SYLLABUS

• Introduction to Financial Accounting and its

terms.
•Accounting equation and Journal.
•Voucher Approach in Accounting.
•Bank reconciliation Statement.
•Financial Management/Statements.
•Partnership Accounts.
•Ledger Accounts.
•Cash Book, Financial Audit.
•Elements of Double entry Book Keeping.
•Rules for journalizing.
•Trial Balance.
•Trading Account.
•Profit Loss Account and Balance Sheet.
•Concept of Social Accounting, Social Audit and
cash based single entry system of accounting.
•Public Financial Management System (PFMS)
• CAPITAL capital means that amount or asset which is
invested in business by businessman or owner of
business. It can be in any kind

• . DRAWINGS It refers to that amount which is

withdrawn by business for his personal use .It can be
in cash as well as in other form also.

• Asset (A) Anything the company owns that has

monetary value. These are listed in order of liquidity,
from cash (the most liquid) to land (least liquid).
Current assets (CA) are those that will be converted to
cash within one year. Typically, this could be cash,
inventory or accounts receivable.
Fixed assets (FA) are long-term and will likely provide
benefits to a company for more than one year, such as a
real estate, land or major machinery.
• Debtors debtors are parties who owe money to a
company, a bank, financial institution, an
enterprise, etc. Whenever a company sells its
goods or services to a buyer on credit, the buyer is
considered to be a debtor

• creditors Creditors are parties like lenders,

government, suppliers, service providers, etc to
whom the debt is owned. In your normal line of
business operation you may be both a debtor and a
creditor.

• Accounts payable (AP) Accounts payable (AP)

definition: The amount of money a company owes
creditors (suppliers, etc.) in return for goods and/or
services they have delivered.

• Accounts Receivable (AR) Accounts Receivable

include all of the revenue (sales) that a company
has provided but has not yet collected payment on.
• Liability (L) All debts that a company has yet to pay
are referred to as Liabilities. Common liabilities
include Accounts Payable, Payroll, and Loans.

•Short term liabilities are those debts that are

payable within a year, such as a CREDITORS.

•Long-term liabilities are typically payable over a

period of time greater than one year. An example of a
long-term liability would be a LONG TERM LOAN

•Contingent liability A contingent liability is a liability

that may or may not occur depending on the
outcome of an uncertain future event.

• Depreciation (Dep) Depreciation is the term that

accounts for the loss of value in an asset over time.
Common assets to be depreciated are automobiles
and equipment. Depreciation is categorized as a
“Non-Cash Expense” since it doesn’t have a direct
impact on a company’s cash position.
• DISCOUNT Discount is an allowance or concession in
price. Discount is given so that the buyer is induced (lured)
to place an order and later to make payment in time.

Cash Discount This discount is offered to encourage the

buyer for quick payment or settlement. It is allowed for
immediate payment of cash or payment within a short
period. It is shown in the books of accounts

Trade Discount Trade Discount is a reduction in the catalogue

price of the goods Its purpose is to encourage the buyer to
make bulk purchases. It is allowed on cash as well as credit
sales. The trade discount is not shown in the books of
account.

• Outstanding expenses Outstanding expenses are those

expenses which have been incurred during the current
accounting period and are due to be paid, however, the
payment is not made. Examples – Outstanding salary,
outstanding rent, outstanding wages, etc.

• Prepaid expenses Prepaid expenses are future expenses

that are paid in advance and hence recognized initially as
an asset

• Accrued income Accrued income is income which has

been earned but not yet received
• Income received in advance It referes to
that amount of income which is received
before it accrue.

• BAD DEBT Bad debt is a Loss that a business

incurs once the repayment of credit
previously extended to a customer is
estimated to be uncollectible. Which
cannot be recovered from debtors.

• INSOLVENCY Insolvency is a state of

financial distress in which a business or
person is unable to pay their bills.

• Purchase Return When purchased goods

are returned to the suppliers, these are
known as purchase return.

• Sales Return When sold goods are returned

from customer due to any reason is known
as sales return.
Example the death of a skilled employee may bring
heavy loss to a business, but this loss is not
measurable in terms of money. So it should be
regarded as event
 ACCOUNTING ASSUMPTIONS
Business Entity Assumption According to
this assumption, the business is treated as
a unit or entity apart from its owners,
creditors, managers, and others. For
recording the transactions, it is the
business that is the entity and with which
we are concerned.
Money Measurement Assumption The
money measurement assumption
underlines the fact that in accounting
every worth-recording event, happening or
transaction is recorded in terms of money.
Going Concern Assumption Also known as
”continuity assumption”, the enterprise is
normally viewed as a going concern, i.e.,
continuing in operation for the foreseeable
future.
Accounting Period Assumption According to this
assumption, the economic life of an enterprise is
artificially split into periodic intervals, which are
known as accounting periods, at the end of which an
income statement and financial position statement
are prepared to show the performance and financial
position, the use of this assumption further requires
the allocation of expenses between capital and
revenue.

ACCOUNTING PRINCIPLES
1) Accruals concept: revenue and expenses are
recorded when they occur and not when the cash
is received or paid out;
(2) Consistency concept: once an accounting method
has been chosen, that method should be used unless
there is a sound reason to do otherwise;
(3) Going concern: the business entity for which
accounts are being prepared is in good condition and
will continue to be in business in the foreseeable
future;
4)The full disclosure principle is a concept that
requires a business to report all necessary
information about their financial statements and
other relevant information to any persons who are
accustomed to reading this information.
5) matching principle definition The principle that
requires a company to match expenses with related
revenues in order to report a company's profitability
during a specified time interval. Ideally, the matching
is based on a cause and effect relationship: sales
causes the cost of goods sold expense and the sales
commissions expense.
6) Dual aspect concept, also known as duality
principle in accounting, states that every business
transaction should have double entry in bookkeeping.
Forming the basis of double entry bookkeeping
system, dual aspect concept records every
transaction under two basic classifications of credit
and debit.
ACCOUNTING CYCLE
1 The work of Accounting begins:
(A) Where the work of Book-Keeping begins
(B) Where the work of Book-Keeping ends
(C) Where the books are not written
(D) Where there is no object of keeping the
books.
2 Cash invested by owner is called
a) Assets
b) Liabilities
c) Capital
d) Loan
3 Cash or goods taken away by proprietor for
personal use is called
a) Drawing
b) Scale
c) Charity
d) Expense
4. The father of accounting is
a) A. J. franklin
b) Gabriel
c) William trunk
d) Luca pacioli
5. A person who owes money to a firm
against goods sold is called a (A) Creditor
(B) debtor
(C) Owner
(D) None of these
6. Which is the first step of accounting
process
a) Recording the transaction
b) Preparation of financial statement
c) Identification of transaction
d) Analysis and Interpretation of Information
7. As per the Matching concept, Revenue – ?
= Profit
a)Expenses b) Liabilities
c ) Losses d) Asset
8. Human resources will not appear in the
balance sheet according to ______ concept.
a)Accrual
b) Going concern
c) Money measurement concept d) None
9 Which of the following is not a fixed asset?
(a) Building (b) Plant and
Machinery
(c) Balance with bank (d) Goodwill

10 Out of the following assets, which one is

not an intangible asset? (a) building
(b) Patents
(c) Goodwill ( d) Trade Mark

11Current assets do not include:

(A)Debtors (B) Motor Car
(C) Bank Balance (D) Prepaid Expenses

12 For every debit there will be an equal

credit according to
A] Matching concept B] cost concept
C] Money measurement concept
D] Dual aspect concept
13 Accounting has been referred to as the
____ of business.
a) Book keeping b) language
c) Record d) blood

14 We can say that the business is in profit,

when:
A)Assets exceed Expenditure
B) Income exceeds Liabilities
C) Income exceeds Expenditure
D) Income exceeds Liabilities

15 Pick the odd one out

(a) tools (b) land
(c) Goodwill (d) Plant & Machinery A/c
 TYPES OF ACCOUNTS
•PERSONAL A/C
•IMPERSONAL A/C
1) REAL A/C
2) NOMINAL A/C
 RULES FOR JOURNALIZING

• INTRODUCE CAPITAL IN CASH RS 10

Cash a/c dr.

to capital a/c
• FURNITURE PURCHASED FOR RS 10

Furniture a/c dr.

To cash a/c

• SALARY PAID RS.10

Salary A/c dr.

to Cash a/c

• GOODS PURCHASE FOR RS.10

Purchase a/c dr.
to cash a/c
• GOODS PURCHASE FROM RAM RS 10

Purchase a/c dr.

To Ram A/c

• GOODS PURCHASE FROM RAM RS. 10 FOR

CASH

Purchase a/c dr.

To cash a/c

• GOODS SOLD FOR CASH RS. 10

Cash A/c dr.

to sale a/c
• GOODS SOLD TO RADHA FOR RS 10

Radha A/c dr.

to sale a/c
• GOODS SOLD TO RADHA FOR RS 10
FOR CASH

Cash A/c dr.

to sale a/c

• Loss of goods due to fire

Loss due to fire A/c dr.

To Purchase A/c
• SALARY PAID TO RAM RS.10

Salary A/c dr.

to Cash a/c

• SALARY PAID RS. 10. AND SALARY

OUTSTANDING RS. 20

Salary A/c dr.

