ACCOUNT

Readmore's
OFFICE MANAGEMENT
AND
ACCOUNTANCY
GRADE
10
Authors
Jaya Ram Khanal
Dopindra Kumar Basnet
Published by
TU Road, Kuleshwor, Kathmandu, Nepal.

Phone: 4672071, 5187211, 5187226 Fax: 00977-1-4672073
E-mail: readmorenepal6@gmail.com
www.readmorenp.com
© Copyright
Copyright jointly held by the authors and publisher
First Edition : 2072 BS (2015)

Revised Edition : 2075 BS (2018)
Reprint : 2076 BS (2019)
Reprint : 2077 BS (2020)
No part of this book may be reproduced or transmitted by any means, electronic,

photocopying, recording, or otherwise, without prior written permission of the publisher.
Any breach of this condition will entail legal action and prosecution.
Authors
Jaya Ram Khanal
Dopindra Kumar Basnet
Layout
Readmore Desktop
Printed in Nepal
You can exchange this book from your nearest book shop if any binding errors are found.
Read to help others read !

We are pleased to inform that certain amount from each book will be allocated to
Charity Fund. The fund will be provided to the deserving and needy students all over Nepal.
The charity always welcomes co-operation and support from all the well wishers and agencies.
Preface
It is a great pleasure for us to serve this revised edition of textbook "Office Management and
Accountancy" as an optional II subject for English medium students of grade ten. This book
has been designed and written according to the new curriculum recommended by Curriculum
Development Center, Sanothimi, Bhaktapur. It fulfils the present competitive requirement of
all the readers who keep concern on the subject.
This book has the following salient features:
 The book is strictly based on latest curriculum of grade ten.
 Every chapter begins with some “Learning objectives”, which students should be able to
achieve on the completion of that chapter.
 Every chapter provides the “Key terms” with their meaning that help students to
understand the text clearly.
 Every chapter includes the “Definitions” given by the eminent authors and a key
definition of the topic that help students to explain the matter in their own words.
 Important points, recent information and summary of the matter have been presented
separately under the title “Short Notes to Remember (SNR)” that help students to
understand the text at glance and gain further knowledge.
 Well designed “Illustrations” have been incorporated in sequential order covering both
the theoretical and practical aspect.
 Each practical chapter provides “Review illustrations” that provide depth knowledge on
practical aspects.
 "Memory Tips" section is given in the chapter whereever necessary that helps to
remember the points easily for explanation of theoretical answer.
 “Theoretical questions” have been classified as very short, short and long as per the
pattern of Secondary Education Examination (SEE).
 “Practical problems” have been designed and arranged in a friendly manner so that
students can solve any type of practical problems t asked in the examination.
 Seven sets of "Model questions" have been included at the end of book to make students
able to solve the questions asked in Secondary Education Examination (SEE).
We would like to inform that the series is an outcome of our long experience and the assembled
ideas of various subject teachers. We hope that it may be an alternative material on accounting
for students and teachers who are really in search of a friendly book for teaching and learning
purpose. We express our deep gratitude to all the authors whose materials have been consulted
as a reference.
Lastly, we would like to be grateful towards Readmore Publishers & Distributors for its
appreciated job of publishing and distributing the book on time. We promise to acknowledge
any advice and suggestion for the revision of the textbook.
Authors
SYLLABUS
Unit - 1 Office Procedure LH 10
 Introduction
 Tippani: Introduction and considerations for drafting a tippani
 Report: Introduction, considerations for drafting report and types of report
 Resolution: Introduction, types
Unit - 2 Filing LH 12
 Introduction and need
 Traditional Filing: Misil and box filing
 Methods of filing: Alphabetical, Numerical, Geographical and Subject wise,
 Filing system: Horizontal and vertical,
 Indexing: Introduction, Importance of indexing in filing
Unit - 3 Trade LH 12
 Introduction
 Procedures/ Methods of Home Trade and Foreign Trade
 WTO, SAFTA,
 Invoice: Introduction and types
 Means of Payment: Introduction and types; Letter of Credit, Cheque, ATM Card, Bank
Draft, Electronic Transfer and Hundi
Unit - 4 Financial Institutions LH 15
 Introduction
 Types of Financial Institutions
 Bank: Introduction,Types and Functions
 Cheque: Introduction, Types and Rules for issuing cheque, Computerised payment
system of cheque
 Insurance: Introduction,Types and Functions
 Provident Fund: Introduction and Functions
 Citizen Investment Trust: Introduction and Functions
 Financial Cooperatives: Introductions and Functions
Unit - 5 Trial Balance LH 10
 Introduction
 Advantages and Uses
 Adjustment and Closing
 Locating Errors: Disclosed or not disclosed by the Trial Balance
 Items Included
Unit - 6 Final Accounts LH 15
 Introduction
 Profit and Loss Account: Introduction and Advantages, Uses of Determining Gross Profit,
Gross Loss, Net Profit, and Net Loss Balance Sheet: Introduction, Advantages and Uses
 Adjustment: Closing Stock, Advance Payment, Outstanding Expenses, Depreciation
Unit - 7 Government Accounting System LH 7
 Introduction
 Objectives and Features of New Accounting System
 Office of the Auditor General: Introduction
 Office of the Finance Comptroller General : Introduction
 Office of the Treasury and Comptroller: Introduction
 Auditing: Introduction, Difference between Internal Audit and Final (External) Audit,
Importance of Auditing
 Classification of Budget Expenditure Head Number
Unit - 8 Journal Voucher LH13
 Introduction, Types and Uses/Practices
 Petty Cash Fund: Introduction and Importance
Unit - 9 Bank Cash Book LH7
 Introduction, Related Accounts and Uses / Practices
Unit - 9 Budget Sheet LH7
 Introduction, Parts and Uses / Practices
Unit - 11 Monthly Statements LH7
 Introduction and Types
 Uses/Practices of Statement of Expenditure
Practical LH35
CONTENTS
Chapter 1 OFFICE PROCEDURE 11-24
Introduction................................................................................................................................11
Concept and definition............................................................................................................. 12
Need of office procedure.......................................................................................................... 12
Types of office procedure......................................................................................................... 12
Tippani................................................................................................................................ 13
Objectives or importance of a tippani............................................................ 13
Considerations for drafting a tippani............................................................ 14
Specimen of a tippani....................................................................................... 14
Report................................................................................................................................. 15
Objectives of a report........................................................................................ 16
Types of report................................................................................................... 17
Considerations for preparing a report........................................................... 19
Resolution.......................................................................................................................... 20
Importance of resolution.................................................................................. 20
Types of resolution............................................................................................ 20
Similarities & dissimilarities between ordinary and special resolution ......................... 22
Key terms................................................................................................................................... 23
Theoretical questions................................................................................................................ 23
Chapter 2 FILING AND INDEXING 25-40
Introduction................................................................................................................................25
Concept and definition of filing...............................................................................................26
Need or importance of filing....................................................................................................26
Methods of filing........................................................................................................................27
Alphabetical filing..............................................................................................................27
Rules for making order of name in the folder...............................................28
Advantages of alphabetical filing....................................................................29
Disadvantages of alphabetical filing..............................................................29
Numerical filing.................................................................................................................29
Advantages of numerical filing........................................................................30
Disadvantages of numerical filing...................................................................30
Subjective filing..................................................................................................................30
Advantages of subjective filing........................................................................31
Disadvantages of subjective filing...................................................................31
Geographical filing ...........................................................................................................31
Advantages of geographical filing..................................................................32
Disadvantages of geographical filing.............................................................32
Filing system...............................................................................................................................32
Traditional filing system...................................................................................................33
Box filing....................................................................................................................33
Advantages of box filing...................................................................................33
Disadvantages of box filing..............................................................................33
Misil filing.................................................................................................................34
Advantages of misil filing ................................................................................34
Disadvantages of misil filing............................................................................34
Modern filing system.........................................................................................................35
Horizontal filing.........................................................................................................35
Advantages of horizontal filing.......................................................................35
Disadvantages of horizontal filing..................................................................35
Vertical filing...............................................................................................................36
Advantages of vertical filing............................................................................36
Disadvantages of vertical filing ......................................................................36
Differences between horizontal andvertical filing system ..................................................37
Concept and definition of indexing.........................................................................................38
Usefulness of indexing..............................................................................................................38
Key terms....................................................................................................................................39
Theoretical questions.................................................................................................................40
Chapter 3 TRADE 41-62
Introduction............................................................................................................................... 41
Concept and definition..............................................................................................................42
Types of trade.....................................................................................................................42
Home trade.................................................................................................................42
Types of home trade..........................................................................................43
Procedures of home trade.................................................................................43
Document of home trade..................................................................................45
Foreign trade...............................................................................................................46
Types of foreign trade........................................................................................46
Procedures of foreign trade..............................................................................47
Document of foreign trade................................................................................49
Similarities between home trade and foreign trade..............................................................49
Differences between home trade and foreign trade..............................................................49
Terms and conditions of trade..................................................................................................49
Invoice..........................................................................................................................................51
Item included in invoice...................................................................................................52
Importance of invoice........................................................................................................52
Types of invoice..................................................................................................................52
Means of payment......................................................................................................................54
World trade organization (WTO).............................................................................................58
Functions of world trade organization...........................................................................58
South Asian Free Trade Area (SAFTA)....................................................................................59
Functions or importance of SAFTA.................................................................................60
Key terms................................................................................................................................... 60
Chapter 4 FINANCIAL INSTITUTIONS 63-100

