be recorded on both sides of Double Column Cash Book i.e. on the debit side in bank column and on the credit side in cash
columns.
Thus, a transaction in which Cash A/c and Bank A/c are involved, is recorded on both the sides of Double Column Cash Book, then it is
known as the"contra entry". From the Latin word, the meaning of contra is 'opposite to' or 'against'.
In recording such a transaction, the letter "C", is written in 'L.F' column because both the aspects of transactions are clearly recorded
and we do not have to post them in the ledger account.
In this connection, the difference between contra entry and other entries in Cash Book may be written. "The Double entry work of the
contra entryare all completed in the Cash Book. Theydoes not need to be posted to ledger". But, the double entry work of other entries
in Cash Book is not completed, one aspect (that is the cash aspect) of the transaction are completed in Cash Book, but, the other
aspect is not completed, which is to be posted to the concerned account in ledger.
We know, when cash is received from the debtors, discount may be allowed to them and when cash is
paid to creditors, discount may be received from them. It means that, the cash and the discount are
extremely related with each other. Another thing is that, when the cash is received, the discount is
allowed and both cash account and discount account are debited. After that, when the cash are paid
and the discount are received and both the cash account and the discount account are credited in the
books of account. Thus, in "Double Column Cash Book" another amount or the column are prepared or
provided on the each side which is used to record discount allowed and discount received. It means the
Cash Book now will have three amount columns on each side, and they are: a.Cash Column, b. Bank
Column and c. Discount Allowed Column on the debit side and a.Cash Column, b.Bank Column and
c.Discount Received Column on the credit side. It may also be noted that when the 'Discount' Column
are addeded with both sides of the Double Column Cash Book, it now becomes a "Treble or Three
Column Cash Book". It must be remembered that the Discount Column in Treble Column Cash Book is
not an account. Both the account that is Discount Allowed Account and Discount Received Account are
opened in the ordinary ledger. These columns are memorandum columns only; they help as remember
how much discount has been allowed or received. The total of discount allowed and discount received
columns from two sides of cash book are posted in Discount allowed A/c and discount received A/c
respectively in the ledger
Reserves
INTRODUCTION TO RESERVES
he term “Reserve” indicates to the fund or an amount of money that is set aside until it is needed for some
particular purpose out of the business earned profit. Reserve fund is created for future purpose. Reserve fund
is the part of the profit. So, if there is no profit, then reserve fund cannot be created. Reserve fund is not
distributed to the shareholder/owner.
The amount of reserve will be shown on the liability side of balance sheet. When reserve is created, an entry should be passed in the
book of accounts and that reduces the value of divisible profit. When the reserve fund is created, the cash and other assets of the
business will not be set aside.
As reserve is a part of profit that are set aside for the future use, these amount will not be distributed among the shareholders as
dividend. So, reserve is a general accounting term which means to withdraw some amont of money from profit earned by the business
organization and keep it in safe pocket of the business and use these amount if the business face loss in near future.
Hence, the reserve are kept by every business organizations to be safe from loss and use the reserves to maintain proper sustainability
and survivability of organization.
Characteristics of reserves
Objectives of reserves
The main objectives of reserve are as follows:
Types of Reserve
1. Capital Reserve
2. Secret Reserve
3. Revenue Reserve
Capital Reserve
Capital reserves are the reserve which are created out of capital profit but not created out of revenue profit. It includes profit on sale of
fixed assets, premium on issue of shares, profit on revaluation of fixed assets, etc. The capital reserves are not distributed as dividend
to the shareholders. They are distributed only if the article of association is permitted. The following are the examples of capital profit
from which capital reserves are created:
Secret reserve
Secret reserve is that reserve which is not disclosed on the list of balance sheet. Secret reserve is the outcome of understatement of
assets and overstatement of liabilities. It is also known as internal reserve or implied reserve. It is created to increase the working
capital and enhance the faith of shareholders.
Revenue reserve
All the reserves which are created out of revenue profit resulting from day to day activities or business operation are known as revenue
reserve. The following types of revenue reserves are created in the business:
A) General Reserve:
General reserve is that type of revenue reserve which is not created for specific purpose.
Accounting treatment
It is created out of an appropriation of net profit and its accounting treatment will be as below:
B) Specific Reserve:
Specific reserves are those reserves which are created for the specific purpose. Specific reserve is created for:
Sinking fund
It is created by debiting the profit and loss appropriation account and creating the above specific reserve fund:
Accounting treatment
It is created to equalize the dividend for each year by profit and loss appropriation account. When profit is in large amount, it is
transferred to its fund so that it can be utilized to equalize the dividend when the profit is in low amount in the next year.
The market price of share could not fluctuate due to the poor financial position.
ii)Sinking fund
Sinking fund is a specific reserve set aside by annual contribution for redemption of a long term debt or the replacement wasting
assets. This fund is invested outside the business in easily obtainable securities. There are two types of sinking fund:
If the invested amount is not collected in time, it will not fulfill its purpose.
A bank reconciliation statementis such a statement which is prepared to show how the Bank Balance as per Cash Book and the Bank
Balance as per Pass Book use to differ each other. Generally, a modern business performs its transactions through bank. While doing
so, it receives cash through bank deposits and makes the cash payments by issuing the cheques. To keep records of its transactions,
the bank maintains a cash book, with bank columns. It is in fact the bank account in the books of the business. On the other hand, bank
also maintains customer's account in their books. Everytime the business opens an account in the bank by depositing some amount,
the bank provides it with a cheque book to provide the facility of the withdrawal or the payment of cash, and it also prepares a pass
book which is used to show detailed statement of the customer's account in the bank.
Any transaction that takes place through bank is supposed to be done properly without any mistake recorded in the books. As for
example, if the cash is deposited in the customer's account, it is debited in the bank column of the cash book while it is credited in the
pass book. Similarly, if cash is withdrawn from bank or payment is made through bank, the bank column of the cash book is credited
and pass book is debited. As a result, it supposed that the cash balance at bank shown by both the cash book and the pass book is
always same. But, sometimes , the balance shown by the pass book hardly equals the balance shown by the bank column of cash
book. The disagreement between the balance shown by pass book and the cash book comes because of some transactions or errors
that appear only in the cash book but not in the pass book, or only in the pass book but not in cash book. However, it is essential to
reconcile the difference in the balances shown by the pass book and the cash book for ensuring their accuracy. In order to reconcile the
balances that are shown by them, an statement is prepared or made which is known as bank reconciliation statement. A bank
reconciliation statement is the statement which is prepared to reconcile the balances which are shown by the pass book and cash book
both by finding out the causes of difference and inequality between both balances.
While defining the Bank Reconciliation Statement, different authors have defined differently. Some of the important definition can be
quoted as below:
According to P. Haldar, " A statement which is drawn up to show the cause for disagreement between the bank balances as shown by
cash book and the balances shown by die pass book on a particular date is called Bank Reconciliation statement".
According to J R Batliboi, " Bank reconciliation statement is prepared at periodical intervals with a view to indicate the items which
causes disagreement between the balance as per the bank columns of the cash book and the bank pass book on the given date".
Bank reconciliation statement is an important technique with the help of which the accuracy of the bank balance can be clearly shown
by the pass book and cash book. The need or importance of bank reconciliation statement can be summarized with the help of the
following points.
Bank reconciliation statement ensures the accuracy of balances shown by the pass book and cash book.
Bank reconciliation statement provides a check on the accuracy of entries made in both pass book and cash book.
Bank reconciliation statement helps to rectifyand detect any error committed in both the books.
Bank reconciliation statement helps to update the cash book by discovering some entries not yet recorded.
Bank reconciliation statement indicates any undue delay in the collection and clearance of some cheques.
Reasons for disagreement between cash book and pass book balance
The following are the important causes or reasons for the disagreement between the balances shown by the pass book and cash book.