To Cash a/c
To salary o/s A/c
• MACHINE PURCHASED FOR RS 450 AND RS
50 PAID FOR INSTALLATION.

Machine a/c dr. 500

To cash A/c 500
• WITHDREW CASH RS 100 FOR
PERSONAL USE

Drawings A/c dr.

to Cash a/c

• DEPOSITED CASH IN BANK

Bank A/c dr.

to cash A/c

• WITHDREW CASH FROM BANK RS 10

Cash A/c dr.

to Bank A/c
• SOLD GOODS TO SHAM RS. 10 AND TRADE
DIS. 10%

Sham A/c dr.

to Sale A/c

• SOLD GOODS TO SHAM RS 10 AND

GIVEN HIM cash DISCOUNT OF 10%

Cash A/c dr.

Dis. a/c dr.
to Sale a/c
• RECEIVED RS. 9 FROM RAM IN FULL
SETTLEMENT OF HIS ACCOUNT RS 10

Cash A/c dr.

Dis. a/c dr.
to Ram a/c

• RS 10 IS TO BE RECEIVED FROM
MOHAN BUT HE DECLARED
INSOLVENT

Bad debt a/c dr.

to Mohan
• RAGHU WHO OWED RS 10 IS DECLARED
INSOLVENT AND ONLY 60 % COULD BE
RECOVERED

Cash a/c dr. 6

Bad debt a/c dr. 4
to raghu a/c 10

• TAKEN LOAN FROM SHAM OF RS

100
Cash a/c dr.
to loan from sham a/c
• REPAID SHAM LOAN OF RS. 100
Loan from sham a/c dr.
to cash a/c

• GOODS COSTING RS 80 SOLD FOR RS 100

Cash a/c dr. 100

to sale a/c 100

• MACHINE COSTING RS 80 SOLD FOR

RS 100
Cash a/c dr 100
to machine a/c 80
to profit and loss a/c 20
• GOODS GIVEN AS CHARITY RS
100
Charity a/c dr.
to purchase a/c

• CASH GIVEN AS CHARITY OF RS

100
Charity a/c dr.
to cash a/c

• GOODS GIVEN AS CHARITY RS 50 AND

CASH RS 50
Charity a/c dr. 100
to purchase a/c 50
to cash a/c 50
• BAD DEBTS RECOVERED RS 100

Cash a/c dr.

to bad debts recovered a/c

• DEPRECIATION ON MACHINE RS 100

Depreciation A/c dr.

to Machine A/c

• MACHINE PURCHASED FOR RS 100 AND

TRANSPORTATION EXPENSES PAID RS 10 AND
INSTALLATION EXPENSES RS 10

Machine a/c dr. 120

to Cash a/c 120
• INTEREST ON CAPITAL RS 100

Interest on capital A/c dr.

to Capital A/c

FORMAT OF JOURNAL
 MCQ ON JOURNAL
1 Value of goods withdrawn by the proprietor for his
personal use should be credited to ____
a)Capital A/c b) Sales A/c
c) Drawings A/c d) Purchases A/c
2 M/s Stationery Mart will debit the purchase of
stationery to _______
a)Purchases A/c b) General Expenses A/c
c) Stationery A/c d) None
3 Journal is also called
(a) Subsidiary Book b) Day Book
(c) History Sheet (d) Log Book
4 LIC premium of proprietor paid by the firm will be
debited to
(a) Income Tax A/c b) Drawing A/c
(c) Profit and Loss A/c d) None
5 Out of the following which is a feature of Journal:
(A)Journal is a book in which all the transactions are
recorded, as and when they take place.
(B) In Journal, all the transactions are recorded in a
chronological order.
(C) A Journal has record of daily transactions.
(D) All of the above
6 Sales made to Ahmed on credit should be debited
to?
(a) Account Payable (b) Cash
(c) Account Receivable-Ahmed (d) Sales
7 Each journal entry is followed by
(a) narration (b) description
(c) sequence (d) random
8 The ledger folio column of journal is used to
(a) record the date on which amount posted to a ledger
account
(b) record the number of ledger account to which
information is posted
(c) record the number of amounts posted to ledger
account
(d) record the page number of ledger account
9 In its usual form, a journal is divided by vertical lines
into five columns in the following order
a) (i) Date; (ii) Ledger Folio; (iii) Particulars; (iv)Debit
amount; (v) Credit Amount
b) (i) Date; (ii) Particulars; (iii) Journal Folio; (iv)Debit
amount; (v) Credit Amount
c) (i) Date; (ii) Particulars; (iii) Ledger Folio; (iv)Credit
amount; (v) Debit Amount
d) (i) Date; (ii) Particulars; (iii) ledger folio; (iv) Debit
amount; (v) Credit Amount
10 Compound journal entry contains
a) More than one debit entry only
b) More than one credit entry only
c) More than one debit entry or more than one
credit entry or both
d) No narration
11 Which of the following is the correct entry to
record a cash purchase of Rs. 3,000 from Amar?
a) Debit: Purchases Rs. 3,000; Credit: Amar Rs.
3,000
b) Debit: Amar Rs. 3,000; credit: Purchases Rs
3,000
c) Debit: Purchases Rs. 3,000; Credit: Cash Rs.
3,000
d) Debit: Cash Rs. 3,000; Credit: Purchases Rs.
3,000
12 A journal records
a) Only debit part of a transaction
b) Only credit part of a transaction
c) Both dr. part and cr. part without narration
d) Both debit part and credit part with narration
13 Journal entry for bad debts recovered is
A cash to income
b cash to bad debts recovered
C cash to loss
d bad debts recovered to cash
14 Wages of workmen employed for setting
up new machinery should be debited to:
(A)Expenses a/c (B) Wages a/c
(C) Machinery a/c (D) Cash a/c.
15 Salary paid to Ram an employee of the
firm will be debited to
(a) Ram A/c (b) Salary A/c
(c) Cash A/c (d) None
 ACCOUNTING EQUATION
Accounting equation approach
• The relationship of assets with that of liabilities to
outsiders and to owners in the equation form is
known as accounting equation.

Capital + Liabilities = Assets

• Accounting equation is a mathematical expression
which shows that the total of assets is equal to the
total of liabilities and capital.
• Capital can also be called as owner’s equity and
liabilities as outsider’s equity.
 EFFECTS OF TRANSACTION

• CAPITAL INTRODUCED WITH CASH RS. 10

• PURCHASED GOODS ON CASH RS 10
• PURCHASE GOODS ON CREDIT RS. 10
• PURCHASED MACHINERY RS 100
• SOLD MACHINERY RS. 10

ASSETS = LIABILITY + CAPITAL

• SOLD GOODS OF COSTING RS 10 IN
RS 15
• SOLD GOODS COSTING RS 10 IN 8
• RENT PAID RS 10
• COMMISSION RECEIVED RS 10
• RENT OUTSTANDING RS 10
• PAID RS 10 TO OUR CREDITOR
MOHAN
• RECEIVED RS. 10 FROM OUR DEBTOR
SHAM