Introduction................................................................................................................................63
Concept and definition..............................................................................................................64
Types of financial institution....................................................................................................64
Concept and definition of bank...............................................................................................65
Importance of bank....................................................................................................................66
Types of bank......................................................................................................................68
Central bank................................................................................................................69
Functions of central bank..................................................................................70
Commercial bank.......................................................................................................72
Functions of commercial bank.........................................................................73
Differences between central bank and commercial bank.....................................................75
Development bank.....................................................................................................76
Functions of development bank......................................................................76
Cheque.........................................................................................................................................79
Parties involved in a cheque.............................................................................................79
Types of cheque..................................................................................................................80
Rules for issuing a cheque................................................................................................82
Dishonour of cheque.........................................................................................................83
Computerised system of bank for deposit and encashment of cheque.............................83
Concept and definition of insurance.......................................................................................84
Functions of insurance..............................................................................................................85
Types of insurance.............................................................................................................87
Life insurance.............................................................................................................87
Non-life insurance......................................................................................................90
Differences between life insurance and non-life insurance ............................................... 93
Employee provident fund ....................................................................................................... 94
Functions of employee provident fund..........................................................................95
Citizen investment trust............................................................................................................96
Functions of citizen investment trust..............................................................................96
Financial cooperatives...............................................................................................................97
Functions of financial cooperatives.................................................................................98
Key terms....................................................................................................................................98
Chapter 5 TRIAL BALANCE 101-128
Introduction............................................................................................................................. 101
Concept and definition............................................................................................................102
Objectives of preparing a trial balance..................................................................................102
Advantages of a trial balance.................................................................................................103
Specimen of a trial balance.....................................................................................................103
Procedures for preparing a trial balance..............................................................................104
Preparation of a trial balance from the given ledger balances..........................................106
Adjustment and closing in a trial balance............................................................................109
Concept and definition of accounting errors.......................................................................112
Types of accounting errors..............................................................................................112
Errors disclosed by the trial balance.....................................................................112
Errors not disclosed by a trial balance..................................................................114
Review illustrations.................................................................................................................116
Key terms..................................................................................................................................123
Theoretical questions...............................................................................................................123
Practical problems....................................................................................................................124
Chapter 6 FINAL ACCOUNTS 129-182
Introduction............................................................................................................................. 129
Objectives of final accounts....................................................................................................130
Preparation of final accounts..................................................................................................131
Trading account........................................................................................................................131
Advantage of trading account........................................................................................131
Specimen of trading account..........................................................................................132
Items included in trading account.................................................................................132
Procedures of preparing trading account ....................................................................133
Profit and loss account............................................................................................................135
Advantage of profit and loss account...........................................................................135
Specimen of profit and loss account..............................................................................136
Items included in profit and loss account....................................................................137
Procedure of preparing profit and loss account..........................................................138
Combined specimen of trading & profit & loss account ...................................................149
Difference between trading account and profit and loss account.....................................142
Balance sheet ............................................................................................................................143
Advantages of balance sheet..........................................................................................143
Specimen of balance sheet..............................................................................................144
Items included in a balance sheet..................................................................................145
Similarities between trial balance and balance sheet..........................................................150
Differences between a trial balance and balance sheet.......................................................150
Adjustments in final accounts................................................................................................151
Closing stock.....................................................................................................................151
Prepaid expenses..............................................................................................................152
Outstanding expenses.....................................................................................................152
Depreciation on fixed assets...........................................................................................153
Key terms..................................................................................................................................166
Chapter 7 GOVERNMENT ACCOUNTING 183-214

Introduction..............................................................................................................................183
Differences between government and business accounting ............................................184
Concept and definition of new accounting system.............................................................186
Objectives of new accounting system...................................................................................187
Features of new accounting system.......................................................................................188
Level of government accounting...........................................................................................190
Central level accounting.................................................................................................190
Operating level accounting.............................................................................................191
Differences between central level and operating level accounting..................................191
Office of the Auditor General.................................................................................................192
Functions, rights and duties of the Office of the Auditor General...........................192
Office of the Finance Comptroller General..........................................................................193
Functions, rights and duties of the Office of the Finance Comptroller General.....193
Office of Treasury and Comptroller......................................................................................194
Functions, rights and duties of the Office of the Treasury and Comptroller..........194
Concept and definition of auditing.......................................................................................195
Historical development of auditing in Nepal......................................................................196
Types of audit...........................................................................................................................196
Internal audit....................................................................................................................196
Final audit.........................................................................................................................197
Differences between internal audit and final audit.............................................................198
Importance and advantages of audit....................................................................................198
Classification and explanation of budget expenditure heads...........................................199
Key terms..................................................................................................................................212
Chapter 8 JOURNAL VOUCHER 215-260
Introduction............................................................................................................................. 215
Specimen of journal voucher..................................................................................................216
Importance or advantages of journal voucher.....................................................................217
Rules of debit and credit.........................................................................................................218
Types of journal voucher.........................................................................................................218
General journal voucher ................................................................................................219
Advance journal voucher ...............................................................................................220
Journal voucher at the time of giving advance........................................................221
Journal voucher at the time of clearing advance.....................................................222
Miscellaneous journal voucher .....................................................................................227
Initial imprest fund..................................................................................................227
Budget release...........................................................................................................228
Petty cash fund.........................................................................................................230
Salary distribution...................................................................................................231
Loan............................................................................................................................234
Transfer of budget....................................................................................................235
Security deposit........................................................................................................237
Rectification of errors...............................................................................................239
Review illustrations................................................................................................................240
Key terms..................................................................................................................................249
Chapter 9 BANK CASH BOOK 261-282
Introduction..............................................................................................................................261
Specimen of bank cash book..................................................................................................262
Objectives of bank cash book.................................................................................................263
Importance of bank cash book..............................................................................................263
Types of account under bank cash book...............................................................................264
Considerable points for preparation of bank cash book....................................................265
Posting of transactions into bank cash book.......................................................................266
Posting of general/budgeted transactions...................................................................266
Posting of advance transactions.....................................................................................267
While giving advance..............................................................................................267
While clearing advance...........................................................................................268
Posting of miscellaneous transactions..................................................................................270
Preparation of a trial balance..................................................................................................271
Closing of bank cash book......................................................................................................273
Key terms ............................................................................................................................277
Chapter 10 BUDGET SHEET 283-298

Introduction..............................................................................................................................283
Importance of budget sheet....................................................................................................284
Parts of budget sheet...............................................................................................................284
Rules for preparing budget sheet..........................................................................................286
Closing of budget sheet...........................................................................................................288
Key terms..................................................................................................................................293
Chapter 11 MONTHLY STATEMENT 299-322

Introduction..............................................................................................................................299
Importance of monthly statements........................................................................................300
Types of monthly statement...................................................................................................301
Statement of expenditure................................................................................................302
Specimen of statement of expenditure..................................................................302
Parts of statement of expenditure..........................................................................303
Statement of outstanding advance................................................................................306
Bank reconciliation statement........................................................................................307
Statement of governmental revenue.............................................................................309
Statement of security deposit.........................................................................................310
Key terms..................................................................................................................................316
SEE Model Questions Sets.....................................................................323-335