Cheques paid or deposited but not collected and credited by the bank.
Bank charges, commission and interest in overdraft debited by the bank but not entered in cash book.
Expenses directly paid by the bank on behalf of customer but not recorded in cash book.
Incomes directly collected by the bank on behalf of customer but not recorded in cash book.
Amount directly deposited into the bank by debtors but not entered in cash book.
The following procedures are followed while preparing the bank reconciliation statement:
Give sign to all the items of cash book and pass book which are matched with each other.
Make a list of unmatched items found in cash book and pass book.
Prepare bank reconciliation statement taking balance either from cash book or pass book as a basis.
Add the items which have decreased the balance on the book with which reconciliation is to be made. On the contrary subtract
the amount of those items which have increased the balance.
These procedures should be followed only when the cash book and pass book are to be compared. But it causes of differences
are already given, the above procedures need not be followed.
If the causes of disagreement between the cash book and pass book balances are given, the bank reconciliation statement can be
prepared either by taking the balance of cash book or pass book. The bank reconciliation statement can be prepared by using either of
the following bases.
(b) If the bank balance of the cash book is a credit balance (overdraft), then add to it all the cheques, drafts, etc., paid into the bank but
are not collected by the bank and deduct from it all cheques drawn on the bank but not yet presented for payment. The new balance will
be then agree with the balance of the bank statement.
Second Method (Starting With the Bank Statement(Pass Book) Balance):
(a) If the bank statement balance is a debit balance (or an overdraft), deduct it from cheques, drafts, etc., paid into bank but not
collected and credited by the bank and add to it all cheques drawn on the bank but not yet presented for payment. The new balance will then be
agree with the balance of the cash book.
(b) If the bank statement balance is a credit balance (in favor of the depositor), add to it all cheques, drafts, etc., paid into the bank but not
collected and credited by the bank and deduct from it all cheques drawn on the bank but not yet presented for payment. The new balance
will agree with the balance of the cash book.
Joginder Goet , Bhesh Raj Banjade. (2012). Principal of Accounting. Kalimati, Kathmandu: Dreamland publication.
Bank Reconcillation 2
CB to
CB to BS BS to CB BS to CB
BS
Cheques issued but not presented in the
Add Less Less Add
bank.
Cheques paid into bank but not collected
Less Add Add Less
and credited by the bank.
Credit, if any in the bank statement.
TRG
›
AD
Debit, if any in the bank statement Less Add Add Less
General Points:
Account holder makes payment to its creditors and other outstanding parties through cheques is known as cheques issued or cheque
drawn. If third parties are unavailable to present the same cheques, its effect is only shown through cash book but not shown onpass
book.
If account holder has received payment in form of cheques from its customer, the same cheques are to be sent for collection and
deposited into account holder's bank account but sometimes bank could not collect the amount for account holders and at that time
effect of deposit only has been shown through cash book. Thus, it should be shown through Bank Reconciliation Statement.
Whenever banking transaction took place, sometimes bankers may charge some of the amount for their services and should deduct
the customers account and sent notice to the account holders. In absence of such information, account holder could not record the
transaction and charges were shown through only pass book. Thus, it should be shown through Bank Reconciliation Statement.
Bankers should provide some of interest to their customer against their deposit at certain interval. Afterwards the information conveyed
to account holders and in the absence of information, account holder could not record such amount of interest. Thus, it should be
shown through Bank Reconciliation Statement.
If the customer has been provided overdraft facilities banker may charge some of the interest on overdraft and information to be
conveyed to account holders, but sometime, in absence of information account holder could not record the same transaction through
his Cash book. Thus, such pointsshould be shown through Bank Reconciliation Statement.
Bankers may collect amount of dividend on behalf of account holders and credited his account. Such amount should be recorded into
cash book in accordance of banker advice and if advice has not been received by the account holder cash book balance should be
lower than the balance as per pass book and such points to be shown through Bank Reconciliation Statement.
Nowadays, bankers have provided to pay different outstanding bill through bank on behalf of account holder and for the same they
have to receive standing instruction from account holder. If certain payment has been made by banker and advice has been delayed,
the same pointsshould be shown through Bank Reconciliation Statement.
By mistake, if sometimes total of payment side falls below than actual, it increases the bank balance as per cash book.
By mistake, if sometimes total of Receipt side falls below than actual it decreases the bank balance as per cash book.
Due to different reason, if customer's cheques deposited into bank and same was dishonoured, it will cause to decrease the bank
balance. Since, the first information carried by bank, thus pass book balance should be decreased.
11. Amount of rebate not recorded through Cash Book against the bills
If certain bills of account holder discharged at certain rebate by bank before maturity, bank balance should be increased with amount
of Rebate.
iii Xxx
Xxx
Less i xxxxxxx
Xxx
Ii
Similarly
iii
Xxx
Less i xxxxxxx
Xxx
ii
xxxxxxx
Overdraft
Meaning of Overdraft
The amount by which a check exceeds the funds on deposit to cover it, is called overdraft.
1. Balance of a bank account in which funds withdrawn have exceeded funds deposited.
2. An extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to
continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set
amount of money.
Simply, Overdraft represent the amount that have account holder has withdrawn from his bank account in excess of deposit
made by him. Such facilities should be provided by the bank to good customer that have selected by the banker to improve
customer relations.
Summary of Adjustment
1. General Crossing:
Generally, cheques are crossed when there are two transverse parallel lines, marked across its face or the
cheque bears an abbreviation "& Coopration" between the two parallel lines or the cheque bears the words
"Not Negotiable” between the two parallel lines or the cheque bears the words "A/c Payee" between the two
parallel lines.
A crossed cheque can be made a bearer cheque by cancelling or erasing the crossing and writing that the crossing is cancelled and
affixing the full signature of drawer.
When a certain bank's name is written in between the two parallel lines, then the cheque are said to be specially crossed. In addition to
the word bank, the words "A/c Payee Only”, "Not Negotiable" may also be written. The payment of those cheques are not made unless
the bank had named in crossing is presenting the cheque. The effect of special crossing is that the bank makes payment only to those
bankers whose name are written in the crossing. Specially, the crossed cheques are more safer than the generally crossed cheques.
Endorsement of cheque
The payee named on a cheque endorses the cheque on the back of the cheque by writing their name exactly same as it is written in
front of the cheque. Signing the back of the check completes negotiation of the item allowing the transfer of money as ordered by the
cheque.
When more than one person are listed on the cheque as the Payee, then the requirements for endorsement all depends on how those
names are written. If the check indicates Mr. John Doe andMr. Jane Doe, then both person must have to sign the cheque. If the cheque
indicates John Doe or Jane Doe, then only one signature is required. If the two names are listed and the words that are "and" or "or" are
not shown on the cheque , then assume "and".
1. Blank Endorsement: A blank endorsement is when the recipient of the check signs his name on the back of the check. Once
the check is signed, it can be used in a similar manner to cash.
2. Restrictive Endorsement: A restrictive endorsement specifies the way in which a check can be negotiated. The most common
form of restrictive endorsement is "For Deposit Only," which renders a check unable to be cashed.
3. Conditional Endorsement: The endorser uses a conditional endorsement to specify a condition that must be met before the
check can be cashed, such as "Payable to Bob Smith after the lawn is mowed." Institutions typically won't accept conditionally
endorsed checks because they have no way of verifying if the condition has been met.
4. Special Endorsement: The person receiving the check uses a special endorsement to turn over the funds to another person by
writing something like "Pay to the Order of Jane Doe, Signed John Doe."
5. Qualified Endorsement: The person negotiating the check uses a qualified endorsement to attempt to remove any
responsibility for the check being returned for insufficient funds by writing "without recourse" after her signature. Banks do not
accept this type of endorsement because depositors are always financially responsible for insufficient deposits.