ASSETS = LIABILITY + CAPITAL

1.Accounting equation signifies
(a)Capital of a business is equal to assets
(b) Liabilities of a business are equal to assets
(c) Capital of a business is equal to liabilities
(d) Assets of a business are equal to the total of
capital and liabilities
2. A firm has assets of ` 1,00,000 and the external
liabilities of ` 60,000. Its capital would be
(a) ` 1,60,000
(b) ` 60,000
(c) ` 1,00,000
(d) ` 40,000
4. The incorrect accounting equation is
(a) Assets = Liabilities + Capital
(b) Assets = Capital + Liabilities
(c) Liabilities = Assets + Capital
(d) Capital = Assets – Liabilities
MCQ ON ACCOUNTING EQUATION
1. Withdraws by proprietor for personal use would
reduce
a) Owner equity and increase liabilities
b) Both assets and capital
c) Assets and increase liability
d) none of these
2. If the assets of a business are Rs. 100,000 and
equity is Rs. 20,000, the value of liability will be?
(a)Rs. 100,000 (b) Rs. 80,000
(c) Rs. 120,000 (d) 20,000
3. car purchased for business purpose for cash will
effect
A increase of current asset ; decrease of fixed asset
B increase of fixed asset ; decrease of current asset
C increase of current asset ; increase of capital
D none
4 expenses paid shows effects
A increase of current asset and increase of capital
B decrease of current asset and decrease of capital
C decrease of current asset and decrease of external
liability
D no effect
5.Accounting equation signifies
(a)Capital of a business is equal to assets
(b) Liabilities of a business are equal to assets
(c) Capital of a business is equal to liabilities
(d) Assets of a business are equal to the total of
capital and liabilities
6. The incorrect accounting equation is
(a) Assets = Liabilities + Capital
(b) Assets = Capital + Liabilities
(c) Liabilities = Assets + Capital
(d) Capital = Assets – Liabilities
7. Purchase of Assets on credit will effect as:
(A) Increase Assets and owner’s equity
(B) Increase expenses and reduce Assets
(C) Increase Assets and Liabilities
(D) Decrease owner’s equity and increase Assets
8 "The company repays its creditors".
Identify that wrong statement regard this
(a)There is decrease in assets
(b)There is decrease in liability
(c) There is no effect on owner's equity
(d)There is increase in equity
9 The expression of the equality of an
entity’s assets with the claims against them
is referred to as the
(A) Accounting equations
(B) Accounting transaction
(C) Bookkeeping
(D) None of these
10 The elements of the accounting equation
are I. Assets II. Liabilities III. Trial Balance IV.
Capital
(A) I, II and III (B)I, II and IV
(C) I, III and IV (D)II, III and IV
11 Sale of fixed assets for cash would
a) Reduce current and fixed assets
b) Keep current and fixed assets unchanged
c) Increases current assets and decreases
fixed assets
d) Reduce current assets and current liabilities
12 Capital + Liabilities – Assets are equal to :
(A) 0 (B) 1
(C) 2 (D) 3
13 What is the effect of Interest on Capital
(A) Increases assets and decreases capital
(B) Increases expense and decreases liability
(C) Increases and Decreases Capital
(D) Increases liability and decreases capital.
14. Recovery of bad debts previously written
off:
(A) Increases Assets and Revenue
(B) Decreases Assets and Expenses
(C) Increases Assets and Capital
(D) Increases Expenses and Assets.
15 Capital of business is 230000, liabilities
are 50000, loss 80000, then asset will be
a) 400000 b) 320000
c) 360000 D ) 200000
 LEDGER
Ledger account is a summary statement
of all the transactions relating to a
person, asset, liability, expense or
income which has taken place during a
given period of time and it shows their
net effect.
From the transactions recorded in the
journal, the ledger account is prepared.
Ledger is known as principal book of
accounts.
Known as book of final entry
It is a book which contains all sets of
accounts, namely, personal, real and
nominal accounts.
Accountwise balance can be
determined from the ledger.
The process of transferring enteries from
journal to ledger is known as Posting.
 Objective of ledger
• To provide information about income
and expenditures
• To provide information about position
of assets and liabilities
• To provide information regarding
purchase and sales
• To help in preparation of trial balance
 MCQ ON LEDGER
1. Main objective of preparing ledger account is to
(a)Ascertain the financial position
(b) Ascertain the profit or loss
(c) Ascertain the profit or loss and the financial
position
(d) Know the balance of each ledger account
2. The process of transferring the debit and credit
items from journal to ledger accounts is called
(a)Casting (b) Posting
(c) Journalising (d) Balancing
3. J.F means
(a)Ledger page number
(b) Journal page number
(c) Voucher number (d) Order number
4. The left hand side of a ledger account is known as:
a. Credit side b.Debit side
c.Income side d.Profit side
5. If an account has a credit balance, it means
a.Both debit and credit sides are equal
b.Total of debit side exceeds the total of credit side
c.Total of credit side exceeds the total of debit side
d.None of the above
6. The process of finding the net amount
from the totals of debit and credit columns
in a ledger is known as
(a)Casting (b) Posting
(c) Journalising (d) Balancing
7. If the total of the debit side of an account
exceeds the total of its credit side, it means
(a)Credit balance (b) Debit balance
(c) Nil balance (d) Debit and credit balance
8. Account having credit balance is closed by
writing
a) To balance c/d b) To balance b/d
c) By balance c/d d) By balance b/d
9. When the total of debit and credit are
equal, it represents
a) Debit balance b) Credit balance
c) Nil balance d) Current balance
10 Private ledger is used to maintain
accounts of _____ nature
a) Capital b) Revenue
b) Confidential d) Abnormal
11 Which of the following correctly represents
the sequence of accounting cycle?
a. Journal entry > transaction analysis > ledger
account
b. Transaction analysis > journal entry > ledger
account
c. Transaction analysis > journal entry > trial
balance
d. Transaction analysis > trial balance > ledger
account
12 General ledger is also known as?
a) Book of original entry b) T-Account
c) Source document d) Voucher
13 Ledger is which part of accounting cycle?
a) Recording b) classification
c) Analysing d) Simplification
14 In accounting, the abbreviation Dr. is used
for:
a. Debtor b. Debate
c. Defaulter d .Debit side of ledger account
15 ledger A/c is prepared for
A all assets b all expenses
C all persons d all of the above
 TRIAL BALANCE
Trial balance is a statement containing the
debit and credit balances of all ledger
accounts on a particular date. It is arranged
in the form of debit and credit columns
placed side by side and prepared with the
object of checking the arithmetical accuracy
of entries made in the books of accounts and
to facilitate preparation of financial
statements.

FEATURES
It is a balance of all ledger accounts.
It is a statement not an account
It is prepared to check the arithmetic
accuracy of accounts.
It is prepared on a particular date.
It serve the purpose for preparing final
accounts.
 Objectives of Trial Balance
• It ensures that the posting from the ledgers is
done correctly. If there are any arithmetic errors in
the accounting then this will get reflected in the
trial balance.
• Trial balance will also help in the preparation of the
final accounts.
• And the trial balance will also serve as a useful
summary of all accounting records. It is a summary
of all the ledger accounts of a firm. We will only
refer to the individual ledger accounts if any details
are needed. Otherwise, we rely on the trial
balance.

Methods of preparing Trial Balance

There are three methods in which a Trial
Balance can be prepared. Which are as
follows :
• Total Method or Gross Trial Balance
• Balance Method or Net Trial Balance
• Compound Method
Total Method or Gross Trial Balance:
Under this method, two sides of the accounts
are totalled. The total of the debit side is called
the “debit total” and the total of the credit side is
called the “credit total”. All the debit totals are
entered on the debit side of the Trial Balance
while the credit total is entered on the credit
side of the Trial Balance

Net Trial Balance or Balance Method:

Under this method, all the ledger accounts are
balanced. The balancing figure may be either a
“debit balance” or “credit balance” are entered in
the trial balance.

Compound Method:
Under this method, totals of both the sides of
the accounts are written in the separate columns.
Along with this, the balances are also written in
the separate columns. Debit balances are written
in the debit column and credit balances are
written in the credit column of the Trial Balance.
1 A trial balance facilitates
A preparation of p and l a/c only
B preparation of balance sheet only
C the preparation of final accounts
D the preparation of trading account only

2 A trial balance is a
A account
B part of double entry system
C primary book
D proof of arithmetical accuracy of accounts

3 Two methods of preparing a trial balance

are:
a Financial method and total method
b Total method and normal method
c Balance method and financial method
d Balance method and total method
TREATMENT OF CLOSING STOCK IN
TRIAL BALANCE

• Opening Stock
• Closing stock
Closing stock is not shown in trial
balance . It is shown in FOOT NOTE.
BUT BUT BUT
BUT…………
if Cost of goods sold/ Adjustment
purchase appears in trial balance , then
Closing stock appears in trial balance
And opening stock doesn’t appear
REASON
COGS = opening stock + purchases –
closing stock
 ERRORS NOT DISCLOSED BY TRIAL
BALANCE

(i) Errors of Complete Omission: If a

transaction was not recorded at all, the
agreement of the trial balance will not be
affected. For example, if goods worth `
2,000 have been received back from a
customer and the entry has not at all been
made in the Returns Inwards Book then, the
Customer’s Account will not be credited and
the Returns Inwards Account also will not
be debited. Thus, there will be no debit and
credit, and the trial balance will agree even
though there is a mistake.
(ii) Errors of Commission: If a transaction was
debited or credited to a wrong account
with correct amount and on the correct
side in the books of original entry or in the
ledger, trial balance will remain unaffected.
(iii) Compensatory Errors: These are errors
which are neutralized by the commission of
another error or errors of the same
magnitude but of opposite nature, which
makes the trial balance to agree. For instance,
the overcasting of a sales book by (say) `
3,000 and thereby the excess credit to the
sales account, will be arithmetically off-set
either by over debiting or under crediting a
single account or several accounts with a total
sum of ` 3,000.

(iv) Recording Wrong Amount in Subsidiary

Book: If a wrong amount is written in
subsidiary books, then entries on both the
debit and credit sides will be on the basis of
the wrong amount and then the trial balance
will naturally agree.
(v) Errors of Principle: Errors of principle like
furniture purchased debited to purchase account,
building sold credited to sales account, commission
paid for purchase of land debited to commission
account etc. will not affect trial balance as they are
related to allocation of amount received or spent
between revenue and capital. There will be no effect
on trial balance because double entry will be passed
and one account will be debited and other credited.
So the debit and credit side of trial balance will
definitely agree.
 ERRORS DISCLOSED BY TRIAL
BALANCE
1. Wrong Totaling of Subsidiary Books: If the
total of any subsidiary book is wrongly cast, it
would cause a disagreement in the Trial
Balance. For instance, Sales book has been
under cast by Rs 100. From the Sales book, all
the personal accounts have been debited
correctly but mistake occurred only in Sales
Account, to the extent of Rs 100 (Less). Thus,
the Trial Balance disagrees to the extent of Rs
100; credit side falls short of the amount.
2. Posting of the Wrong Amount: If a wrong
amount is posted in one of the two accounts,
the Trial Balance disagrees. For instance sales
made to Ram for Rs 570, wrongly debited to
Ram’s Account with Rs 750, instead of Rs 570.
Ram’s account has been over debited by Rs
180. Thus, the debit side of the Trial Balance
will exceed by Rs 180. i.e., 750 – 570 = 180.
3. Posting an Amount on the Wrong side of
the Account: For instance, a credit sales made
to a customer for Rs 500 has been credited to
the customer account, instead of debit. As a
result of this error, the credit side of the Trial
Balance will exceed by Rs 1,000 (double the
amount of the error) because there are two
credits one in Sales Account and another in
Personal Account and no debit for the
transaction.
4. Posting Twice to a Ledger: For instance,
salary of Rs 500 paid has been debited to
Salary Account twice by mistake. This will
cause disagreement of Trial Balance in debit
side by excess of Rs 500.