Bibliography.................................................................................................... 336
1 OFFICE PROCEDURE
Chapter
Learning Objectives
After studying this chapter, the readers will
be able to :
 write the definition of office procedure,
 define tippani and state its objectives,
 draft a tippani considering the problem,
related rules and provisions,
 write the meaning of report and describe
its types,
 state the objectives and importance of
report as an office procedure,
 mention the considerable points for
preparing a report,
 write the meaning and importance of
resolution,
 explain the types of resolution along with
their subject matter.
Introduction
Every office has to perform the daily activities regularly and smoothly. In order to perform
such activities, it needs certain procedures, which are called office procedures. Office
procedures are designed and adopted as per the prevalent rules and regulations, tradition
and necessity of organization. Different offices use different office procedures to ensure the
smooth functioning of official activities. In context of Nepal, Civil Service Code and Rules is
used for civil servants, education act and regulations is used in education sector etc. Office
procedures facilitate to get the solution on any official problem, matter and issue. Office
procedures may be in the form of tippani, report and resolution. Tippani is prepared by lower
level staff and forwarded to upper level to get the final decision on the related matter. Report is
a kind of descriptive statement on the topic or matter. It may be prepared by the individual or
organization. Similarly, resolution is the written proposal presented in meeting or assembly to
get the final decision on the matter. Whatever the form of office procedure, it is the democratic
practice of getting solution over the problem or matter. The main purpose of office procedure
is to simplify the office operation and to perform the official tasks in efficient manner.
Office Procedure 11
Concept and definition
The office has to follow some administrative procedures to perform the jobs. Such
systematic administrative procedure is called office procedure. The office procedure
is the act of getting decision from the authorized level in order to perform the
official functions smoothly, efficiently and qualitatively. Thus, the specific system,
way or administrative procedure followed for smooth functioning of an office is
called office procedure. It helps to solve the official problems in democratic manner.
Office procedure is a formal and systematic communication through which various
administrative decisions are taken in formal, systematic and efficient manner. It is the
act of making official decision by the concerned authority by considering opinions,
views and suggestions of office personnel, prevalent rules and regulations.
Following are the definitions of office procedure:
“A procedure is a series of logical steps by which all repetitive business actions are initiated, performed,
controlled and finished.” Carl Heyel
“A procedure is a planned sequence for handling recurring business transactions uniformly and
consistently.” Nenner and Keiling
Office procedure is the specific technique, way or administrative action followed

by an office for smooth functioning by taking the decision on problem or specific
matter in democratic manner.
Need of office procedure

Following are the points that highlight the necessity of office procedure in an office:
 It facilitates to perform the official jobs in simple way.
 It helps to perform the jobs in effective and efficient manner.
 It ensures the performance of the official activities in systematic and flexible
manner.
 It helps to make the decision in democratic manner with the participation of all
the concerned authorities.
 It helps to collect the opinions and suggestions of all office personnel for smooth
operation of an office.
Types of office procedure

Generally the office follows the following procedures for smooth operation of an
office by taking decisions on important matter or issues:
12 Office Management and Accountancy

Figure 1.1 Types of office procedure
Office procedure
Tippani Report Resolution
Tippani
Tippani is the process of making official decision on specific problem or matter by the
concerned authority through written means. It is called ‘Memo’ in English. It is raised
by the lower level staff and forwarded to the upper level with a view to get the final
decision on a related matter. If the prevalent rules and regulations are unclear and the
lower level staffs do not deserve right to take the decision, raising tippani is a must.
If the rules and regulations are clear and decisions have been made in the past on
exactly same issue, tippani is not raised and forwarded.
Tippani should be prepared only on important issues mentioning all the related facts,
information, rules and regulations, suggestions, opinions and possible solution etc.
Then it is presented to the concerned authority expecting the final decision. Thus, a
tippani is a statement prepared by the lower level staff and forwarded to the upper
level from where the final decision is expected. It is an upward communication
originated from the lower level officer and forwarded to the senior level officer.
Once the tippani is prepared and forwarded to the upper level, all the concerned
authorities read it carefully, express their opinion and give the decision. It may
reach upto the highest level even to the council of ministers. It is much popular in
government offices of Nepal.
Tippani is a written statement prepared by the lower level officer and forwarded
to the upper level with a view to get the final decision on a particular problem
or matter.
Objectives of a tippani
Following are the main objectives of a tippani:
 To collect the suggestions, opinions, facts and information from the concerned
authorities on a particular problem or matter.
 To provide information to the upper level officers about the problem and
situation of the office.
 To formulate new rules and amend the existing rules and regulations.
Office Procedure 13
 To create evidence of all the decisions made by an authorised body on important
subject matter.
 To take the final decision with the participation of different levels of authorities
in an office.
 To provide guidelines on similar subject matter to take the decision in future.
 To ensure the smooth operation of office by solving the problem and taking
appropriate administrative decision.
Considerations for drafting a tippani

Drafting a tippani is the act of writing or preparing it. Drafting a tippani requires
special knowledge of language, office etiquette, skills and further knowledge of rules
and regulations.
Following are the main considerations for drafting the tippani:
 The subject of the tippani should be mentioned at top.
 It should be simple, clear and to the point so that the concerned officers can
understand easily.
 The prevalent act, rules and regulations should be mentioned in orderly manner.
 The problem, past decisions and actions on the similar subject, if any should be
stated clearly.
 The opinions, suggestions and recommendation of concerned authorities
should be stated clearly.
 All the supportive documents relating to a tippani should be enclosed
systematically.
 It should be addressing the third parties without using salutation and
complementary closing.
 It should be verified by the concerned authorities to ensure the enclosure of
necessary documents and follow up of administrative rules.
 It should be kept on the left hand side and the supportive documents on the
right hand side of the file.
 Each page of tippani should be signed and forwarded to the upper level.
Specimen of a tippani
Suppose, Miss Supriya Basnet, the receptionist of National Management College
has forwarded an application letter to college administration requesting sick leave
for three months to be effective from 1st Baishakh, 2075. In such case, the tippani is
drafted as follows:

National Management College
Balaju, Kathmandu
Phone: 01-5136321
P.O. Box No.............

Ref. No.......... Date: 28th Falgun 2074
Subject: Regarding approval of sick leave of the Receptionist Miss Supriya Basnet
The letter of application submitted by Miss Supriya Basnet, the Receptionist of this
institution on 27th Falgun 2074 for the approval of sick leave along with the medical report
is attached herewith.
In her application letter, she has requested for an approval of sick leave for three months
with effect from Baishakh 1, 2075. The medical report states that she was hospitalized on
2074/10/2 and stayed there completely for seventeen days due to surgery of her stomach
and is further required to take bed rest for next two months.
Under the provision of the prevailing rules and regulations, a full time employee of an
institution can get sick leave for maximum six months in case proved by hospitalised
documents and other reasonable causes without paying remuneration for that period.
The previous records also disclose that Mr. Binod Adhikari, the Computer Operator had
also taken sick leave for two months for his medical treatment that was approved by the
Principal.
Thus, considering the rules and regulations and past procedure, the school Principal can
approve such leave after verifying the supportive documents.
Viewing all these conditions, I forward it for the approval.
Submitted by
Ms. Bibhusi Neupane
(School Coordintor)
I forward it with recommendation for approval as it seems justifiable.
Recommended by
Mr. Kamal Basnet
(Vice Principal)
Approved by
Mr. Bishal Rupakheti
(Principal)
Report
Report is a statement of the jobs done by individual, group, organization or committee
during a fixed period of time. It is a case study or historical statement of certain matter,
problem or event. The report is also one of the important type of office procedure. It is
prepared on completion of certain job, study, survey or research and investigation. It
presents the past performance, progress, achievement, problem and their solutions in
Office Procedure 15
suggestive manner. Thus, a report is a formal and analytical statement prepared by any
level including the facts and findings as well as suggestions and recommendations.
It can be prepared for internal as well as external purpose. It facilitates to take the
administrative decisions and draw conclusion in any matter. On the basis of report,
the details of jobs or matters can be summarized.
Following is a definition of report:
“A report is a written statement based on the collection of facts, events and opinions usually expresses
in summarised and interpretative value of the information. It may deal with past accomplishments,
present conditions and probable future development.” George R. Terry
Short Notes to Remember (SNR 1.1)

Following are the steps to be followed while preparing a report:
 Identification of the problem, topic or a matter.
 Determination of the objectives.
 Fixation of the methodology i.e. questionnaire, field study or any others.
 Collection of data, facts or information relating to the problem or topic.
 Analysis and interpretation of the collected data and facts.
 Drawing conclusion on the basis of analysis and interpretation.
 Presentation of findings of the report in sequential order.
 Giving proper suggestions and recommendation for solving the problem.
Report is a descriptive and analytical statement of facts, information and

suggestions which is prepared by a person, group or organization after the
detailed study, survey, investigation or research on a problem or case.
Objectives of a report
The objectives of report may differ as per its nature and type. However in overall, the
objectives of all types of report can be pointed as below:
 To share knowledge, skill and experiences among the members or concerned
authorities.
 To support for planning, policy making and implementation function of an office.
 To know the past progress, performance and problems of the official jobs.
 To inform the concerned authorities about the problem of the organization.
 To collect the opinions and suggestions for the progress and betterment of an
office.
 To provide basis or guidelines for finding solution of future problem.
 To inform the findings of survey, study or research to the employer, public or
concerned authorities.