The bank should pay the amount mentioned on the cheque as soon as it is presented. If the amount of cheque is paid by the bank to
the payee, the cheque is said to be honoured. If the bank refuses to pay the amount of cheque, then the cheque is said to be
dishonoured. Thus, the dishonoured of the cheque means the refusal by the bank to pay the amount of cheque to the person or the
payee. It is a condition or the situaton in which the bank does not pay or refuses to pay the amount of the cheque to the payee. In fact,
when the drawer draws the cheque without following all the rules of issuing cheque or when the drawee draws the cheque more than
the bank balance then the bank dishonours the cheque.
If the date is not written on the cheque or written incorrectly on the cheque or the date given is of three months before or if the
advance date is given.
If the name of the payee or the person is not written on the cheque or not written clearly on the cheque.
When the ordered or crossed cheques are transferred without proper endorsement and delivery.
If the amount or figures are not written in words or not written properly or written incorrectly or if the amount written in words and
figures does not match with each other.
If the alteration made on the cheque is not proved by the drawer giving signature.
If the account number is not mentioned or if it is not clear or if it is not mentioned clearly.
If signature isnot given or if the signature given in the cheque do not match with the signature which is given on the signature
specification card that are kept by the bank.
If the amount that are mentioned on the cheque are more than the amount that the drawer has in his bank account or if as per
bank's rule the minimum balance in the account of the drawer cannot remain. If the cheque is overwritten.
If the cheque is not found in proper condition or it is found wet, torn or spotted.
If the drawer has given order to the bank to stop payment of the cheque.
If the court of law orders the bank to stop payment of the cheque.
When the balance of bank remains shortage on an account for not collecting the cheque deposited.
If the drawer has already closed hisaccount before presenting the cheque.
A business must have strict financial tides and accounting system to perform, record, report and control the cash and banking
transactions. Proper recording and accounting of cash and banking transactions are important to achieve the following objectives: :
To have systematic and permanent record of all cash and banking transactions in a separate book.
To obtain reliable and detailed information of all cash receipts and payments easily and immediately.
To help to prepare cash budget and to avoid the possibility of having excess or shortage of cash.
To make the cashier and other concerned officers accountable for all cash and banking transactions.
Cash book is a book of original entry in which transactions which refers only to cash receipts and payments are recorded properly in
detail. When cash are received, then they are entered at the debit side or the left hand side of the cash book. Similarly, when the cash
is paid out, the same is recorded at the credit side or the right hand side of the cash book.
Although, the cash book serves the purpose of a cash book of original entry, cash journal represents the cash account of the ledger
which are separately bounded for the sake of convenience. It can be called more a ledger than a journal. It is a journal as cash
transactions are chronologically recorded in it. It is a ledger because it contains a classified record of all the cash transactions. All the
balances of cash book are properly recorded in the trial balance and the balance sheet. A general specimen of cash book can be given as
below
Receipt Payment
A brief explanation of each column used in the cash book can be given below:
1. Particulars: It is a column where the name of the opposite account are written (the second aspect of cash \ transaction). Below this,
the narration of the transaction is written.
2. L.F. (Ledger Folio): In this column, the page number of the ledger where the concerned (opposite) account has been opened, are
written. This will help to locate the account from the Ledger. It may be writtenthat in a Ledger account J.F. is written as only
reference, while in a Cash Book L.F. is written. It \ IS so, because cash transactions are not recorded in any Journal.
3. Amount (Rs): The amount of the transaction is recorded in this column. The amount of cash received is recorded on the debit side
in amount column and the amount of cash paid is recorded on the credit side in amount column.
Bibliography
INTRODUCTION TO DEPRECIATION
The word “depreciation” has been derived from the Latin word ‘depretium’ in which 'De' means to decrease and 'premium' refers to the
price or value. Depreciation may be defined as the loss or diminution of the value of assets due to wear, tear, natural causes,
obsolescence, and expiry of time, depletion and decrease in market value. It must be accounted on the firm’s books of account.
Depreciation is usually practiced in case of fixed assets. Decrease in the value of assets due to its continuous use is called
depreciation.
Depreciation is a non-cash expense and must be charged as revenue expenditure to ascertain the true income of a business
organization. Only in a few cases, fixed assets may appreciate. The most suitable example of appreciation is an land.
“Depreciation is gradual and permanent decrease in the value of an asset from any cause.” - R.N. Carter
Features of depreciation
Causes of depreciation
1. The cost of the assets:It includes the purchase price, carriage expenses, customs duty, installation expenses which are
incurred till the assets become operational. So, these expenses should be taken while calculating depreciation of assets which
is known as original cost.
2. Expected usefulness of assets: Expected usefulness of assets affects the amount of depreciation. It is the estimated
working life of the assets. If the assets are useful for short, the amount of depreciation will be more and vice-versa.
3. Scrap value: It is also called salvage value or breakup value. Scrap value is the value of the assets at the end of its useful life
at which the assets will be disposed off for some amount.
4. Legal provision: Legal provision affects the amount of depreciation. There are various rules, rate and methods of
charging depreciation in Company Act and Income Tax Act.
It is compulsory to charge the amount of depreciation to determine the actual profit and loss of the business during the
particular period.
Depreciation helps to show the real value of the assets for a correct financial position of the business.
According to the Company Act 2063, the depreciation is charged to fulfill the legal requirement of the business organization.
The following are the methods of allocating the depreciation of fixed assets:
Straight line method is also known as fixed installment, fixed percentage and original cost method. Fixed installment method is one of
the methods of allocating depreciation. In this method, every year a fixed amount of depreciation is deducted from the value of assets
and the same amount is debited to profit and loss account. The book value of the assets is reduced to zero at the end of the expected
life. The formula for calculating the amount of depreciation is as follows:
If the rate of depreciation is given, the depreciation is calculated with the help of the following formula:
Rate of depreciation
Annual Depreciation = Original Value× 100
Or
Amount of Depreciation
Rate of Depreciation = Depreciable Value
× 100
This method is suitable for those assets whose working life can easily be estimated.
It is simple to understand and easy to calculate.
The valuation of the assets takes place appropriately every year in the Balance Sheet.
It is not suitable for those assets which are subject to addition and extension from time to time.
It is an illogical method as the value of used assets is declining every year but depreciation is calculated on the basis of original
cost.
The following journal entries are passed while keeping the record of depreciation:
Depreciation a/c......................... Dr
To Assets a/c
ILLUSTRATION 1
Required:
1. Amount of depreciation
2. Journal entries and furniture account for three year
Annual Depreciation = (Purchase price + carriage and installation charges – scrap value) ×
20
= (40000 + 8000 – 10000) × 100
Journal entries
Furniture Account
39600 8400
Beg. Ending By depreciation a/c
To Balance b/d 22800
Year 3 Year 3 By Balance c/d
3 31200
9
6
0
0
31200
3
1
2
0
0
Beg. Year 4
To Balance b/d 22800
Provisions
INTRODUCTION
vision indicates to any amount of anticipated losses or expenses of the business in the future due to
current year’s activities. It is created for particular purpose by charging against the profit and loss account.
The provision can be created in the organization for:
Liability and charges (e.g. provision for tax)
Provision may be both specific or general. If the provision is made for a particular debtor that is considered as specific provision and if
provision made as a percentage of the debtors that is considered as general provision.
Features of provision
Objectives of provision
Provision for doubtful debts is the estimated amount amount of bad debt that arises from account receivable that have been issued but
not collected yet. In other words, doubtful debt is the amount of account receivable that might become a bad debt in near future.
Provision for doubtful debt is created to meet any future potential loss, due to non-payment the whole or part of the debt owing by the
debtors. It is an expected loss for the concern.
Provision for doubtful debts is posted at the debit side of profit & loss account. This provision for doubtful debts is also deducted from
sundry debtors on the assets side of the balance sheet.