5. Omission of an account from the Trial

Balance (Cash, Bank etc.):

6 Balance of account written to the wrong

side of the Trial Balance.
 MCQ ON TRIAL BALANCE
1 Which one of the following represents correct
sequence of accounting cycle?
a Journal > Trial balance > Ledger > Transaction
analysis
b Transaction analysis > Journal > Ledger > Trial
balance
c Purchases > Journal > Ledger > transaction analysis
d None of the above
2 In a trial balance the debit balance should be
_______the credit balance
A more B less
C equal D none
3 . In a trial balance income received in advance has
_________ balance
A debit balance B Credit balance
C depend in circumstances D None
4. Accrued income has_____________ balance
A debit b credit
C both D none
5. Which of the following is not an account
A profit and loss B Trading
C Sales D trial balance
6 The account which has a debit balance and is shown in
the debit column of the trial balance is
(a) Sundry creditors a/c (b) Bills payable a/c
(c) Drawings account (d) Capital account
7 Trial balance is prepared:
(a) At the end of the year (b) On a particular date
(c) For a year (d) None of the above
8 Which of the following is/are the objective(s) of
preparing trial balance?
(a) Serving as the summary of all the ledger accounts
(b) Helping in the preparation of final accounts
(c) Examining arithmetical accuracy of accounts
(d) a, b and c
9 A trader has prepared the trial balance and total
doesn’t tie. Which approach the trader should follow?
(a) he should recheck all the ledger
(b) should recheck the total of trail balance
(c) He should open the suspense account
(d) All of above
10 While preparing the trial balance, the accountant
finds that the total of the credit column is short by 200.
This difference will be
(a) Debited to suspense account
(b) Credited to suspense account
(c) Adjusted to any of the debit balance
(d) Adjusted to any of the credit balance
11 A trial balance is a _______ evidence of arithmetical
accuracy of records.
a) Concrete b) Real
c) Prima facie d) Permanent
12 A trial balance will not balance if
(a) A correct entry is posted twice
(b) Rs.5,000 received from Harish is posted in the credit
side of Hari
(c) Sales on credit basis is credited to sales account and
debited in cash account.
(d) Goods of Rs.2,500 returned to Ram is added into the
purchases
13 Which of the following shown on the credit side of the
trial balance?
a) Wages paid b) Sales returns
c) Drawings d) Provision for bad debts
14 Which of following types of accounts normally have a
credit balance?
a)Assets, liabilities, capital b)Revenues, liabilities, capital
c) Revenue, liability, Expenses d) Revenues, liabilities,
losses
15 When debit balance is equal to credit balance then
the trial balance means
A) Account balances are correct
B) Mathematically Capital + Liabilities =Assets
C) No mistake in recording transactions
D) No mistake in posting entries to ledger accounts
 FINANCIAL STATEMENTS

Financial statements are written records that convey

the business activities and the financial performance
of a company. It helps the business to know the
profit/loss earned or incurred by the business during
the financial year.

The final accounts or financial statements

include the following:
a. Income Statement or Trading and Profit
and Loss Account and
b. Position Statement or Balance Sheet.
FINAL ACCOUNTS SEQUENCE
OBJECTIVES OF FINAL STATEMENTS

•TO KNOW THE PROFIT/LOSS EARNED OR

INCURRED BY BUSINESS
•TO KNOW THE FINANCIAL POSITION OF
BUSINESS
•IT HELPS IN COMPARING RESULT
•IT GIVES THE SUMMARY OF INCOME AND
EXPENSES
•DECISION MAKING ON ALLOCATION OF
FUNDS

Internal Users of Accounting

•OWNERS
•MANAGERS
•EMPLOYEES
External Users of Accounting
•INVESTORS
•LENDERS
•TAX AUTHORITIES
•SUPPLIERS
•CUSTOMERS
1 Final Account include preparation of
_____________.
(a)Trading A/c (b)Profit & Loss A/C
(c)Balance Sheet (d)All of the Above

2 WHICH OF THE FOLLOWING IS/ARE

INCOME STATEMENT?
1 TRADING A/C 2 P&L A/C 3 BALANCE SHEET
A 1 ,2 AND 3 B 1 AND 3
C 2 AND 3 D 1 AND 2
TRADING ACCOUNT
The trading account is a nominal account .
Trading account is prepared to find out the
difference between the revenue from sales
and cost of goods sold. Cost of goods sold
refers to directly related cost. Direct cost
includes the purchase price of goods
purchased and all other expenses which are
incurred to bring the goods to the business
premises or godown and to make these ready
for sale. All the goods purchased during the
accounting period may not be sold during the
same accounting period. Hence, it is
necessary to calculate the cost of goods sold
during the period.
• Cost of goods sold = Opening stock + Net
purchases + Direct expenses – Closing
stock
• Cost of goods sold = SALES – GROSS
PROFIT
Direct Expenses “Direct” as the word suggests
are those expenses which are completely
related and assigned to the core business
operations of a company. They are mainly
related to purchases and production of
goods/services. Direct expenses are a part of
the prime cost or the cost of goods/services
sold by a company. Direct expenses are directly
related to the production of the product sold
or service rendered. Direct expenses are
shown on the debit side of a trading account.

Indirect Expenses Unlike direct, indirect

expenses are not directly related and
assigned to the core business operations of a
firm. Indirect expenses are necessary to keep
the business up and running, but they can’t
be directly related to the cost of the core
revenue-generating products or services.
These expenses are debited to profit and loss
a/c.
PURPOSE OF PREPARING TRADING
A/C
• TO KNOW THE GROSS PROFIT/ GROSS
LOSS.
• Percentage of gross profit on net sales
(gross profit ratio)
• To know about the direct expenses of the
business.
The trading accounting has the following features:
• It is the first stage of final accounts of a trading
concern.
• It is prepared on the last day of an accounting
period.
• Only direct revenue and direct expenses are
considered in it.
• Direct expenses are recorded on its debit side and
direct revenue on its credit side.
• All items of direct expenses and direct revenue
concerning current year are taken into account but
no item relating to past or next year is considered
in it.
• If its credit side exceeds it represents gross profit
and if debit side exceeds it shows gross loss.
Que 1 calculate COGS. If opening stock is 400 ;
purchases is 300 ; direct expenses is 500 and closing
stock is 200.

Que 2 calculate gross profit in above

question if the sales is 1500.

Que 3 calculate closing stock if the opening stock is

200 purchases is 300 direct expenses is 500; sales is
1500 and gross profit is 600.
1 Gross profit is,
A)Cost of goods sold + Opening stock
B) Excess of sales over cost of goods
sold
C) Sales fewer Purchases
D) Net profit fewer expenses of the
period
2 the first step in final accounts is
A journal
B ledger
C trading account
D all of these
• PROFIT AND LOSS A/C
Profit and loss account is the second part of
income statement. It is a nominal account in
nature. A business entity is interested in knowing
not only the gross profit or loss but also the net
profit earned or net loss incurred during the
year. Hence, profit and loss account is prepared
to ascertain the net profit or net loss during the
year. Profit and loss account contains all the
items of indirect expenses and losses and
indirect incomes and gains in addition to gross
profit or gross loss pertaining to the accounting
period. The difference is net profit or net loss.
FEATURES
• This account is prepared on the last day of an account year in
order to determine the net result of the business.
• It is second stage of the final accounts.
• Only indirect expenses and indirect revenues are shown in
this account.
• It starts with the closing balance of the trading account i.e.
gross profit or gross loss.
• All items of revenue concerning current year - whether
received in cash or not - and all items of expenses - whether
paid in cash or not - are considered in this account. But no
item relating to past or next year is included in it.
Importance:
• To find net profit.
• To find total expenses.
• To find the ratio between net profit and
sales.
• Helps in reducing indirect expenses.