Types of report
On the basis of purpose and nature, report can be classified into different types.
Following are some of the important types of report:
Figure 1.2 Types of report
Report
Government Audit Annual Educational Committee

report report report report report
Government report
The government of the country is responsible body of the state for development. It
formulates plans and policies as well as implements them for overall development. It
provides various basic utilities to the general people by launching different projects and
programmes. The government also estimates the budget for the forthcoming year. Thus,
the government prepares a report to inform the people about plan and policy, budget
or other matter of the government which is known as government report. Sometimes,
the government publishes the report in the national level newspaper and others. It also
may be published regularly in the form of progress report, budget speech etc.
The report which is prepared by the government to provide information to the

public about governmental plans, policies, programme, budget etc is known as
government report.
Audit report
All types of government and private organizations have to keep the record of financial
transactions. Such transactions should be recorded as per the accounting principles,
financial rules and provisions. The books of account maintained by the offices should
be audited at the end of accounting period or periodically. Auditing is the act of
checking books of account to ensure the correct application of rules and accounting
principles. The person who examines the books of account is known as auditor.
Thus, the audit report is a statement prepared by an auditor after examining the books
of account. As per the provision of constitution of Nepal, all the government offices
should get their books of account audited from the Office of the Auditor General. The
private organizations have to audit their books of account from the person having
Office Procedure 17
license as per the provisions made in constitution. The auditor presents the findings of
the examination of books of account to concerned authority for further improvement
in maintenance of books of account.
The report which is prepared by an auditor after examination of books of account

to ensure the correct application of accounting principles, financial rules and
provisions is known as audit report.
Annual report
Annual report is the detailed statement prepared by the constitutional bodies,
ministries, companies and other organizations at the end of year. It is prepared after
evaluating the activities, progress and achievements made during a year. The annual
report includes the matter relating to plans, policies as well as administrative and
financial activities of a firm. It also discloses the total revenue and expenditure of the
firm during a period. The audit report provides information about profitability and
financial position, past achievements, strengths, weaknesses and future challenges
to the firm. The different organizations prepare annual report to fulfill their own
e requirements. In case of public limited company, annual report must be prepared and
presented in annual general assembly among the shareholders for approval. On the
basis of this report, shareholders and other parties can get administrative, financial
and other information about the company.
The report which is prepared by the constitutional bodies, companies and other
organizations at the end of year disclosing the past progress, achievements and
problems during the year is known as annual report.
Educational report
Students or academicians can also prepare the report. Such report is called educational
report. It is prepared during or on completion of an academic session or study. This
report is prepared after the detailed study or investigation over a certain educational
problem, topic or subject. Such report is prepared to fulfill the requirement of certain
educational degree. The educational report is based upon observation, investigation
and survey. The thesis prepared by the students of masters’ degree level and the report
prepared by the students after educational tour are the examples of educational report.
The report which is prepared by the students or academicians on completion

of an academic session or after study on certain educational topic or matter is
known as educational report.

Committee report
A committee refers to a group of two or more individuals formed to deal with a
particular subject or case. The government sometimes also forms a committee or
commission to study and submit the report on a certain problem or case like murder
case, accident case, theft case etc. After the detailed study, investigation and research,
such committee prepares and submits the report to the concerned level or body
which is known as committee or commission report. The committee is given a certain
period to complete the task and thus it prepares a report and submits in given time.
It contains the findings and suggestions regarding the problem or matter. The report
prepared by the examination committee, account committee, evaluation committee,
election commission etc are the examples of committee report.
The report which is prepared by the group of individuals formed by the

government or other organizations on completion of particular job, study or
investigation on certain matter is known as committee report.
Considerations for preparing a report

The act of preparing a report is a special and difficult task. It requires enough skill,
knowledge and experience. The report writer must have formal and reliable source
of information relating to the subject or case. It is a main basis for administrative
decision. Thus, it should be prepared by considering the various points.
Following are the main considerable points for preparing a report:
 The heading should be mentioned on the top or on the cover page including
problem, subject and a brief introduction.
 The objectives for writing report and the time duration required for its
completion should be mentioned clearly.
 The language should be simple, clear and polite so that the readers can
understand easily.
 The confusing symbolic words and codes should not be used as far as possible.
If needed, the meaning of such symbol and code should be stated clearly.
 All the facts, data, information and findings of the study or investigation should
be presented in orderly manner.
 The figure, table, chart, picture and diagram etc should be presented whereever
needed to make the report meaningful.
 The report writer should give the suggestions and opinions separately.
 Finally, the report writer should make the signature and mention the date for
validity of the report.
Office Procedure 19
Resolution
Resolution is a written form of subject matter presented in assembly or meeting for
further discussion and making final decision. It is considered as an important office
procedure because the matters presented by means of resolution are discussed and
passed by the majority of the members. In the process of making decision by way of
resolution, at first, the chairman or any other member must forward it, then another
member second it. After the proposal is seconded, chairman puts it for mutual
discussion and after the discussion is over, the chairman puts the resolution for
voting. Finally, the chairman declares result saying either it is passed or rejected. If it
is passed or accepted by the majority of the members, it becomes rules which should
be followed by all for the implementation of plans and policies.
Resolution is the written proposal of subject matter or problem presented by

any member in assembly or meeting for open discussion and taking decision by
the majority of the members or shareholders.
Importance of resolution
Following are the main importance of reSolution:
 It helps to formulate rules and regulations for smooth operation of office.
 It acts as the basis for taking various administrative decisions in office.
 It fulfils the legal formality to the official decisions.
 It facilitates for amendment of prevalent rules, regulations and procedures.
 It provides guidelines to the personnel to solve the problems on the related
matter.
 It acts as the legal evidence and helps to settle the disputes and
misunderstanding between or among the parties.
 It introduces the system of making decision in democratic manner.
 It helps to clear any unclear law, rules and regulations.
Types of resolution
Resolution may differ according to the nature and type of assembly or meeting.
According to Nepal Company Act 2063, resolution is divided into the following two
types:

Figure 1.3 Types of resolution
Resolution
Ordinary resolution Committee report
Ordinary resolution
When a resolution is presented and passed for the general purpose, it is called
ordinary resolution. All the resolutions submitted and passed by an ordinary and
regular assembly or meeting of the company come under this category. Generally, the
following matters are presented and passed under ordinary reSolution:
 Presentation of audited income statement and financial statement for
previous year.
 Declaration of dividend.
 Appointment of directors and auditor.
The resolution presented in ordinary meeting which can be passed by the simple
majority of the members is known as ordinary resolution.
Special resolution
When a resolution is presented and passed in company’s urgent or special assembly
or meeting for the important subject, it is called special resolution. Such type of
resolution cannot be passed by simple majority. It requires special majority i.e. at
least acceptance of 75% of the members or shareholders presented for voting. Special
resolution is decided by the company as per the provision made in memorandum and
article of association.
Following are the subject matters that can be presented and passed under special
reSolution:
 Change in the name and objectives of the company etc.
 Amendment in the provision of memorandum and article of association.
 Increase or decrease in the amount of capital.
 Conversion of company from private to public or public to private.
 Issue of bonus share.
 Change in the name and objectives of the company etc.
Office Procedure 21
The resolution presented in urgent or special meeting which can be passed only
by the special majority of the members is known as special resolution.