C) For transferring total bad debt to provision for bad and doubtful
debt a/c [Bad debt + Further bad debt]
Provision for doubtful debt a/c.................................................. Dr
To Bad debt a/c XXX
XXX
(Being total bad debt transferred to provision for bad and doubtful debt a/c)
D) For transferring the provision for doubtful debt to profit and loss
account [Bad debt + New provision – Old provision]
Profit and loss a/c ................................................... Dr
To Provision for doubtful debt a/c XXX
XXX
(Being provision for doubtful debt transferred to debit side of P/L a/c)
E) If Old provision is greater than bad debt and new provision [Old
provision – Bad debt – New provision]
Provision for doubtful debt a/c.................................. Dr
To Profit and loss a/c XXX
XXX
(Being provision for doubtful debt transferred to credit side of P/L a/c)
XXX XXX
XXX XXX
Effect of Provision for Bad Debt on Profit and Loss Account
Balance Sheet
Sundry debtors XX
Less: Further bad debt XX
Less: New provision XX XX
nce sheet is a financial statement that summarizes all the assets, liabilities and capital of a particular
company at a specific period of time. It shows all the amount that the company invested on certain
project, the amount of money it owns and it owes. It is prepared by all the profitable and non-profitable
organizations.
The organizations prepares its balance sheet so that they can know the financial position of their organization. It is prepared by taking
assets and liabilities and also fund based items. The following two balance sheets are prepared by the non-profit organization:
This balance sheet is prepared to know the amount of capital fund.AD In this balance sheet, all the assets, and liabilities related to the
previous year is only taken. The amount of capital is obtained by deducting the total liabilities from total assets. (i.e. Capital = Assets –
Liabilities)
Closing Balance sheet
n,
In this balance sheet, all the assets and liabilities related to the current year is only taken.
For assets:
1. Fixed assets of previous year should be shown in closing balance sheet after adjustments if any i.e. purchase of assets should
be added whereas the sale of assets and depreciation should be deducted from the concerned assets.
2. Prepaid expenses, accrued income and investment should be shown on the assets side.
3. Closing balance of cash and bank should be shown on the assets side.
For liabilities:
1. All fund based items such as donation, prize fund, tournament fund, etc. are shown in liabilities side.
2. If an organization has taken a loan in previous year then that should be shown in closing balance sheet unless they are repaid in
the current year.
3. Outstanding expenses, advance income for the next year are shown in liabilities side.
Subscription:
By subscription XX
(-) Outstanding previous year XX
(+) Outstanding current year XX
(+) Advance received in previous year for
current year XX
(-) Advance received in current year for next
yearXX XXX
Rent:
To Rent XX
(-) Outstanding (previous year) XX
(+) Outstanding (current year) XX
(+) Advance paid in previous for current year
XX XX
(-) Advance paid in current year for next yearXX
How will you show the amount of subscription and rent in the final account of a non-profit organization from the following Receipt and
Payment account and additional information?
Additional information:
Solution:
To Rent 12000
By subscription 25000
(-) Outstanding (previous year)
(-)outstandingprevious year1000
1000
(+)outstandingcurrent year1500
(+) Outstanding (current year) 1300
(+) advance received inpreviousyear
(+) Advance paid in previous for
forcurrent year1000
current year 500
(-) Advance received in current year for
(-) Advance paid in current year for 11800 25300
the next year1200
the next year1000
Adv. Subscription (Next year) 1200 Out. Subscription (current year) 1500
Outstanding rent (current year) 1300 Out. Subscription (previous year) 1000
Outstanding rent (previous year) 1000 Advance rent (Next year) 1000
3500 3500
Consumable items are the items for which opening and closing stock and payment made during the year is given in the question. For
e.g. stationery, sports, materials, postage, stamps etc.)
Cost of materials = Opening stock + purchase/payment – closing stock – opening creditors + closing creditors + adv. paid in previous
year – adv. paid in current year
Fund based items are the specific items which are created to meet the specific purpose of the organization. For e.g. Tournament fund
is created to meet the expenses of a tournament and Prize fund for giving prizes, building a fund for constructing building etc. These
items should be treated in the balance sheet.
Balance Sheet
Tournament fund XX
Add: Income from tournament fund
investment XX
Add: Donation for tournament fund XX
Less: Tournament expensesXX XX
Tournament fund investment XX
Concept and Terminologies of Non Trading Concern
INTRODUCTION TO NON-TRADING CONCER non-trading concerns are the organizations which are established with a
view to provide services to the society and not to make profits. The examples of such organization are
sports, dub, school, hospitals, temples, etc. Though, they are not established with a view to earn profit but
still it needs to maintain a set of accounting books in order to avoid misappropriation of funds. The main
purpose of non-trading concern is to provide necessary services to its members and society through
welfare activities. So, their main objective is not to arn profit.
Non-profit organizations can be defined as, “An entity whose prime motive is to provide services to the society and not to make a profit.”
This organization prepares financial statement so that all the legal requirement can be fulfilled.
Fund based items are credited to the capital fund or the general fund.
Profit and loss derived from income and expenditure a/c is adjusted to capital fund in the balance sheet.
Subscription
Subscription is the amount paid by the members of the organization periodically. Subscription is the main source of income for non-
profit organization. It is created in receipt side of receipt and payment and in income side of income and expenditure account. It is also
called membership fee. The subscription received in receipt and payment account is shown for an irrespective period but in income and
expenditure account is shown only for a current year.
For example:
A sports club received Rs.30000 subscription for the year 2009 of which Rs.3000 relate to the year 2008 and Rs.2000 to the year 2010
and at the end 2009 subscription still to be received Rs. 10000. The subscription for current year will be calculated as follows:
Solution:
Subscription a/c
Entrance fee
Entrance fee is the amount paid by the new members at the time of joining the club. It is also called admission fee. When the entrance
fee is received regularly every year then it is treated as income. When the entrance fee is received once for all then it is treated as
capital.
The following are the different cases for the treatment of the entrance fee for the preparation of final account of non-profit organization.
Case I: During the year 2053, entrance fee received Rs.500000. The organization treats the entrance fee as a revenue receipt.
Case II: During the year 2065 entrance fee received Rs. 500000. The organization treats entrance fee as a capital receipt.
Balance Sheet
Case III: During the year 2068, entrance fee received Rs. 500000. The organization treats of entrance fee as a revenue receipt and the
rest as capital receipt.
Balance Sheet
Legacy
Legacy is the amount given as per will of the deceased person. If it appears on the receipt and payment account, then it is treated as
capital receipt and shown on the liabilities side of balance sheet. If the amount of legacy is nominal, then it may be treated as income
and shown on the income side of income & expenditure.
Endowment fund
According to Eric L. Kohler,” It is a fund arising from a bequest or gift, the income of which is devoted to a specific purpose.” It is a
capital receipt and shown on the liabilities side of balance sheet.
Grants
A grant is an amount provided by the government or public for the institution. It may be provided in cash or in kinds. Grants may be of
following two types:
1. Operating Grants: Some institutions like school, college, hospital, clubs, etc. depends on a grant for their operation. It is
provided to meet their operating expenses. It is a revenue receipt and treated as income of the institutions.
2. Development Grants: It is provided to meet the specific purpose. The amount received is utilized for the same purpose. It is a
capital item and treated as a liability in the balance sheet.
Donations
The donation is the gift given by an organization or a person in the form of cash and property. It appears on the receipt side of receipt
and payment account. Donation may be classified as below:
1. Specific donation: Specific donation is the donation received for a specific purpose. It is a capital item and treated as a liability
in the balance sheet irrespective of amount big or small.
2. General donation: General donation is the donation received for general purpose. It is revenue receipts and treated as income
in the income & expenditure a/c.
It is a capital receipt and should be deducted from the assets concerned in the balance sheet, and hence it should not be treated as
income. However, profit or loss made from the sale of these assets can be treated as income (profit) & expenditure (loss).