1 Indirect expenses and income are recorded

in
a) Trading Account
b) Profit and Loss Account
c) Balance Sheet
d) All of these
2 Bad debts recovered are transferred to
_____________ side of profit and loss a/c
A dr. B cr.
C none D both
• OPERATING EXPENSES An expense incurred in
carrying out an organization's day-to-day activities,
but not directly associated with production.
Operating expenses include such things as payroll,
sales commissions, employee benefits and pension
contributions, transportation and travel,
amortization and depreciation, rent, repairs, and
taxes. These expenses are usually subdivided into
selling expenses and administrative and general
expenses. Also called non-manufacturing expenses.
TYPES OF PROFIT
• Gross Profit Gross profit is the total revenue less only
those expenses directly related to the production of
goods for sale, called the cost of goods sold (COGS).
Gross profit = Revenue - Cost of Goods Sold
• OPERATING PROFIT Next on the income statement is
operating profit. Derived from gross profit, operating
profit reflects the residual income that remains after
accounting for all the costs of doing business.
Operating Profit = Gross Profit - Operating Expenses
- Depreciation and Amortization
• Net Income A company's profit is called net income
or net profit. Since net income is the last line located
at the bottom of the income statement, it's also
referred to as the bottom line.
BALANCE SHEET
Balance sheet is a statement which gives the
position of assets and liabilities on a particular
date. Assets are the resources owned by the
business. Liabilities are the claims against the
business. After ascertaining the net profit or net
loss of the business enterprise, a business
person would like to know the financial
position of the business. For this purpose,
balance sheet is prepared which contains
amounts of all the assets and liabilities of the
business enterprise as on a particular date. The
statement so prepared is called ‘balance sheet’
because it gives the balances of ledger
accounts which are still there, after the closure
of all nominal accounts by transferring to the
trading and profit and loss account. Balances
of all the personal and real accounts are
grouped into assets and liabilities. In the
balance sheet, liabilities are shown on the left
hand side and assets on the right hand side.
Balance sheet has the following
features:
 It is the last stage of final accounts
 It is prepared on the last day of an accounting
year.
 It is not an account under the double entry system
- it is a statement only.
 It has two sides - left hand side known as liability
side and right hand side known as asset side.
 The total of both sides are always equal.
 The balances of all asset accounts and liability
accounts are shown in it. No expense accounts and
revenue accounts are shown here.
 It discloses the financial position and solvency of
the business.
 It is prepared after the preparation of trading and
profit and loss account because the net profit or
net loss of a concern is included in it through
capital account.
The functions of a Balance Sheet are:
(i) A Balance Sheet exhibits the true financial position
of a firm by showing the assets (i.e. resources) and
liabilities (i.e. obligations) at a particular date to the
owner as well as to the outsiders.
(ii) It helps the investors to know the earning capacity
of the firm
(iii) Balance Sheet is a very important tool of financial
statement to the users of accounting information,
primarily to the creditors, investors and the
shareholders.
(iv) It helps in finding out whether the firm is solvent
or not.
 receivable

IMPORTANT NOTE
The assets and liabilities must be shown in such a
manner that the financial position of the business can
be assessed through it easily and quickly. Thus an
arrangement is made in which assets and liabilities
are shown in the balance sheet. Such an arrangement
is called marshaling of assets and liabilities.
These methods of preparing a balance sheet
are briefly explained below:
• Permanency Preference Method:
Under this method, the assets and liabilities
are shown in balance sheet in the order of
their permanence. In other words, the more
permanent the assets and liabilities, the
earlier are they shown.
• Liquidity Preference Method:
Under this method, assets and liabilities are
shown in order of their liquidity. The more
liquid the assets, the earlier are they shown.
The sooner the liabilities are to be paid off,
the earlier are they shown.
1 What is the main purpose of a
Balance Sheet?
a) To report the current value of the
business
b) To report the personal assets of the
business
c) To report the asset and liabilities of
the business
d) To indicate if the business is trading
profitably

2) Drawings appearing in the trial

balance is
(a)Added to the purchases
(b) Subtracted from the purchases
(c) Added to the capital
(d) Subtracted from the capital
 ADJUSTMENTS IN
FINANCIAL STATEMENTS
The main purpose of adjusting entries is to update
the accounts to confirm with the accrual concept. At
the end of the accounting period, some income and
expenses may have not been recorded, taken up or
updated; hence, there is a need to update
the accounts. So it is very important to do adjustment
in accounting.

IMPORTANT NOTE
• For every adjustment , there
are 2 effects
One in Trading or profit and loss a/c
And another In Balance sheet
NECESSITY OF ADJUSTMENT
 For some Practice
•Depreciation on car rs 100
•Closing stock rs 100
•Outstanding salary rs 100
•Prepaid expense rs 100
•Received rent in advance rs 100
1 Which of these is not an operating
income
(a).Income from sale of trading goods
(b).Bad debts recovered
(c). Interest on FDs (d).None
2 The unfavorable balance of Profit and
Loss account should be:
A)Added in liabilities
B) Subtracted from current assets
C) Subtracted from capital
D) Subtracted from liabilities
 MCQ ON FINAL ACCOUNTS
1. Profit and Loss Account is prepared:
A) At a particular point of time
B)On fixed date
C) For a certain period D)All of these
2. Closing stock is valued at :
A) Cost price B) market price
C) Cost price or market price which ever is lower
D)all of these
3. Cost of goods sold= opening stock+ net
purchases+ expenses on Purchases – sales
Which part of formula is wrong?
a)opening stock b) net purchases
c) expenses on Purchases d)sales
4. Gross profit is,
A)Cost of goods sold + Opening stock
B) Excess of sales over cost of goods sold
C) Sales fewer Purchases
D) Net profit fewer expenses of the period
5. Bad debts recovered are transferred to
_____________ side of profit and loss a/c
A dr. B cr. C none D both
6 Loss on sale of machine is debited to
a) Profit and loss a/c b) machine a/c
c) Trading account d ) None of these
7. Which of the following would appear in a
trading account?
a) Discount allowed b) Carriage outward
c) Carriage inward d) Discount received
8. Net profit is shown on the
a) Credit side of the balance sheet
b) Credit side of the trading account
c) Credit side of the profit & loss A/c
d) Credit side of the capital A/c
9. If sales revenues are Rs. 1,29,000, cost of
goods sold is Rs. 1,15,000 and the operating
expenses are Rs. 10,000, the gross profit is
a) Rs. 4,000 b) Rs. 14,000
c) Rs. 24,000 d) Rs. 1,19,000
10 If the closing stock is appearing in the trial
balance, it is shown in the _______
a) Trading account only
b) Profit and loss account only
c) Balance sheet only
d) Trading account and balance sheet
11 Balance sheet is
(a) An account (b) A statement
(c) Neither a statement nor an account
(d) None of the above
12 A prepayment of insurance premium will
appear in
(a) The trading account on the debit side
(b) The profit and loss account on the credit side
(c) The balance sheet on the assets side
(d) The balance sheet on the liabilities side
13 Arrangement of Balance Sheet in a logical
order is known as ---------
(a).Dressing balance sheet. (b).Marshalling
balance sheet.
(c). Formatting balance sheet. (d).Make up of
balance sheet.
14 Balance sheet is also known as
A income statement b position statement
C secondary statement d all of these
15 Final Account include preparation of
_____________.
(a)Trading A/c (b)Profit & Loss A/C
(c)Balance Sheet (d)All of the Above
16 Indirect expenses and income are recorded in
a) Trading Account b) Profit and Loss Account
c) Balance Sheet d) All of these
17 If other incomes received for the year are Rs.
15,000, operating expenses are Rs. 50,000 and
the net profit is Rs. 35,000, the gross profit is
a) Rs. 85,000 b) Rs. 50,000
c) Rs. 70,000 d) Rs. 1,00,000
18If the rate of G.P. on sale is 20% and cost of
goods sold is Rs. 2,00,000, then amount of
G.P. will be equal to –
(a)Rs. 40,000 (b) Rs. 50,000
(c) Rs. 70,000 (d) Rs. 30,000
19What will be the balance of capital – Capital
at begin – 100 ; net profit – 10 ; interest on
capital – 20 ; drawings – 10
A 140 b 120
C 130 d 110
20 what will be the total of capital– machinery –
40 ; furniture – 20 ; cash – 60 ; creditor – 20 ;
loan from bank 30
A 50 b 60
C 70 d 80
 CASH BOOK
Meaning of cash book Cash book is the book in which
only cash transactions are recorded in the
chronological order. The cash book is the book of
original entry or prime entry as cash transactions are
recorded for the first time in it. Cash transactions
here may include bank transactions also. Cash
receipts are recorded on the debit side while cash
payments are recorded on the credit side.

FEATURES

• Journal as well as Ledger: A cash book is used to

record the transactions immediately; thus, it serves
the purpose of a journal.
At the same time, it is also a ledger since purely
cash transactions are posted in it (similar to a cash
account in a ledger).
• Substitution for Cash Account: A cash book is used
as an alternative of a cash account made in ledger.
Since maximum transactions in the business are
related to cash, it becomes convenient to prepare a
separate book for it.
• Date wise Entry: The cash receipt entries are made on the
debit side or left-hand side. Whereas, the cash payments
made are posted on the right side, i.e., the credit side.
• Verifiable: The debit cash balance so acquired can be cross-
checked by calculating the actual cash in hand remaining with
the business.

ADVANTAGES
• Traces Mistakes: The balance of the cash book can be
verified by matching it with the actual cash in hand;
thus, mistakes and errors can be easily detected.
• Daily Record: The cash transactions are recorded
promptly in a cash book daily, which helps in
maintaining a regular record of the cash receipts and
payments.
• Ascertain Receipts and Payments: The cash receipts
and the payments made in cash on a specific date can
be easily determined with the help of a cash book.
• Determines Cash in Hand: It provides a clear picture
of the remaining balance or cash in hand left with the
organization.
• Saves Time, Cost and Labour: Recording the cash
transactions first in a journal and then posting it in
the cash account of the ledger is a hefty task.
Types of Cash Book
• Single Column Cash Book: A single column or
simple cash book is that type of cash book which is
used to note down only the cash transactions.