 Memorandum of association is the main document of a company which defines its constitution, objectives
and basic terms and conditions needed for formation of company.
 Article of association is the document of a company which defines internal rules, regulations and laws of
company for its operation and also contains the rights and power of the shareholders.
Similarities and dissimilarities between ordinary

resolution and special resolution
Similarities
 Both resolutions are presented in written form.
 Both resolutions are presented with a view to share, discuss and pass proposal
in democratic manner.
 Both resolutions require certain majority for approval.
Dissimilarities
Basis of difference Ordinary resolution Special resolution
a. Matters It is presented for regular It is presented for extra

matters. ordinary matters.
b. Meeting It is presented in ordinary It is presented in special or

meeting or assembly. extra ordinary meeting or
assembly.
c. Majority It can be passed by simple It can be passed only by special

majority i.e fifty one percent majority i.e seventy five
of present members. percent of members.
d. Example Appointment of director Liquidation of company or

and auditor is an example of change its name and objective
ordinary resolution. is an example of special
resolution.

Key
Terms
Article of association – rules governing the company.
Constitutional body – office established under the provision of constitution.
Descriptive – explained in detail.
Irregularities – activities done against the acts and rules.
Legal validity – state of being legally or officially acceptable.
Memorandum – main law of the company.
Office procedure – systematic process of taking administrative decisions and its
implementation.
Report – descriptive and analytical statement prepared by an individual or
group of individuals on a subject by presenting the related facts,
information and findings.
Resolution – written proposal presented on meeting or assembly for further
discussion and decision.
Tippani – statement prepared and forwarded by a lower level officer on an
administrative problem to take decision from the authorised level.
A. Very short answer questions
1. What is office procedure?

2. Mention any two types of office procedure.
3. Who drafts a tippani?
4. What is meant by report?
5. Name any two types of report.
6. Define resolution.
7. State the types of resolution.
8. Who prepares an audit report?
9. When is annual report prepared?
10. Write a difference between ordinary resolution and special resolution.
Office Procedure 23
B. Short answer questions
1. Define office procedure and state its necessity for office.

2. What is tippani? State the importance of tippani as an office procedure.
3. State the considerable points for drafting a tippani.
4. Give the definition of report and Write any ten considerable points
for drafting it.
5. What is resolution? State the objectives of resolution as office
procedure.
6. Write any three similarities and three differences between ordinary
resolution and special resolution.
C. Long answer questions
1. What is office procedure? Why is tippani raised? State any eight points
to be considered for drafting a tippani.
2. Define report and describe the types of report in brief.
3. Describe the types of resolution with the matters to be included in it.
4. Draft an imaginary tippani for an application submitted by a staff Neeta
Joshi of Sunflower Academy, Balaju on 2074-11-20 requesting sick leave
for 18 days to be treated as 10 days from her surplus leave of current
session and 8 days to be adjusted from the coming session.


2 FILING AND
Chapter
INDEXING
Learning Objectives
be able to :
 define filing and explain its importance
to the office,
 define the different methods of filing
with their advantages and disadvantages,
 explain the traditional filing systems with
their advantages and disadvantages,
 define horizontal and vertical filing
system and mention their advantages
and disadvantages,
 define indexing and state its usefulness in
filing system.
Introduction
There are a large number of letters, reports, bills and other written documents in an office.
Some of them are created inside the office and some are received from outside. All types
of document contain valuable information which may be needed in the future for various
purposes. Such documents should be preserved systematically and scientifically which
is known as filing. Filing ensures safety and availability of the official documents. There
are different methods of filing. Some of them are alphabetical, numerical, subject wise and
geographical filing. Similarly, filing system can be divided into traditional filing and modern
filing. Box filing, misil filing etc are the system of traditional filing where as horizontal filing
and vertical filing are the modern filing systems. As per the nature and requirement of office,
any filing method and system can be adopted to ensure the effectiveness in job.In order to make
the filing system effective indexing is also important in office. It indicates the physical location
of the required file or documents. The main purpose of indexing is to locate the required file
easily and promptly. Indexing and filing are complimentary to each other. Indexing without
filing is meaning less and filing without indexing is incomplete. Thus, these both filing and
indexing should be maintained properly.
Filing And Indexing 25

FILING
In simple sense, filing means to keep the official documents in file. However, in a
broader sense, it is the act of arranging and preserving the official documents in a
systematic and scientific way in order to obtain them whenever needed. It is the
function of record management which facilitates the easy and quick availability
of documents for future reference. Thus, filing is the systematic arrangement and
preservation of past and present official records for future reference.
The following are the main definitions of filing:
“Filing is the process of arranging and storing records, so that they can be located when required.”
J.C. Denyer
“Filing means the systematic and scientific collection, store and arrangement of letters, documents and
records of past and present for future reference so that they can be safe and easily obtainable at the time
of necessity. George R. Terry
“Filing is the process of classifying, arranging and storing records so that they will be obtainable quickly
when needed.” Khan, Yerin and Steward
Filing is the systematic and scientific act of collecting, classifying, arranging and
preserving the official records and documents in a proper place to ensure their
easy availability whenever needed.
Need or importance of filing

Filing is important for all types of office which need to create and preserve the records
for the future. It is the part of record management which provides a number of benefits
to an office. Its necessity or importance are explained below:
a. Collection and classification of the documents
Filing helps to collect the necessary documents
like bill, voucher, letter, contract paper etc. for Memory Tips
future reference. It also classifies the collected  Collection and classification of the
documents on the basis of their nature. It documents
 Arrangement and preservation of the
facilitates the better preservation of such documents
documents.  Evidence for the future
 Guidelines to the employees
b. Arrangement and preservation of the  Support to the management
documents
An office requires the various types of documents for future reference. It helps
in planning, policy making and decision making. It helps to arrange the official

documents and preserve them in systematic and scientific manner. It also protects
the documents from various possible damages such as dirt, dust, insect, moisture,
fire and theft etc. As a result, it ensures their quick identification.
c. Evidence for the future

Filing provides the past records and documents as proof for the future. It helps
to settle the disputes and misunderstanding among different individuals and
parties. It can also be presented as evidence to the court for settlement of the case.
d. Guidelines to the employees

Filing also acts as the guidelines for the future. It helps the employees to perform
their job on the basis of past records and performance. Thus, it increases the job
efficiency of the staffs by providing guidelines.
e. Support to the management

Filing provides the required data, information, facts and figure to the management
relating to the past activities. It is the basis for formulating plan and policy. Thus,
it helps the management in planning and decision making process.
Methods of filing
The method of filing means to select the broad heading under which the files are
arranged and placed in the drawer or cabinet. The main objective of selecting the
method under filing is to ensure the quick identification of files and documents. The
method of filing depends on the nature and size of office, nature of documents or
subject covered. No particular method will be suitable for all types of organization.
Following are some of the methods which can be used to classify the files in an office:
Alphabetical filing
The method of arranging the files or folders in a drawer or cabinet in order of first letter
of correspondents is known as alphabetical filing. Under this method, each folder or file
is given a name and all the files or folders starting from the same letter are arranged in a
place according to their alphabetical order. Thus, the letters A, B, C, D, E ….. in English
or c, cf, to cM and s, v, u, to 1 in Nepali are considered for filing purpose. If several files
or folders begin with the same letter, second letter of the file name is considered and so
on. In order to follow this method, different rules like primary guide, individual folder,
special guide and miscellaneous guide etc. are applied.
Alphabetical filing is the way of arranging the files or folders in a drawer

or cabinet according to the alphabetical rule of classification for the name of
correspondents.