Honorarium
An honorarium is the amount paid to the person for their volunteer’s service but who are not the employees of the organization. For e.g.
amount paid to the visiting professors, guest artist, etc.
Other receipts
It is a revenue receipt and treated as income. It includes proceeds from charity, games, lectures, interest on investment, gain on sale of
investment, a sale of newspaper and other revenue receipts, etc.
Receipt and payment account is the summary of all the cash transaction which is recorded in cash book date wise at end of the year.
The organization maintain the accounting system on a cash basis which is recorded in cash book. This cash book is summarized in
receipt & payment account. Therefore, receipt & payment account is also known as a summary of cash book.
According to William Pickles, “ Receipt & Payment account is nothing more than a summary of cash book over a certain period,
analyzed and classified under suitable headings. It is the form of account most commonly adopted by the treasure of the society, class,
association, etc. when preparing the results of the year working."
It is a real account.
It records all the cash transaction whether they are capital or revenue.
It starts with opening balance of cash and end with closing balance of cash.
It does not record non-cash transactions like depreciation, bad debt, loss or profit on a sale of assets, etc.
It does not differentiate between capital and revenue receipts and payments.
ILLUSTRATION 1
From the following information prepare a Receipt and Payment a/c of ABC Club for the year ending 31 st Dec 2010.
Solution:
INTRODUCTION
me and expenditure is a nominal account which includes all revenue items. It is prepared same as profit and loss account i.e. on accrual basis. The
difference of this account will represent surplus or deficit.
It is a nominal account.
All expenses are recorded on debit side and all revenues on credit side of income and expenditure account.
Surplus or deficit of a concern is ascertained through this account. Credit balance indicates surplus, while debit balance indicates
deficit.
Method of Preparation
The following points are to be noted, while preparing the above account:
1. us or deficit of a fixed period of time is ascertained through this account. So, it's heading will be:
3. All items of revenue income and expenditure relating to the current year will appear in it.
Revenue Payment:
To Rent XX Revenue Receipt:
Less: Outstanding for Previous year XX By Subscription XX
Add: Outstanding for current year XX Less: Outstanding for Previous year XX
Add: Advance for current year XX Add: Outstanding for current year XX
Less: Advance for next year XX XXX Add: Advance received in previous for
To Salary XXX current year XX
To Insurance XXX Less: Advance received in current year for
XXX
To Audit fee XXX next yearXX
XXX
To Honorarium XXX By Entrance fee XXX
To Bank Charges XXX By Donation (General) XXX
To Newspaper XXX
By Profit on sale of assets XXX
To Loss on sale of fixed assets XXX
By Proceeds from Tournament XXX
To Upkeep of lawn XXX
By Interest receive XXX
To Charity
XXX By Sundry recipt XXX
To Advertisement
XXX By Government grants XXX
To Tournament expenses
XXX By Sale of newspaper XXX
To Surplus (Excess of income over
XXX By Proceeds from charity show XXX
expenditure)
By Deficit (Excess of expenditure over
income)
XXX XXX
Distinguish between Receipt & Payment Account and Income & Expenditure Account
Nature It includes both revenue and capital item. It includes only revenue items.
Points to be considered while converting receipt & payment account into income &
expenditure account:
1. Exclude opening and closing balance of cash.
2. Exclude capital items.
3. Exclude amount of income and expenditure related to the current year
Statement of Affairs and Ascertainment of Profit or Loss
Statement of affairs is like a balance sheet. Under single entry book keeping system, statement of affairs is the list of assets and
liabilities of a business organization in a given period. Capital is the difference between assets and liabilities. Opening capital is
obtained from statement of affairs prepared at the beginning of the year and closing capital is obtained from statement of affairs
prepared at the end of the year.
Source: slideplayer.com
Statement of affairs
As on…………………
Liabilities Amount Assets Amount
XXX
Cash in hand
Cash at bank XXX
XXX
Debtor XXX
Creditor XXX
Bills receivable
Bills payable XXX
XXX
Bank overdraft Account receivable
XXX
Account payable XXX
Closing stock
Other liability XXX
XXX
Capital (balancing figure) Furniture
XXX
XXX
Land & building
XXX
Other assets
XXX
XXX XXX
Particulars Amount
Total XXX
Less: New Additional Capital (XXX)
Alternatively,
Particulars Amount
Total XXX
Less: New Additional Capital (XXX)
Note: Adjustment given in the question can be adjusted in closing statement of affairs or on the statement of profit and loss.
Difference between statement of affairs and balance sheet
Under this system, trial balance can be Under this system, trial balance cannot
Preparation
of trial
prepared to check the arithmetical be prepared so arithmetical accuracy
b
al accuracy. cannot be checked.
a
n
ce
Its purpose is to disclose financial Its purposed is to find out capital as
Purpose
position. well as profit.
Financial position It can show the true financial position. It can’t show the true financial position.
Scale of organization It is suitable for all organization. It is suitable for small organization.
ILLUSTRATION 1:
The position of Mr. HariShrestha as on 1 st January 2006 and 31st Dec 2007
Requirement:
Additional information:
Solution:
99000 99000
Particulars Amount
Total 100000
Less: New Additional Capital 20000
Government accounting refers to the accounting system implemented and followed by the government offices to record the financial
transactions of the government. It includes the records of government revenue, expenditure, penalties, subsidies, grants, loans, etc.
Government accounting refers to the process of recording, classifying, summarizing and interpreting the financial transactions of the
government.
"Government accounting is the process of recording,analyzing, classifying, summarizing, communicating and interpreting financial
information about government in aggregate and in detail, reflecting all transactions involving the receipts, transfer and disposition of
government funds and property."-Oshisami and Dean
In conclusion, government accounting is the act of recording, classifying, analyzing, summarizing, interpreting and communicating the
records of government financial information like government revenues and expenditure in different administrative and development
works.
1. Based on the double-entry system:Government accounting is the most scientific and systematic system of book-keeping. It is
based on the double-entry system. So, every transaction of government accounting is recorded showing their double effect.
2. Government Regulation:The government accounting is maintained according to the government rules and regulations.
3. Profit and loss: The main objective of the government is to maintain law and rules in the country. So, it does not reveal
profit and loss but it reveals how public funds have been used.
4. Banking transactions:All the funds and transaction of the government are operated from the bank. A separate bank
account is opened for the banking transactions of the government accounting.
5. Budget heads:All the expenses of the government offices are recorded into different budget heads. This helps to
control the expenditure.
6. Budgetary control: Government accounting facilitates budgetary control. No government can make expenditure more than
the allocated budget amount.
7. Auditing: The government must audit the books of account maintained by the government to avoid misuse and
misappropriation of government revenues and expenditure.
Government Accounting of Nepal was first introduced in the Lichhavi period. It is said a small number of financial transactions
used to be performed in Lichhavi and Malla period. In Lichhavi period, Voluntary Labour Tax, Jinsi Kar (Property tax) and Trusts
(Guthis) were the sources of government revenue but it was not collected. In 1871 B.S., in the Shah period, the financial
transactions increased voluminously which made it necessary for the origin of a systematic accounting. Laldhadda, a book was
created for recording administrative revenue and expenditures. In 1879, another book called 'Mothdhadda' was created for
recording details about the land and land revenues.
In 2007 B.S., the autocratic Rana Regime was overthrown and democracy was established in Nepal. From 2008 B.S., and
onwards the budgetary system was introduced and in 2016 B.S., Ashad 16, an office of Auditor General was established. In 2017
B.S., Baishakh 1, Bhuktani Sreshta Pranali was brought into use. On Magh 20, 2017 B.S., an accounts committee was formed to
study and make suggestions for an appropriate and scientific accounting system. After conducting a detailed study, this committee
submitted a draft report to the government which was approved from the office of the auditor general as a book-keeping and
accounting system for this country. On Chaitra 2, 2018 B.S., this accounting system obtained its final approval. Since that period,
this accounting system has been accepted and recognized as Government's New Accounting System.