• Double Column Cash Book: A double column cash

book records two types of transactions under two
separate columns. Here, one is compulsorily cash
column, and the other can be either a discount
column or a bank column.

• Triple Column Cash Book: This type of cash book

records transactions related to three different
types of accounts, i.e., cash, bank and discount.
Thus, it substitutes the creation of cash account,
bank account, discount received and discount
allowed in the ledger.
IMPORTANT POINTS.
• DEBIT SIDE = RECEIPT SIDE
• CREDIT SIDE = PAYMENT SIDE
• CASH COLUMN ALWAYS HAVE DEBIT
BALANCE.
• BANK COLUMN CAN HAVE DEBIT OR
CREDIT BALANCE.
• ONLY CASH TRANSACTION ARE RECORDED
IN CASH BOOK. CREDIT TRANSACTION ARE
NOT RECORDED IN CASH BOOK.
• THERE IS NO NEED TO BALANCE DISCOUNT
COLUMN.
1 A cash book with cash, bank and discount
column is commonly referred as________?
A Cash book
B. Two columns cash book
C. Three columns cash book
D. Petty cash book
2. The Cash Book records
A)All cash payments
B) All cash payments
C) All cash receipts and payments
D) Cash and credit sale of goods.
 PETTY CASH BOOK
Petty cash book is a type of cash book that is
used to record minor regular expenditures
such as office teas, bus fares, fuel,
newspapers, cleaning, pins, and causal labor
etc. ... All receipts are recorded on the debit
side and all payments are recorded on the
credit side of petty cash book by the petty
cashier. The balance of petty cash book is a
asset.

2 TYPES OF PETTY CASH BOOK

• NON ANALYTICAL / SIMPLY PETTY CASH
BOOK
• ANALYTICAL/ COLUMNAR PETTY CASH
BOOK
 FORMAT OF SIMPLE
PETTY CASH BOOK

FORMAT OF ANALYTICAL
PETTY CASH BOOK

IMPREST SYSTEM
An imprest system is a method to account
for petty cash by maintaining a balance in a
fund that equals petty cash receipts plus
additional cash in the fund.
1 Which of the following is not a column of a
three-column cash book?
A)Cash column B) Bank column
C) Petty cash column D) Discount column
2 The balance in the petty cash book is
(a)An expense (b) A profit
(c) An asset (d) A liability
 MCQ ON CASH BOOK
1 CASH COLUMN OF CASH BOOK SHOULD ALWAYS
HAVE ___________ BALANCE?
A DEBIT B CREDIT
C BOTH D NONE
2 BANK COLUMN OF CASH BOOK MAY HAVE
______________ BALANCE
A CREDIT B DEBIT
C DEBIT OR CREDIT D NONE
3 WHICH OF THE FOLLOWING CASH BOOK RECORD
SMALL EXPENSES PAIDIN CASH OF BUSINESS
A SINGLE COLUMN CASH BOOK
B DOUBLE COLUMN
C TRIPLE COLUMN
D PETTY CASH BOOK
4 Cash book is prepared by____________?
A.Bank B. Accountant of business
C. Manager of a company D. Bank’s cashier
5. Salaries due for the month of March will appear
A)On the receipt side of the cash book
B) On the payment side of the cash book
C) As a contra entry
D) Nowhere in the cash book
6) Which of the following transaction is not shown in
cash book
A depreciation on car b Credit purchase of goods
C Outstanding salaries d all of these
7) While balancing three column cash book, the
discount columns are:
A)Totaled but not adjusted
B) Totaled and also adjusted
C) Totaled but not balanced
D) Balanced but not totaled
8) What should be the balance of cash – Opening
balance 200 ; Goods purchase 20; Outstanding salary
– 80 ; salary paid 20 ; depreciation on car rs 50 ; sale
of goods to ram rs 40 ; sale of goods rs 40
A 150 b 100
C 240 d 200
9) Contra entries are passed only when
A)Double-column cash book is prepared
B) Three-column cash book is prepared
C) Simple cash book is prepared D) None
10) When a firm maintains a simple cash book, it
need not maintain (a) Sales account in the ledger
(b) Purchases account in the ledger
(c) Capital account in the ledger
(d) Cash account in the ledger
11 Imprest amount Rs. 500. What will be the
amount of re-imbursement if following expenses
were incurred by the petty cashier during the
month-Telephone =Rs. 150, Tiffin = Rs. 50, small
Repairs = Rs. 30 general expenses = Rs. 100.
A)300 B) 170
C) 330 D) 270
12 Postage stamps purchased for Rs. 30 by business.
This transaction will be recorded in:
A)Purchase book B) Cash Book
C) Petty Cash Book D) Journal
13 Interest received of Rs. 100 was recorded as
interest paid. What will be the effect on cash
balance?
A) Cash will reduce by 100. B) Cash increase by 200.
C) Cash will reduce by 200. D) No effect on cash
14 An entry which is made on both sides of a cash
book is called__________?
A.Cash entry B. Contra entry
C. Payment entry D. Compound entry
15 the Cr. Balance of bank column in cash book
means
A negative balance b overdraft
C Unfavourable balance d All of these
 DOUBLE ENTRY SYSTEM
Double entry system Double entry system of book
keeping is a scientific and complete system of
recording the financial transactions of an
organisation. According to this system, every
transaction has a two fold effect. That is, there are
two aspects involved, namely, receiving aspect and
giving aspect. It is denoted by debit (Dr.) and credit
(Cr.). The basic principle of double entry system is
that for every debit there must be an equivalent and
corresponding credit. Debit denotes an increase in
assets or expenses or a decrease in liabilities,
income or capital. Credit denotes an increase in
liabilities, income or capital or a decrease in assets
or expenses.
It is used to satisfy the accounting equation:

ASSETS = LIABILITY + CAPITAL

Following are the principles of double entry
system:
(i) In every business transaction, there are
two aspects.
(ii) The two aspects involved are the benefit
or value receiving aspect and benefit or
value giving aspect.
(iii) These two aspects involve minimum two
accounts; at least one debit and at least
one credit.
(iv) For every debit, there is a corresponding
and equivalent credit. If one account is
debited the other account must be
credited.
Advantages of Double Entry System
• This system increases the Accuracy of the accounting,
through the trial balance device
• Profit and loss suffered during the Year can be
calculated with details
• By following this system the company can keep the
accounting records in detail which eventually helps in
controlling
• The recorded details can be used for comparison
purpose as well. Details of the first year can be
compared with the second year, deviations found any
during comparison can be worked on.
 VOUCHER APPROACH IN ACCOUNTING
Source Document
A source document is the original document that
contains the details of a business transaction. A
source document captures the key information about
a transaction, such as the names of the parties
involved, amounts paid (if any), the date, and the
substance of the transaction. Source documents are
frequently identified with a unique number, so that
they can be differentiated in the accounting system.
They usually contain the following information:
• A description of a business transaction
• The date of the transaction
• A specific amount of money
• An authorizing signature
Examples of Source Document
• Cash memo
• Invoice or bill
• Receipt
• Pay in slip
• Debit note
• Credit note
 Cash Memo
When a person sell goods for cash, he gives a cash Memo
to the Customer and When he purchases goods for cash ,
he receives a cash memo from the supplier. All the cash
transactions relating to purchase and sale of goods ,assets
or services are recorded in the books of accounts on the
basis of cash memos.
 Invoice / bill
Prepared by the trader when he sells the goods on Credit.
The original copy of invoice is sent to the purchaser and
dupliocate copy is retained by the seller.
 Receipts
It is an evidence of cash or cheque received by trader on
account of any transaction involving cash other than those
concerned with cash sales or cash purchases eg. By a
landlord to a tenant , by a trader to customer.
 Pay in slip
Act as proof for the cash or cheque deposited into bank.
 Debit note
Debit note acts as the Source document to the Purchase
returns journal. A debit note (also known as debit memo)
can be issued from a buyer to their seller to indicate or
request a return of goods.
 Credit note
Credit notes act as a source document for the sales return
journal. In other words the credit note is evidence of the
reduction in sales. It is issued by a seller to a buyer.
What is Voucher ?
The Document prepared for the purpose of
recording business transaction in the books
of accounts are known as Vouchers.
A voucher may be defined as documentary
evidence in support of an entry appearing in
the books.
FEATURES OF VOUCHERS::
1. IT IS SERIALLY NUMBERED
2. IT IS PREPARED FOR EACH AND EVERY
TRANSACTION
3. IT TELLS ABOUT THE ACCOUNTS TO BE
DEBITED AND CREDITED
4. IT SERVE AS DOCUMENTARY EVIDENCE IN
FUTURE
5. IT IS FIELD ACCORDING TO ITS SERIAL
NUMBER SO THAT AUDITORS CAN EASILY
VOUCH THEM.
6. THE RELATED SUPPORTED DOCUMENTS
ARE ATTACHED WITH THE VOUCHERS.
 Vouchers