Rules for making order of name in the folder
In alphabetical method of filing, the files are arranged in order of the first alphabet
of the name of file or folder. Thus, it requires to know some rules for making order of
name in the folder. Following are some rules to be followed for writing the name of
the correspondents to arrange the files of individuals and organizations:
a. For individual’s name
The name of individual may be of one or two or three words. In case of three
words, surname is written at first, then the first name and the middle name
is written at last. In case of two words, surname is written at first and the first
word is written thereafter. The name having single word is written as it is. All
these cases are mentioned below:
i) Ramesh Kumar Tamang – Tamang, Ramesh Kumar
ii) Alisha Karki – Karki, Alisha
iii) Supriya – Supriya
b. For individual’s name with title and position

If there is title or position before name of a person, The name of individual is
arranged as in rules mentioned above. Then, the title or position is written at
last using a bracket. It will be as follows:
i) Dr. Deepa Bhandari – Bhandari, Deepa (Dr.)
ii) Prof. Arun Kumar Bastakoti – Bastakoti, Arun Kumar (Prof.)
iii) Captain Tilak Karki – Karki, Tilak (Captain)
c. For organization’s name
The name of organization is written as it is. It is shown below:
i) Sunflower Academy – Sunflower Academy
ii) Himal Trading Concern Ltd. – Himal Trading Concern Ltd.
iii) Nepal Bank Limited – Nepal Bank Limited
d. For individual’s as well as organization’s name with position

If the name of individual having any position is joined with the name of
an institution, it is arranged in order of surname, first name, the name of
organization and the position of individual is mentioned lastly in bracket. It is
given below:
i) Dr. Anita Chhetri Medical Centre – Chhetri, Anita Medical Centre
(Dr.)
ii) Advocate Badri Poudel Legal Centre – Poudel, Badri Legal Centre
(Advocate)

Advantages of alphabetical filing
The advantages of alphabetical filing are as follows:
 It is easy to understand and simple to use.
 It is self indexed, so does not require separate index.
 It is an economical method because a separate index and trained personnel
are not needed.
 It is flexible method because increasing or decreasing the number of files
can be done easily.
 It is suitable for both small and large scale organizations.
Disadvantages of alphabetical filing

The major disadvantages of alphabetical filing are as follows:
 It is not possible to maintain secrecy because the detailed information is
available from the files.
 It is not suitable for those offices which have a large number of files or folders.
 It creates confusion in arranging or searching the files of individuals or
organizations having similar name.
 It is unsuitable for those offices for which numbers are more important than name.
 It creates difficulty in arranging the documents due to misspelling of name.
Numerical filing
The method of arranging the files or folders relating to individuals or organizations
according to the numerals like 1, 2, 3, 4, 5 … etc is known as numerical filing. All
the rules of arranging files under this method are similar to those of alphabetical
filing method. But the numbers are used here instead of name of the individuals
or organizations. Under this method, numbers are written on the folders and those
folders are arranged in the drawer or cabinet in a numerical order.
In order to apply this method, certain rules such as preparation of the entry book,
index card etc are followed. The entry book is used to register the name of each person,
subject or firm for assigning a number for filing purpose. The index card is a separate
card prepared for each correspondent for writing details such as name, address,
contact number, file number and other necessary information. All the cards prepared
for each correspondents are arranged in a separate drawer in an alphabetical order.
Numerical filing is adopted by the organizations having large number of files. Thus,
it is suitable for bank, insurance company, traffic police office, transport management
office etc.
Numerical filing is the way of arranging and placing the files or folders in a
drawer or cabinet in numerical order as per the numerals given to the particular
file or folder.

Advantages of numerical filing
The advantages of numerical filing are as follows:
 It is possible to maintain secrecy because the file or folder contains only the
number instead of name of the person or organization.
 It becomes easy to find out the file because separate index cards are prepared
and used.
 It is more advanced and scientific method than the alphabetical filing.
 It is more flexible method having unlimited scope for expansion because of
unlimited numbers.
 It is suitable for the organizations having a large number of files or folders.
Disadvantages of numerical filing

The disadvantages of numerical filing are as follows:
 It is an expensive method because it requires separate index, filing equipments
and technical staffs.
 It is more time consuming method because it requires more time to arrange,
search and use the files.
 It cannot be used by the smaller organizations because of its high cost.
 It is unsuitable for the organizations having more importance of name than number.
 It is difficult method in comparison to alphabetical filing due to necessity of
preparing entry book, referring separate index card etc.
Subjective filing
The method of arranging the files or folders in a drawer or cabinet according to their
subject is called subjective filing. Under this method, all the documents of office are first
classified into different groups according to their subject. Then, the folders containing
a number of documents are arranged alphabetically as per their subjects. The subjects
for the filing purpose are determined according to the nature of dealings to be made by
the organization.
Under this method, the priority is given to the subject rather than the name of the
individuals or organizations. The different subjects may be computer, furniture,
stationery, purchase etc. Again, the sub classification of the subject can also be made. For
example, a subject computer can be divided according to its manufacturing company
such as ‘Acer’, “Mercantile’, ‘Apple’, ‘Compaq’ etc. and a separate file can be made for
each type of computer. The different rules such as primary guide, subject guide, out
guide card, individual folders etc. can be applied to facilitate this filing method.
Subjective filing is the way of arranging the files or folders in the drawer or
cabinet according to the alphabetical order of the subjects of the various
documents.

Advantages of subjective filing
The advantages of subjective filing are as follows:
 It does not require special knowledge for operation of this filing method. Thus,
it is easy to understand and use.
 It is flexible method since the number of files can be increased or decreased as
and when required.
 It is easy to find the required document as all the papers and documents relating
to the same subject are available in a file or folder.
 It is suitable for the offices like court for which subjects are more important.
 It provides quick identification of files due to use of primary guide, guide cards
and other indexes.
Disadvantages of subjective filing
The disadvantages of subjective filing are as follows:
 It does not maintain secrecy because each file contains the name of file.
 It is difficult to obtain the documents relating to a single person or organization may
be placed in different folders, if such documents are related to different subjects.
 It is an expensive and time consuming method because it requires separate
index, guide cards and filing equipments.
 Sometimes, it becomes difficult to classify the documents into the particular subject.
 It is unsuitable for large scale organizations having a large number of documents
to be preserved.
Geographical filing
Geographical filing refers to the way of arranging the files or folders of individuals or
organizations on the basis of geographical location or place. Under this method, all
the documents to be filed are first classified according to their geographical location
and the documents relating to a particular area are placed in a separate drawer. Thus,
under this method, separate drawers are managed for different geographical places.
The classification of geographical places or locations may be ward wise, town wise,
district wise, province wise, country wise or even continent wise as per the necessity.
For example, if the classification is made on the basis of districts like Kathmandu,
Dhading, Solukhumbu, Nuwakot, Baitadi etc, separate drawers are made for these
five districts. A district further can be sub-divided into smaller places like Balaju,
Putalisadak, Chabahil, Thamel etc for Kathmandu. It should be remembered here
that after the classification of documents as per geographical location, files can be
arranged under alphabetical or numerical order.
Geographical filing is the way of arranging the files or folders in the drawer
according to the name of geographical places i.e. ward, municipality, province,
country etc.

Advantages of geographical filing
The advantages of geographical filing are as follows:
 It is simple to understand and easy to operate if the name of different places are
known.
 It is suitable for those organizations which are dealing with a large number of
geographical places.
 It provides quick identification because it uses different guides and indexes.
 It can adopt both alphabetical or numerical order for arrangement of files or folders.
Disadvantages of geographical filing

The disadvantages of geographical filing are as follows:
 It becomes difficult to arrange the files without knowledge of different
geographical places.
 It is very expensive method because it requires to use various guide cards,
separate drawers and other filing equipments.
 It does not maintain secrecy of the organization as the files can be easily
identified because of the names written in the drawer.
 It may be time consuming to search the file in case of sub division of geographical places.
 It is not suitable to the smaller organizations having a limited number of files.
Filing system
The different offices maintain their files on different bases. It depends upon the size
and nature of the organization and nature of documents as well. Following are the
main systems of filing adopted by different offices:
Figure: 2.2 Filing system
Filing system
Traditional Modern filing

filing system system
Box filling Misil filling Horizontal filing Vertical filing

Traditional filing system
Traditional filing system means the way of arranging the letters and documents
using traditional filing equipments. It was introduced long ago and used since the
very beginning of introduction of filing. However, this system is still in practice in
some of the offices where the less number of documents and files are to be preserved.
Traditional filing system may be of different types. Some of them are explained below:
Box filing
The traditional system of keeping the letters and documents in a box made up of
wood or metal or card board is known as box filing. Under this filing system, all the
documents are arranged and preserved in a box which may be of certain size. The
documents are kept in the box in loose form according to the date of their occurrence.
Thus, the documents of earlier dates are placed at the bottom and the latest dates are
placed at the top of the box. This filing system is suitable for preserving the documents
of temporary importance or useful till the completion of job. It can be used in houses
for preservation of valuable documents related to movable and immovable properties
Box filing is a traditional system of filing in which the written documents are
collected and preserved in a box in loose form in order of date.
Advantages of box filing