It is based on the principles of double entry system of book-keeping. It has been followed since the fiscal year 2019/20 in Nepal
Note Things to
remember
Source: SlideShare
The main accounting system followed by the Government of Nepal before the introduction of present new accounting system were as
follows:
The offices who perform the jobs of temporary nature having only the limited number of transactions uses this accounting system.
Under this system, the revenues were recorded on one side of the page and expenditure on the other side. It is proved to be
unscientific and impracticable for the modern period because it does not have a provision of classifying the revenues or expenditures
into different heads for ready reference.
Syaha Sreshta Pranali
This system was introduced by Kharidar Gunawanta in 1936 B.S. In this accounting system, the revenues and expenditures are
recorded separately on the same leaf and their total balances can be shown on the same leaf when required. Under this system, the
following three types of books were used:
Syaha: Syaha was the book of original entry like the journal. It was prepared in Nepali Kagaz in 'T' shape and every transaction
of government offices were first recorded in it. The Syaha was classified into Nagadi Syaha, Jinsi Syaha and Dharauti Syaha.
i. Nagadi Syaha:Nagadi syaha was used to keep the record of cash transaction i.e. cash receipt and payment.
ii. Jinsi Syaha: Jinsi Syaha was used to keep the record of property transaction i.e. furniture, rack, etc.
iii. Dharauti Syaha: Dharauti Syaha was used to keep the record of deposit transaction.
Awarje: Awarje was the second step of keeping the record. It was a kind of ledger and prepared with the help of transactions
recorded in Syaha to find out the incomes and expenditures under different heads of accounts. Awarje was of two types: (i)
Income awarje- for recording government revenues and (ii) Vinjalik awarje- for recording and classifying expenditures.
Dhapot:Dhapot was the final statement of transactions of an office. It was the summarized statement to be prepared to show the
financial position of a government office for the particular fiscal year. It was classified into three types: job termination Dhapot,
month termination Dhapot and year termination Dhapot.
Under this Pranali, a large number of forms were used to record the repetitive transactions. Therefore this pranali was called a Form
Sreshta Pranali. There were all about 51 different forms in use, among them monthly cash statement, statement of land tax, Daily cash
book, Monthly payroll, etc. were common forms.
This system was based on the principles of double entry system. The division of offices into central and operating levels, financial
control through audit, the concept of decentralization, lapsing or freezing of all budget amounts and depositing all lapsed amounts into
the consolidated fund are the notable characteristics of this system of accounting. This accounting system was replaced by government
New Accounting System in the year 2018 B.S.
Classification of It has the system of the central level It has no provision of the central level
accounting and operating level accounting. and operating level accounting.
1. Based on Double Entry System:The new accounting system is based on the principle of the double-entry system. Every
financial transaction is recorded in the separate books of account giving double effect. This system of recording helps in easy
detection of errors and frauds.
2. Emphasis on banking transactions: In this accounting system, there is an obligatory provision to deposit all the cash receipts
into the bank and to issue cheques for the settlement of various expenditure. Due to this, an effective control can be maintained
over the expenditures.
3. Uniformity and Simplicity:There is uniformity in this accounting system because the accounting forms, ledgers and reporting
formats used in government accounting are uniform. The new accounting system is very simple and uniform that's why a person
having a general knowledge of accounting principle is able to operate this system easily and independently.
4. Provision of the central and operating level accounting: The government offices are classified into the central level and
operating level. Ministries, departments, constitutional bodies, etc. are the examples of the central level office and regional
offices, district level offices and the offices of projects are the examples of operating level office.
5. Secrecy: The secrecy can be maintained in this accounting system because only the authorized persons are entrusted with the
responsibility of maintaining accounting records. Due to this, there is no chance of disclosed of official secrecy for the outsider.
6. Flexibility: The new accounting system can be changed or improved according to the needs and requirements because the
accounting system must be able to meet the modern requirement to make it more scientific, systematic and advanced.
7. Budget heads: The new accounting system is based on the classification of revenues and expenditures into different budget
heads. So, the government transactions are recorded according to their respective budget heads along with their budget head
numbers.
8. Use of Forms: In this accounting system, certain forms are used such as bank cashbook, statement of expenditure, budget
sheet, etc.
9. Use of brackets: In this system, the bracket is used instead of the sign of subtraction. This is used especially when the advance
is cleared and accounts are closed.
10. Provision for auditing: The new accounting system provides for regular audit. The office of the Auditor General is responsible
for auditing the accounts of the government offices.
The new accounting system keeps the records of the books of accounts and prepares different statements and reports. It keeps
systematic records of government transactions.
The annual budget is prepared under new accounting system for which the government needs historical and estimated financial data.
So, the new accounting system provides historical financial data and information for the new budget.
The new accounting system safeguards the properties owned by the government i.e. land, building, furniture, vehicle and so on by
making systematic records of them and fixes accountability to different employees for acquiring, utilizing and maintaining such
properties.
The new accounting system helps to locate the expenditure if it crosses the budgetary limits. Therefore, government office cannot
make expenditures in excess of budgetary allocations. Thus, the new accounting helps to make the budgetary control.
The new accounting systems prepare all the records and books of accounts in a manner to facilitate the economical audit of the
government offices.
It helps in preparation of plans and formulating the government policies by providing required information and data.
All the records of revenue and expenditure of government of the public are recorded according to the financial rules and procedure.
It provides necessary information to the government for preparing the annual budget. It
It has given more emphasis on cash than goods, properties, machine, equipment and other assets. It
does not follow the rules and principles of double entry system of book-keeping.
It does not provide necessary information and data for making the decision on the cost production and labor efficiency. All the
Government accounting is the process of recording, analyzing, classifying, summarizing, interpreting and
communicating the financial transactions of the Government and in detai reflecting those transactions. In
other words, government accounting is the accounting system that is used by the government offices to
record and report their financial transactions. Government accounting is done for maintaining the proper
records of the financial transactions of the government by the government offices which helps them to
make suitable decision in making and formulating policies and also in allocation of budget in different
sectors.
Under new accounting system, government accounting has been classified int two levels of accounting. They are as follows:
Central level accounting refers to the accounting system which is maintained in central level government offices. The Central level
Government refers to the constitutional body, ministry, secretarial office, commission and department office. Central level accounting is
concerned with recording the budget received from the Ministry of Finance and releasing it to its under operating level offices. The
following are the major accounting documents which are used in central level offices:
Journal Voucher
Ledger
Bank Statement
Statement of advance given
The accounting system which is maintained by operating government offices is known as operating level accounting. The operating
government offices refer to the government offices which work in the regional or district level offices and receive the budget from
concerned central level office and working under the concerned level office i.e. regional offices, zonal offices, district offices, district
level offices, etc. The operating level accounting keeps the record of the budget amount received from central level office and spends it
in development work and administrative works. The following are the major documents which are used in operating level offices to keep
record of financial transactions that take place:
Journal Voucher
Bank Cash Book
Budget sheet
Monthlyadvance expenditure report
Statement of Expenditure
Basis
Central level accounting Operating level accounting
of
differ
ence
User It is used by the central level office. It is used by operating level office.
It records budget amount received from It records budget amount received from
Recording the ministry of finance and release it to concerned central level office and
operating level office. spending of it.
Forms A few numbers of the form are used in it. Large numbers of forms are used in it.
1. Consumption Expenditure
nder this classification, the following sub-classification are provided:
1.01 Salaries: Under this head, the following expenditures are included:
1. Salaries, contribution to provident fund, annual increments, expenditures made on incentive and rewards.
2. Wages or remuneration paid to the temporary employees appointed under authorized or prescribed rules and remuneration paid
to any person appointed for the specific period under contract.