Cash Non- Cash

vouchers Vouchers

Debit Credit
Vouchers Vouchers

CASH VOUCHERS
Cash Vouchers are prepared for Cash
transactions such as cash receipt or cash
payment.
It is of two types :
• Debit Vouchers
• Credit Vouchers
 Credit Voucher
The credit voucher is prepared when an organization
received money from :
• Customers against sales revenue
• Shareholders against equity capital
• Fixed Assets sales
• Interest earned Debtors,
and any other received by an organization collected
from various sources.
Non-Cash voucher or, Transfer Voucher,
or Journal Voucher

Except for Cash and Bank receipts and

Payments, all transactions are recorded in
Transfer Voucher. This voucher also referred
to as the Journal Voucher. Usually, this
voucher is prepared for credit sales, or credit
purchase, or Transfer any property, or for any
other transactions in which no cash or bank
transaction is involved. List of transactions
which will be recorded in non-cash vouchers
are as follows:
• Credit purchase or credit sale of goods
• Credit purchase or sale of fixed assets
• Goods return in respect of purchase or
sales on credit
• Written off bad debts
• Any other non-cash transactions
1 Voucher is prepared for
(a)cash received and paid
(b) cash/credit sale
(c) cash/credit purchase
(d) All of the above
2 Voucher is prepare from
a) documentary evidence b) journal entry
c) ledger account d) All of the above
3. Which document is issued at the time of
purchase return?
a) Debit note b) Credit note
c) Bank note d) None of these
 SINGLE ENTRY SYSTEM
Single-entry bookkeeping or single-entry accounting
is a method of bookkeeping relying on a one sided
accounting entry to maintain financial information.
It's also known as incomplete or unscientific method
for recording transactions.
Most businesses maintain a record of all transactions
using double-entry bookkeeping. However, many
smaller businesses keep only a single-entry book
that records the "bare essentials." In some cases, only
records of cash, accounts receivable, accounts
payable and taxes paid may be maintained.
FEATURES

• It maintains personal accounts and cash book,

while real and nominal accounts are not
maintained.
• It depends on original documents, e.,
receipts/vouchers, together necessary data.
• There is no uniformity as the system differ from
firm to firm.
• There are no fixed norms to follow.
• It is most economical and suitable for sole trader
or partnership firm.
 Disadvantages or Defects of Single Entry
System
• Arithmetical accuracy cannot be checked as trial
balance cannot be drawn under single entry
system.
• Net Profit/Net Loss cannot be ascertained as
nominal accounts are not maintained. Therefore,
trading and profit and loss account can not be
prepared.
• Financial position of the business cannot be
drawn since real accounts are not maintained. In
the absence of lack of correct information in
respect of Net Profit/Net Loss and assets and
liabilities, the Balance Sheet cannot be prepared.
• Theft and other losses are less likely to be
detected.
• Data may not be available to management for
effectively planning and controlling the business.
 CALCULATION OF PROFIT FROM
INCOMPLETE RECORDS

• Statement of affairs method / Net worth

Method
Statement of Profit and Loss

Capital at the End xxx

Add :
Drawings xxx
Interest on drawing xxx xxx
Less :
Additional Capital xxx
Interest on Capital xxx
Capital at the beginning xxx (xxx)
NET PROFIT xxx
 BANK RECONCILIATION STATEMENT
The bank reconciliation statement is
statement that reconciles the balance as per
the bank column of cash book with the
balance as per the bank statement by giving
the reasons for such difference along with the
amount. As a result of this, internal record of
a business (bank column of cash) can be
reconciled with external record (bank
statement).
If every entry in the cash book matches with
the bank statement, then bank balance will
be the same in both the records. But,
practically it may not be possible. When the
balances do not agree with each other, the
need for preparing a statement to explain the
causes arises. This statement is called bank
reconciliation statement (BRS).
Reasons for difference in the two books
(Cash Book and Pass Book) are as given
below:
1) Cheques issued but not yet presented for
payment in the bank.
2) Cheques deposited or paid into the bank for
collection but not yet credited by the bank.
3) Cheques deposited but dishonoured by the
bank.
4) Interest allowed by the bank.
5) Interest on overdraft, bank charges, commission
etc. charged by the bank.
6) Direct Deposit by the customers into the bank.
7) Interest, Dividend etc. collected by the bank.
8) Direct payments made by the bank on behalf of
customer as per standing instruction.
9) Cheques issued to some creditors but omitted
to be recorded in the Cash Book or recorded
twice.
10) Cheques deposited into the bank omitted to
be entered in the Cash Book or recorded twice.
11) Error in totaling or balancing the bank column
of the Cash Book.
In BRS , 2 Books are involved :
• Cash Book (bank column)
(internal record)
• Pass Book (external Record)
The need for bank reconciliation statement is
as follows:
(i) To identify the reasons for the difference
between the bank balance as per the cash
book and bank balance as per bank
statement.
(ii) To identify the delay in the clearance of
cheques.
(iii) To ascertain the correct balance of bank
column of cash book.
(iv) To discourage the accountants of the
business as well as bank from misusing
funds.
Important Points to Remember:
1. Debit balance of Cash Book means favorable
balance or + Balance
2. Credit balance of Cash Book means unfavorable
balance or – Balance
3. Debit balance of Pass Book means unfavorable
balance or - balance.
4. Credit balance of Pass Book means favorable
balance or + balance.

SOME IMPORTANT TERMS

RELATED TO BRS

• BANK STATEMENT
• BANK OVERDRAFT
• UNPRESENTED CHEQUE
• STANDING INSTRUCTIONS
• UNCLEARED CHEQUE
• DISHONOURED CHEQUE
1 Which of the following a credit balance in
the cash book indicates?
a) The account is closed
b) Cash in hand
c) Cash at bank
d) Bank overdraft
2 All Bank Reconciliation Statement is
prepared:
a)At the end of each week
b) At the end of each month
c) At the end of the accounting year
d) Whenever a bank statement is received
WHEN FAVOURABLE BALANCE OF
CASH BOOK IS GIVEN
WHEN UNFAVOURABLE BALANCE OF
CASH BOOK IS GIVEN
WHEN FAVOURABLE BALANCE OF
PASS BOOK IS GIVEN
WHEN UNFAVOURABLE BALANCE OF
PASS BOOK IS GIVEN

Pass book (unfavourable)