Following are the main advantages of box filing :
 It is very simple to understand and easy to operate in office or even in houses.
 It is economical system because it does not require expensive filing equipments
and trained staffs.
 It ensures safety to the documents because they are kept inside the box.
 There is no chance of disappearing the letters and figures in the documents as
they are not punched.
 It is easy to take out any required document as they are kept loosely in the box.
Disadvantages of box filing
Following are the disadvantages of box filing:

 It is unsuitable for large scale organizations because a box cannot hold large
number of documents and folders.
 It is not suitable for preserving valuable documents having long term
importance.
 There is a greater chance of misplacing the documents as they are kept without
punching.
 It is not flexible as only a limited number of documents can be kept in a box.
 It consumes more time due to frequent opening and locking the box as well as
getting the documents from the middle of the pile.
Misil filing
The traditional system of collecting and preserving all the letters and documents
relating to a particular case or subject in chronological order is known as misil filing.
Under this filing system, all the documents relating to a particular case or subject are
accumulated in one file. Each file is called a misil. The written documents under this
misil are piled in chronological order punching at the top corner and tied with lace
like in box filing. The documents of the earlier date remain at the bottom and the
documents of the latest date will be placed at the top one upon another. Each misil is
given a separate misil number or code like misil number 1 for civil case, misil number
2 for criminal case etc. Such files are wrapped with a red piece of cloth and arranged
in order of misil number. This filing system is suitable for the offices where different
cases are handled. Such type of filing is still in practice in courts, police stations and
land revenue offices of Nepal.
Misil filing is a traditional system of filing used for preserving the documents in
chronological order under a misil number given as per the subject.
Advantages of misil filing

Following are the main advantages of misil filing:
 It is easy to operate without specialised knowledge and skill.
 It is economical system as it does not require any guide card, drawer, cabinet
and other filing equipments.
 It provides availability of all the documents related to a particular case or
subject in a file.
 It provides easy location of the particular misil because separate misil or
code number is given for each case or subject.
 It is flexible system because any written document can be added or removed
easily.
Disadvantages of misil filing
Following are the main disadvantages of misil filing:
 It is difficult to take out the document placed in the middle or at the bottom
from a big pile because of punching each document.
 It consumes more time for classifying, punching and arranging the documents.
 It is unscientific, unsuitable and impracticable for the offices other than court,
police station and land revenue offices.
 The words or figures may disappear while punching the document that may
cause wrong or negative meaning.
 Due to frequent use of the documents till the clearance of certain case, some of
the documents may get lost or dropped out.
Modern filing system

Traditional filing systems are unscientific and unsuitable to manage the large number
of letters and documents. They cannot fulfil the growing need of modern offices. Thus,
in order to remove the demerits of such traditional filing, modern filing system have
been developed with several benefits. Modern filing equipments are used under these
systems to preserve a large number of documents in systematic and scientific manner.
The main modern filing systems are explained below:
Horizontal filing
The system of filing in which the individual files or folders are kept and arranged in the
drawers in sleeping position one upon another is known as horizontal filing. Under this
system, all the documents are kept in the files in chronological order. They are punched
and tied with a lace or by pressing with a metal clip attached with the file. Each file
contains the details of correspondent i.e. name, address, contact number, subject etc on
its face that helps to identify the files. The files are arranged in alphabetical order so that
the particular file can be identified and located easily. Horizontal filing is also known
as flat filing.
Horizontal filing is a system of modern filing in which the files or folders in a

drawer are arranged in sleeping position making a pile one upon another.
Advantages of horizontal filing

Following are the main advantages of horizontal filing:
 It is suitable for all types of offices.
 It is simple and thus it can be adopted even without special knowledge.
 It is economical system as it requires less filing equipments and also does not
require trained manpower.
 It provides quick location of the documents as they are arranged in
chronological order.
 It ensures safety to the documents because they are punched and tied with
lace or clip.
 It occupies less space because the folders are placed in flat position one upon
another.
Disadvantages of horizontal filing

Following are the disadvantages of horizontal filing:
 It is more time consuming system because it requires punching, arranging,
fastening and opening the lace or clip frequently.
 It is less flexible system because the file cannot hold a large number of
documents.
 It is difficult to locate the required file as they are placed horizontally and all
information of file cannot be seen due to their sleeping position.
 It is unsuitable for larger organizations having large number of correspondents.
 It has greater possibility of disappearing the words and figures and causing
wrong meaning while punching the documents.
Vertical filing
The system of filing in which the individual files or folders are kept and arranged in
drawer in standing position with the support of one another is called vertical filing.
Under this system, all the documents are kept in file chronologically in loose form. The
individual files or folders are arranged in the drawer vertically under alphabetical,
numerical , subjective or geographical order. The papers are not tied or fastened to
the folder. This filing system is useful to those offices which have large number of
documents. It also uses some guide cards for quick location of files.
Vertical filing is a system of modern filing in which the files or folders in a

drawer are arranged in standing position with the support of one another.
Advantages of vertical filing

Following are the main advantages of vertical filing:
 It provides quick location of the files or folders due to use of guide cards and
other information.
 It is less time consuming because no punching and fastening is required.
 It is suitable for larger offices because it holds a large number of documents.
 It ensures safety to the documents as they are preserved in special drawer with
locking facility.
 It has no possibility of losing or disappearing the words or figures because it is
not necessary to punch the documents.
 It can adopt alphabetical, numerical, subjective or geographical
classification for arrangement of files or folders.
Disadvantages of vertical filing

Following are the disadvantages of vertical filing:
 It has greater chance of losing and misplacing the documents because they are
not punched and tied with the folder.

 It occupies more space in an office because of using big drawers or cabinets to
manage the folders.
 It is expensive than horizontal filing because it requires separate indexing and
more filing equipments.
 It is complex system as it requires special knowledge for preparation of guide
and index cards.
 It is not suitable for the offices having limited number of documents and
folders.
Differences between horizontal and vertical filing

system
Following are the differences between horizontal filing and vertical filing system:
Basis of difference Horizontal filing Vertical filing
1. Position of Files are arranged in sleeping Files are arranged in standing

files position one upon another. position with the support of
one another.
2. Position of The documents are kept The documents are kept in
documents in file by punching and file without punching in loose
fastening with lace or clip. form.
3. Cost It is an economical filing It is an expensive method
method as it does not require due to necessity of trained
trained manpower and more manpower and more filing
filing equipments. equipments.
4. Space It occupies less space. It occupies more space.
5. Flexibility It is not much flexible as it has It is more flexible because each

limited capacity to hold the folder has a greater capacity to
documents. hold the documents.
6. Safety of The documents are safer as The documents are not safe
documents they are punched and tied as they are kept loosely i n a
with lace or clip. folder or file.
7. Time It is more time consuming It is less time consuming filing
filing system. system.
8. Suitability It is suitable for smaller

It is suitable for larger offices
offices having limited
having large number of
number of documents and
documents and files.
files.