3. The amount paid for Dashain expenses, home leave, sick leave and payment in lieu of leave.
4. Remuneration paid to the contracted personnel for a definite term.
Allowances: Expenses for all types of allowance such as remoteness allowance, allowance for departmental chief,
overtime allowance, etc. as mentioned in the rule of Government.
Travelling allowance and daily allowance (TADA) on transfer of employees: This head includes the following items:
1. Travelling allowance: This allowance is paid to the employee when transferred from one office to another to meet the transport
expenses under the prescribed rule. This includes bus fares, taxi fares, train fares, air ticket expenses, airport tax, insurance and
other approved petty expenses including the journey on foot.
2. Daily allowance: This allowance includes the amount paid to the designated personnel when he is in transit on his transfer. This
is paid to meet his daily expenses for lodging and food as per the prescribed rules and official rate.
Dress: This heading includes Dress materials such as uniforms, boots, hats, caps and allowance for dresses for foreign
visits to be allowed to government employees such as police, army, postal worker and others.
Food and feeding materials: Expenditures paid under prescribed rules for:
1. Supplying food to government employees like police, military, and other government employees or amount paid in cash or in
kinds for the purpose.
2. Expenses paid supplying, feedings for animals or birds.
Medical treatment: Expenses for the treatment of executives and staff fall under this heading.
Retirement facilities: This heading covers pension and gratuity to be paid to the retired employees.
Training Program Expenses: It includes the expenditures incurred in connection to conduct the training program, like
seminars, workshop paid to government employees for their career development.
Water and electricity charges: This heading includes charges to be paid for consuming water and electricity facilities.
Besides, it also includes the erection cost and deposited amount required to get such facilities.
Communication charges: This heading includes charges to be paid for consuming telephone, telegram, trunk call, telex
computer, fax and other communication facilities. Besides, it also includes the erection cost and deposited amount required to
get such facilities.
Office operating expenses: Under this head the following expenditures are included:
1. Expenses for letters, parcels, postage stamps, registration, insurance and return receipts.
2. Publication expenses related to publicity, advertisement, notification, auction, tenders, etc.
3. Bank charges, compensation and other similar expenses.
4. Expenditures concerning to daily official materials like papers, envelopes, forms, files, stapler, punching machines and other
stationeries item like pens, ink, pencils etc. fall under this head.
5. Other official consumable material having durability less than a year and security equipment's related light accessories.
Similarly, other official consumable items having durability more than a year costing less than rupees one thousand includes.
6. Plants, equipment, and other equipment used for security purposes having the value less than rupees one thousand.
7. Heater, fan, telephone set, calculating machine, cheque writer, electrical appliances, torchlight, and the electronic materials
required to maintain radio and television having values less than rupees one thousand.
8. Light agro-tools, light equipment concerned to veterinary treatments and light technical equipment and items used in drawings
and designing purpose.
9. Beds (excluding furniture), sleeping bags, and kitchen utensil and light item, excluding machinery and equipment.
10. Sundry materials for internal and external decoration.
11. onsumable items used for cleaning and safety purpose.
12. The cost of similar other consumable items.
13. Printing cost including cost of letter pad, forms, registers, reports, and other related printing costs.
14. The cost of books, magazine, newspapers, directories and other technical publications purchases for office as well as library use.
15. Insurance premium paid for vehicles. machinery, office equipment, and office buildings.
16. Transportation and carriage expenses incurred while transporting government moveable properties. Transportation and carriage
expenses incurred for newly purchased properties are capitalized.
Rent: This head includes the rent paid for the building, land warehouse, machinery and other capital assets hired and
used for official work.
Repairs and maintenance: This head covers the expenses incurred for the regular maintenance of capital assets like
office buildings, machines, equipment, furniture etc. including necessary materials and wages. However, expenses incurred for
extension or addition of building replacing the vehicle's engine, the spare part that increases the life of assets would be treated
as capital expenditures and they are charged to their respective heads.
1. Fuel for transportation: Expenditures like fuel lubricant etc, incurred for the vehicle used for official purpose comes under this
head, However, fuel expenditure concerned to the vehicle used for transporting construction materials under capital cost
estimation is capitalized.
2. Fuel for other purposes: Fuel expenses incurred in official works and for use in batteries other than vehicle are included under
the head. However, fuel expenses used for development works like industries, mining, groundwater, roads, and bridges, are
incorporated/charged in the concerned project/work.
Consultancy and other service charges:Under this heading, expenditures like research and experiment,
remuneration for experts and consultants/advisors that are not related to the capital expenditures and the amount paid for
the workers employed on contract or daily basis like for cleaners, gardeners, drivers etc. are included.
Miscellaneous Expenses:
Grants to public enterprises:It contains the grants given to the government's partly or fully owned corporations,
boards committees etc.
Grants to local bodies: It contains the
operation grants given to government local
bodies are included.
Primary forms
Accounts or ledger
1. Requisition form for the reimbursement of cash payment (A.G.F. No.6 Ka)
2. Monthly report regarding revenue (A.G.F. No.9)
3. Statement of expenditure (A.G.F. No.13)
4. Monthly report of un-cleared advance (A.G.F. No.14)
5. Statement of bank account (A.G.F. No.15)
6. Summary of position of Fund (A.G.F. No.16)
7. Statement of budget sheet (A.G.F. No.17)
8. Statement of outstanding payments (A.G.F. No.18)
9. Monthly report of security deposit (A.G.F. No.19)
10. Statement of monthly reports (A.F.G. No.25)
Miscellaneous Forms
INTRODUCTION
Budget sheet is one of the various statements maintained by offices of Government of Nepal. It is also known as budget ledger. A
budget sheet is the statement of annual appropriation, budget release and budget expenditures. It provides information of budget
release, amount spent under each head of expenditure and the balance of bank. It also supports the financial administration. The
format of budget sheet is mentioned in auditor general form number 8. The following information can be obtained from a budget sheet.
1. Annual Appropriation
This is the upper part of the budget sheet. In this part, the annual budget approved for and allocated for different heads of expenditures
are recorded in the column provided for each head. The budget sheet is prepared with the help of journal voucher but it is not
necessary to prepare any journal voucher for the amount to be shown in this part. Supplementary budget and budget transfer are also
shown in this section. This part helps the authorized officers to take necessary decision regarding expenditures.
2. Budget Release
It is the middle part of budget sheet. In this part, budget release are shown. In this part, it is necessary to prepare journal voucher for
all transactions before they are posted into the concerned columns. Revolving fund release, transfer and supplementary budgets are
also recorded in this part as in appropriation part. This part is closed by depositing the surplus amount into consolidated fund account
in case of general budget or development budget at the end of fiscal year. The surplus budgets on each heads are shown within
brackets in the concerned budget head columns to facilitate the closing.
3. Budget Expenditure
This is lower part of the budget sheet. In this part, all budgeted expenditures are recorded in their corresponding budget heads. Under
this part, expenditures are posted based on journal voucher prepared for expenditures, advance budget, rectification of errors and petty
cash expenditures at the time of its reimbursement are posted. At the end of each month, totals of each expenditure headings are
calculated and the aggregate total of the previous month is added with that the total of current month to calculate the cumulative total of
each heads of budgeted expenditures.
The following considerations should be kept in mind while posting into budget sheet:
Establishment of petty cash fund, deposit of deductions from salary, receipt or payment of loan and treatment of security deposit
do not affect to the budget expenditure heads. Therefore, such items are not posted into budget sheet.
Treatment of advance should be done in budget sheet just like in the bank cash book.
Budget transfer should be shown in the release part not in expenditure part.