 MCQ ON DOUBLE ENTRY SYSTEM
1. Double Entry System is a –
[a] Reporting system
[b] Financial Statement preparation system
[c] Recording system
[d] Debit and Credit determining system
2. The features of Double Entry System are i) It has
two parties; Receiver and Giver ii) Total amount of
Debit will be equal to total amount of Credit iii)
Giver is Debit and receiver is Credit. Which one is
correct?
[a] i & ii [b] ii & iii
[c] i & iii [d] i, ii & iii
3. All personal, real and nominal accounts are
opened in -------------
A.single entry system. B. double entry system.
C. accrual system. D. mercantile system.
4 Who invented the double entry system ?
(A) Marshall (B) Karl Pearson
(C) J.R. Batliboi ( D) Luca Pacioli
5. CREDIT MEANS __________ IN ASSETS AND
_________ OF EXPENSE
A INCREASE , DECREASE B DECREASE, INCREASE
C DECREASE, DECREASE D INCREASE , INCREASE
6.A PERSONAL A/C WITH DEBIT BALANCE OF RS.
1000 IN DOUBLE ENTRY SYSTEM REPRESENTS
A ASSET B LIABILITY
C EXPENSE D INCOME
7. The double entry system of bookkeeping
normally results in which of the following
balances on the ledger accounts?
A DR. assets and income ; CR. Liabilities and
expense
B DR. liabilities and income ; CR. assets and
expense
c DR. assets and expense ; CR. Liabilities and
income
8 INCREASE IN REVENUE IS ALWAYS
______________
A DEBITED B CREDITED
C BOTH D NONE
9 CAPITAL IS CREDITED WHEN IT _____________
A INCREASE B DECREASE
C EQUAL D NO CHANGE
10 DEBIT MEANS ___________ OF LIABILITIES
A INCREASE B DECREASE
C BALANCE D NONE
11 Double Entry means:
(A) Entry for the two persons
(B) Entry at two dates
(C) Entry in two aspects of transaction
(D) All of the above
12 Modern system of bookkeeping is
(A)Single entry system (B) Double entry system
(C) British system (D) None of these
13 The unsold merchandise of business on
particular day is called
(A) Purchase Return (B) Stock / Inventory
(C) Bad Debts (D) Sales Return
14 Which of the following accounts would be
increased with a debit?
(a)Assets (b) liabilities (c) Expenses (d) Revenues
Option 1 A and b 2 A and C
3 A and D 4 B and c
15 Which of the following accounts would be
increased with a credit?
(a)Assets (b) liabilities (c) Expenses (d) Revenues
Option 1 A and b 2 A and C
3 A and D 4 B and d
 MCQ ON SINGLE ENTRY SYSTEM
1.In single entry system, net worth method is also
called ________.
A. double entry system . B. mercantile
system.
C. statement of affairs method. D. accrual system.
2 Difference between net worth at the beginning of
the year and at the end of the year represents
_________.
A. capital balance. B. cash balance.
C. pass book balance. D. profit or loss.
3. A statement of affairs is just like a _________.
A.balance sheet. B. profit and loss account.
C. cash account. D. trading account
4. Under single entry system in net worth method,
drawing is added with
A.Opening Capital B. Closing Capital
C. Additional capital D. Drawings
5. Under single entry system in net worth method,
additional capital is deducted with
A.Opening capital B. Closing Capital
C. Additional Capital D. Drawings
6. Single entry system has effect:
(a) One effect (b) Tow effect
(c) Three effect (d) None of the above
7 Single entry system is must suited where:
(a) Cash transactions are many
(b) Credit transactions are many.
(c) Cash & credit transactions are more.
(d) None of the above
8 Credit sale can be obtained by preparing:
(a) Cash book (b) Statement of affairs
(c) Debtors A/c (d) Creditors A/c
9 in single entry system generally which a/c is
maintained
A assets a/c b personal a/c
C income accounts d all of the above
10 In single entry system profit is calculated as
follows:
(a) Opening Capital + Drawing + Fresh Capital- Ending
capital
(b) Capital at the end – Drawing – Fresh capital -
Opening capital
(c) Capital at the end + Drawing – Fresh capital. -
Opening capital
(d) None of the above
11 If the capital at the end of the accounting period
is Rs. 150,000, the net profit for the year is Rs.
10,000 and drawing is Rs. 13,000, what is the capital
at the beginning of the period?
a) Rs. 140000 b) Rs. 153000
c) Rs. 143000 d) Rs. 147000
12 Single entry system of book – keeping is
generally followed by:
(a)Small business (b) Non – trading
(c) Large business (d) None
13 Net worth of an organization means the excess of
its total assets over total:
a) Expenses (b) Incomes
(c) Liabilities (d) Both (a) and (b)
14 Balance sheet cannot be prepared ________.
A.in single entry system.
B. in double entry system.
C. with the help of cash book.
D. with the help of bank account
15 If the opening Capital is more than the adjusted
closing capital , the resultant figure is
A net profit b net loss
C cash of the business d liability of business
 MCQ ON VOUCHERS
1.Process of checking the evidence of the
entries called _____________.
(a)Verification (b) Observation
(c) Vouching (d) Inspection
2 Voucher is prepared for
(a)cash received and paid (b) cash/credit sale
(c) cash/credit purchase (d) All of the above
3 Voucher is prepare from
a) documentary evidence b) journal entry
c) ledger account d) All of the
above
4. Which document is issued at the time of
purchase return?
a) Debit note b) Credit note
c) Bank note d) None of these
5 in which of the following debit voucher is
prepared ?
A goods sold b machine sold
C income received d goods purchased
6 Identify the transaction for which transfer
voucher is prepared?
a) A payment of 10 towards rent
b) A receipt of 15 towards professional fee
c) A credit sale of 50 to Gopal
d) None of the above
7 Which of the following is not a source
document?
a) Invoice b) credit note
c) Voucher d) petty cash voucher
8 An invoice is prepared when goods are sold
a) For cash only b) On credit only
c) Both for cash and credit d) None
9. When goods are returned by the
customers, a document is prepared called
a) Debit note b) Credit note
c) Voucher d) none of the above
10 What business document provides proof
of payment for a business transaction?
a) Debit note b) invoice
c) Receipt d)credit note
11 Which of the following is / are features of
vouchers
1. IT IS SERIALLY NUMBERED 2. IT IS PREPARED FOR
EACH AND EVERY TRANSACTION 3. IT SERVE AS
DOCUMENTARY EVIDENCE IN FUTURE
Options
A 1 and 2 b 2 and 3
C 1 and 3 d 1 , 2 and 3
12 Romesh buys goods on credit from Lara but finds
that some of them are faulty. What document would
Romesh return to Lara with the faulty goods?
a) Statement b) sales invoice
c) Purchase invoice d) debit note
13 Non cash Voucher is also known as
a Transfer Voucher b journal voucher
C bank voucher d both a and b
14 for which of the following transaction invoice is
prepared
A cash purchase b cash sale
C credit sale d none
15 Receipt voucher is
A record of purchase of raw material
B Record of purchase of stationery
C Record of sale of machinery
D Record of receipt of cash and bank
 MCQ on Bank
Reconciliation Statement
1 Which of the following a credit balance in the cash
book indicates?
a) The account is closed b) Cash in hand
c) Cash at bank d) Bank overdraft
2 A bank reconciliation statement is prepared to know
the causes for the difference between
a) The balance as per cash column of the cash book and
pass book.
b) The balance as per bank column of the cash book
and pass book
c) Both (a) and (b) d) None of above
3 'NSF' marked in cheque sent back by bank indicated
a) Cheque has been rejected
b) A bank could not verify the identify
c) Not sufficient money d) None of these
4 In cash book, the favorable balance indicates
a) Credit balance b) Debit balance
c) Bank overdraft d) Adjusted balance
5. On the bank statement, cash deposited by the
owner is known as
a) Credit b) Debit
c) Liability d) Expenses
6 Unfavorable balance means?
(a) Credit balance in the cash book
(b) Credit balance in Bank statement
(c) Debit balance in cash book
(d) Debit balance in petty cash book
7 A bank reconciliation statement is prepared by?
(a) Banker (b) Accountant of the business
(c) Auditors (d) Registrar
8 If any amount is directly deposited into the bank
then?
(a) Cash book will show less balance & bank book will
show more
(b) Cash book will show more balance & bank book will
show less
(c) Cash book will show double balance
(d) Bank book will show double balance
9 Debit balance in the bank column of the cash book
means
(a) Credit balance as per bank statement
(b) Debit balance as per bank statement
(c) Overdraft as per cash book (d) None of the above
10 how do we adjust Direct deposit by the customers to
ascertain the balance as per pass book if the starting
point of BRS is balance as per Cash book
A added b subtracted
C adjusted d not adjusted
11 when balance as per pass book is starting point,
interest allowed by bank will be
A added B subtracted
C multiplied D none
12 Debit balance as per cash book of ABC Co. on
31.03.2020 is Rs. 1500. Cheque deposited but not
cleared amounts to Rs. 100 and cheque issued but not
presented of Rs. 150. Balance as per pass book should
be
a) 1750 b) 1550
c) 1650 d) None of these
13 A business receives its bank statement showing the
closing balance as Rs. 8,500 overdrawn. It is found that
unpresented cheques amounting to Rs. 2,000 and
uncredited deposits amounted to Rs. 1,500
a)Rs. 5,000 dr b) Rs. 8,000 cr
c) Rs. 9,000 cr d) Rs.12,000 dr
14. Prakash bank reconciliation statement shows
cheques deposited but not credited by bank of Rs. 3,800
and cheques issued but not presented by suppliers of Rs.
3,500. His bank balance as per cash book is Rs. 25,000.
Balance as per pass book statement is________.
a)Rs. 25,000 b) Rs. 24,700
c) Rs. 25,300 d) Rs. 32,300
15 Bank Reconciliation is a _______ & not on______.
(a)account, statement (b) statement, account
(c) ledger, journal (d) letter, account
 WHAT IS PFMS?
Public Financial Management System (PFMS)
is a Central Plan Scheme monitoring system,
of the department of expenditure, Ministry of
Finance, Govt. of India. Public Financial
Management System (PFMS) is a platform for
e-payment of subsidy under Direct Benefit
Transfer (DBT) to both Aadhar based & Non-
Aadhar based bank accounts through NPCI.
• BACKGROUND/ HISTORY OF PFMS
• The Public Financial Management System (PFMS), earlier known as
Central Plan Schemes Monitoring System (CPSMS), is a web-based
online software application developed and implemented by
the Office of Controller General of Accounts (CGA), Ministry of
Finance.
• PFMS was initially started during 2009 as a Central Sector Scheme of
Planning Commission with the objective of tracking funds released
under all Plan schemes of the Government of India, and real time
reporting of expenditure at all levels of Programme implementation.
• Subsequently in the year 2013, the scope was enlarged to cover
direct payment to beneficiaries under both Plan and non-Plan
Schemes.
 • In 2017, the Government scrapped the distinction
between plan and non-plan expenditure.
The primary objective of PFMS is to facilitate a sound Public
Financial Management System for the Government of India (GoI)
by establishing an efficient fund flow system as well as a
payment cum accounting network.
• At present, the ambit of PFMS coverage includes Central
Sector and Centrally Sponsored Schemes as well as other
expenditures including the Finance Commission Grants.
• PFMS provides various stakeholders with a real time,
reliable and meaningful management information system
and an effective decision support system, as part of
the Digital India initiative of GoI.
• PFMS is integrated with the core banking system
• In December 2013 the Union Cabinet approved the national roll-
out of PFMS for all States and schemes for a period of four years
till 2017

Objective
To facilitate a sound Public Finance Management System for the
Government of India by establishing an efficient fund flow system as
well as a payment cum accounting network.
DISSOLUTION OF PARTNERSHIP
 You can’t go back and
change the beginning, but
you can start where you
are and change the
ending.

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