Monthly closing:
All the books and accounts should be closed while preparing monthly report of operating level offices at the end of each and every
month for report which is called closing budget sheet. In monthly closing, the columns for budget release under each heads are added
to calculate the total budget release for the current month. This total is added with that of the previous months to calculate the
cumulative total. Similarly, the columns of budget expenditure under each heads are added to calculate the sum of expenditures for the
month and the total up to the last of previous month is added together so as to ascertain the gross total till the last date of closing of
budget sheet. The total of expenditure part is deducted from the total of the part of release to find out the balance of budget out of the
sum of release. The total of expenditure part of budget sheet should be equal to the amount shown by budget expenditure account of
bank cash book.
Annual closing:
At the end of each fiscal year, the budget sheet is closed along with other books and statements. In process of closing budget sheet, a
closing voucher should be passed and the total of release and the total of expenditure should be ascertained. All regular and
supplementary budgets are added to ascertain total release and all total of expenditure from the fiscal year are calculated for
expenditure and to bring the budget release and budget expenditure to zero, the totals amounts of budget release part and expenditure
part are kept in bracket in each column. Then, the surplus amount is calculated by deducting the total of expenditures from the total of
release. At last, the surplus amount if transferred to either the next year or freeze account or deposited into the consolidated fund with
a closing journal voucher.
Under budget sheet, the transactions are posted on the basis of journal voucher. The journal voucher is prepared for budget release
amount and budget expenditure but the journal voucher is not prepared for the annual appropriation of budget.
The expenditure made through petty cash fund and advance transactions are also recorded in budget sheet at the time of
reimbursement. When the advance is cleared, the postings are made both within and outside the bracket. Advance given are treated in
a similar manner as the budget expenses. The actual expenditure is posted outside the bracket and advance is posted inside the
bracket This method will cancel the earlier advance payments and its place will be taken by the actual expenses.
ILLUSTRATION 1:
The following transactions related to the operating office are given to you:
60000
300000
Salary 3000
15000
TADA
40000 7000
Office expenses
Rent 120000 10000
Furniture
60000 15000
Vehicle
150000
30000
685000 125000
Bhadra 3: Received a bank order and budget release order for actual expenditure of last month.
Bhadra 5: Issued a cheque of Rs.1500 as to section officer Mr. Hansa as advance for TA/DA.
Bhadra 9: Issued a cheque for purchase of Furniture Rs.7000.
Bhadra 18: Mr. Hansa submitted a bills of TA/DA Rs.1500 and his advance was cleared.
Falgun 30: Salary for the month of Rs.77000 was distributed after deducting provident fund of Rs.14000 and income tax Rs.10000.
Solution:
Operating expenses Capital expenditure
Number of Heads Appropriation 1. Consumption 2. Expenditure for
6. Capital formation
expenditure office operation
Office
Salary TADA Rent Furniture Vehicle
Budget expenditure Heads & Subheads expenses
Appropriation for the current fiscal year 300000 15000 40000 120000 60000 1500001
Budget Transfer
Date Ref Particulars Total
Budget release for the 60000 3000 7000 10000 15000 30000
Bhadra 3 month of Bhadra 125000
Total Expenditure of
855000 77000 1500 7000
Bhadra
Total Expenditure of
125000 60000 3000 7000 10000 15000 30000
Sharwan
Total expenditure
210500 137000 4500 7000 10000 22000 30000
uptoBhadra
5.
.
ty Cash Book
INTRODUCTION
Petty cash is the easily accessible small amount of money kept by a business organizations for expenditures on small items. So, petty
cash book is the cash book that records the petty expenses.
The accounting system has a provision to create a separate fund to meet day to day small expenses which is known as Petty Cash
Fund. Petty cash fund is the fund that is established to pay for petty expenses. The petty cashier is appointed for making small
payments and recording those payments. He is given a certain sum of money and small payments are made by him.
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The office in-charge should inspect the status and the operation of the fund from time to time to ensure proper utilization of the
fund.
The amount received from staff or other persons and the cash received from any source of revenue should not be mixed up with
this fund.
The petty cash fund should be prepared under the AGF No. 22 format.
The expenditures made out-up petty cash fund are not recorded in the cash book until the reimbursements for expenses are
made.
1. Cash payment slip: This form is used for the payment of cash through petty cash fund.
TRG AD
Amount
2. Cash Reimbursement Demand Form: The petty cashier submits a statement of expenditure of the payment made by him. Along
with the expenditures, the statement also prepares a cash reimbursement demand form. Reimbursement for petty cash fund expenses
is made only after receiving of cash reimbursement demand form.
Rs. P.
3. Cash Payment Slip Control: This form is used for controlling the cash payment slips. Payment slip control records all petty
payment slip. Issued to petty cashier the format of the slip is given below:
Statement of affairs is the reports of books of account maintained and prepared by the operating level office and submit it to its
corresponding central level office in a regular basis. It is a seven columns self-balancing monthly report of operating level office. This
statement is submitted to central level by the operating level office at the end of each month as a monthly report. Therefore, it is also
known as monthly expenditure report. It is maintained in the prescribed format under AGF No.13.
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This report provides the information regarding the summary of annual appropriation of budget to the office with budget heads, and their
budget head number, expenditure of the current month, budget release up to the current month, total expenditure up to the current
month, balance of budget, unclear amount of advance, net expenditure up to current month, cash and bank balances, and loan
receivables and payable amount at end of prepared month.
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TRG ADs
1. It helps central level office to take important decisions through the office of the treasury and comptroller.
2. It provides necessary information for keeping control over budget to central level.
3. It helps in an estimation of a future budget of operating level offices.
4. The office of the Auditor General and other authorities can get pertinent accounting information from this report.
……..Office/Department/Ministry
Statement of Expenditure
…………..Year................ Month
Position of Fund
1. Position of budget
2. Position of fund or Status of fund
Position of Budget
The first part of a statement of expenditure is a position of a budget. It helps to show the position of a budget of operating level office. It
contains seven columns which are explained below:
Column 1: The expenditure incurred under a various head of the current month.
Column 2: Cumulative total of budget release received under various budget heads including revolving fund until the end of the
current month.
Column 6: The cumulative total of budget expenditure made under various budget heads until the end of the current month.
Column 7: This column reveals remaining budget amount of each allocated budget head.
Expenditure for the current month: (Expenditure up-to the end of current month– Expenditure up-to the end of previous month)
Release up-to the end of current month: [Expenditure up to the end of current month (6) – Expenditure of current month (1)]
Expenditure up-to the end of current month: [Expenditure up-to the end of previous month + Expenditure for the month]
Balance of budget: [Annual budget (5) – Expenditure up to end of current month (6)]
Position of Fund
This is the last part of a statement of expenditure. It includes the cash and bank balance, total amount of budget release, total
expenditure, unclear advance and position of a loan.
Total release up-to the end of current month = Total of column no.2
Cash balance = Total budget release received up-to current month + Deposit or loan received – Total expenditure up-to current month
– Bank balance – Loan provided.
Bank balance = Total budget release up-to current month + Deposit or loan received – Total expenditure up-to current month – Cash
balance at petty cash fund– Loan provided.
Unclear advance = Amount of advance in given column – Amount advance in cleared column from Bank Cash Book.
Under new accounting system, all the cash receipts of the government have to be deposited into bank and payments are made through
cheque except petty payments made out of petty cash fund. In other words, all the financial transactions of the government are carried
out through the bank. Therefore, those transactions carried through a bank are recorded in bank cash book (AGF NO.5) in the office,
Similarly, the bank also keeps records of financial transaction in its separate account book known as pass book. Thus, the banking
transaction is recorded in both Bank Cash Book of Government and Pass Book of bank. The balance between bank cash book and
pass book must be equal. But sometimes due to various reasons, the bank cash book and pass book may not be equal. In this
condition, a statement is prepared to find out the exact reasons for showing the difference between balance by Bank Cash Book and
Pass Book which is known as Bank Reconciliation Statement. This is prepared at the end of every month on format AGF No.15 and
submitted to concern central level office by operating level office.
……..Office/Department/Ministry
Bank Reconciliation Statement
…………..Year................ Month