INDEXING
An office creates a number of documents daily in the form of notice, circular, letter,
report and statements which are more useful for the future. All types of official
documents created in an office and received from outside should be preserved well
by keeping them in a drawer, a cabinet or in similar places. It is difficult to find
the particular document from a large number of files or documents. So, in order to
facilitate the quick location of such files or documents, the indicative list of their name,
subject and location is prepared which is known as indexing. It is a guide or indicator
to show the location and position of a particular file or document. It is the function
of record management and process of determining the name, subject and topic under
which the particular documents are to be filed. The table of contents given in a book
and alphabets mentioned in a telephone diary are the examples of indexing. Some of
the definitions of indexing are given below:
“An indexing is anything that points out. Its prime function is to act as guide to a body or to a collection
of records.” J. C. Denyer
“ Indexing means a system by which the location of any information can be easily created.”Y.K. Bhusan
“Indexing is a system which helps to locate the position of files quickly and easily.” Saxena
Indexing is a guide, indicator or indicative list of alphabets, numbers or other

information which helps to locate the particular file in a drawer or cabinet.
Usefulness of indexing
Indexing is very important guide or indicator to all types of office for locating
the required file or document. It supports the filing system of office. Its need and
importance can be explained in the following points:
a. Helps to locate the files
Indexing facilitates to locate the required file
or folder in the drawer or cabinet easily. It has
Memory Tips
 Helps to locate the files
the collection of summarized information and  Ensures the rapidity in job
location of the files. Thus, it helps to obtain the  Saves cost, time and labour
required file whenever required.  Increases efficiency
 Facilitates in decision making
b. Ensures the rapidity in job  Makes filing scientific and efficient
Indexing helps to find the required paper and

documents easily and quickly. The quick finding of such documents ensures the
completion of job easily, quickly and efficiently. Thus, it ensures the rapidity
in job.

c. Saves cost, time and labour
Indexing helps to locate the required file or folder without wasting time and effort.
It ensures the completion of job at minimum cost, time and effort. Thus, it saves
the valuable time and efforts of the human resource.
d. Increases efficiency
The efficiency of employees for doing job depends upon the availability of
information. Indexing provides information to the employees relating to the
management, customers, suppliers and the government easily. It helps them
to do the job smoothly without delay and difficulty. As a result, it increases the
efficiency of the employees.
e. Facilitates in decision making
Indexing provides all types of required information easily and quickly. With the
help of such information, the decision maker can make the appropriate decision on
time. Thus, it facilitates in decision making process.
f. Makes filing scientific and efficient
Indexing helps to improve the efficiency and effectiveness of record management.
It ensures the easy availability of the files and folders. Thus, it makes the filing
system more scientific and efficient.
Key
Terms
Chronological – act of arranging the documents in order of date.
Document – an official paper giving information about something that can be
used as proof in the future.
Filing – act of arranging and preserving the official documents into a file for
future reference.
Flexible – having benefit of expansion and contraction, changeable.
Guide card – a card that gives instruction to locate the required papers and
documents.
Horizontal – going across and parallel to the ground.
Indexing – act of guiding or indicating the location of a particular file.
Misil – a particular subject or case.
Pile – huge collection of a number of things made by keeping one upon
another.
Rapidity – being very quick.
Record management – act of creating, classifying, using and disposing the official
records in a systematic manner.
Reference – act of consulting something and getting information.
Vertical – going straight up or down from the level.

1. What is filing?
2. Mention any two objectives of filing.
3. Name any two methods of filing.
4. State the rules for making order of name in the folder for individual’s name
having three words.
5. State the types of traditional filing.
6. How is numerical filing secret than alphabetical filing method?
7. What is indexing?
10. Write any two importance of indexing.
1. What is filing? Explain in brief about the need and importance of filing.
2. What is alphabetical filing? State the advantages and disadvantages of
alphabetical filing.
3. Give the meaning of numerical filing and state its merits and demerits.
4. Differentiate between alphabetical filing and numerical filing.
5. Give introduction to subjective filing and state its advantages and
disadvantages.
6. Introduce geographical filing and write its merits and demerits.
7. Explain the types of traditional filing system briefly.
8. What is horizontal filing system? List out its advantages and disadvantages.
9. What is vertical filing system? List out its merits and demerits.
10. Write any five dissimilarities between horizontal filing and vertical filing.
11. What is indexing? Explain the usefulness of indexing in filing system.
1. What is modern filing system? Explain its types with advantages and
disadvantages.
2. Describe the traditional filing system with their merits and demerits.
3. Describe the different methods of filing that can be used for classification of
documents.


3 TRADE
Chapter
Learning Objectives
be able to :
 define trade and explain its types,
 explain the procedures of home trade and
foreign trade,
 mention the documents to be used in
home trade and foreign trade,
 explain the terms and conditions of trade,
 define invoice, mention its importance
and explain types,
 mention the items to be disclosed in a
general invoice.
 describe the various means of payment
used in trade
Introduction
The business activity can be classified into industry and commerce. Again, commerce
can be classified into trade and aids to trade. People are involved in the activity of
buying and selling of goods and services. Trade are of two types i.e home trade and
foreign trade. Wholesale trade and retail trade are the types of home trade and import,
export and entreport trade are the types of foreign trade. The parties involved in both
types of trade have to follow the procedures and terms and conditions of trade. In
order to facilitate the trade, there are different types of organizations at national and
international level. SAFTA and WTO are the major organizations facilitating regional
and international level trade respectively.
Trade 41
The word trade refers to the activity of buying and selling of goods between individuals
or organizations. It refers to the process of transferring ownership of goods from the
seller to the buyer for earning profit. It makes link between producer or manufacturer
and final users of the products. Thus, the trade is an integral part of business for
economic development of a nation. It delivers the goods from manufacturer to the
ultimate users. Trade helps the general people to fulfil their unlimited demands. The
persons or parties engaged in trade are called traders.
Following is a definition of trade:
“Trade refers to the sale, transfer or exchange of goods and services.” A.N. Agrawala
Trade is the activity of transferring ownership of goods from one person or

party to another in and outside the country in order to earn profit.
Types of trade
On the basis of geographical area that it covers, trade can be classified into the
following types:
Figure:3.1 Types of trade
Trade
Home Foreign
Trade Trade
Wholesale Retail Import Export Entreport

trade trade trade trade trade
Home trade
The act of buying and selling of goods within a country is called home trade. Home
trade is conducted inside the country. It includes the purchase and sale of goods within
the geographical boundary of the same country. It is performed between the persons
of different states, towns or cities in a nation. Home trade is also known as domestic
or internal or national trade. Under this trade, payment is received and made in local
or national currency. The parties involved in home trade are called buyer and seller.

The person or party who buys goods is called buyer and the person or party who sells
goods is called seller. The trade performed between the merchant of Biratnagar and
the merchant of Butwal is an example of home trade.
The act of buying and selling of goods within the geographical boundary of the
same country is known as home trade.
Types of home trade

Following are the types of home trade:
a. Wholesale trade
Under wholesale trade, large quantity of goods are purchased directly from the
manufacturer or producer and resold to the retailers in smaller quantity. In this trade
goods are transferred from producer to retailer. The person or organization involved
in wholesale trade is called wholesaler. He acts as a middleman between manufacturer
and retailer and deals in few specialized items of goods.
b. Retail trade
Under retail trade, goods are purchased from the wholesaler and supplied to the final
consumers in required quantity. It is the act of transferring goods from wholesaler
to the final users. The person engaged in retail trade is called retailer. The retailer
provides an opportunity to the users for selection of varieties of the product.
 Wholesale trade is the act of buying goods in large quantity directly from the producer and selling them to
the retailer in smaller quantity.
 Retail trade is the act of buying goods from wholesaler in smaller quantity and selling them to the final
consumers in required quantity.
Procedures of home trade

In order to perform home trade, certain procedures should be fulfilled. Thus, the
procedures which are to be followed in buying and selling of goods within a country
are called procedures of home trade. It begins with the enquiry of goods and ends
with the carriage of goods. Such procedures are also known as methods
of home trade. They are explained below:
a. Enquiry
Enquiry is the first procedure of home trade. When the probable buyer desires
to purchase the goods, he should collect the detailed information regarding
the goods which is called enquiry. The information like quantity, quality, price,
discount, system of payment, brand, means of delivery, charges and other terms
and condition of trade etc. can be obtained from the enquiry. The main purpose
Trade 43
of making enquiry is to find the best supplier. It helps to purchase the qualitative
goods at reasonable price with favourable terms and conditions. In order to collect
information, the probable buyer writes a letter and sends to the probable supplier
which is called enquiry letter. The buyer may send enquiry letter to the various
suppliers at a time. The name and address of the suppliers may be obtained from
trade directory, trade magazines, newspapers, trade agents or relatives.
b. Reply to enquiry or quotation
It is the second procedure of home trade. M T
emory ips
 Enquiry
When the supplier receives the enquiry letter
 Reply to enquiry or quotation
from the probable buyer, he sends a written  Purchase order
reply to the enquiry made by him. The letter  Confirmation/Acknowledgement
sent by the seller for giving reply is called  Collection of goods
 Packing of goods
quotation letter. Quotation letter is written  Preparation of invoic
according to the enquiries made by the buyer.  Delivery of goods
The seller must give reply to enquiry very  Carriage of goods
correctly, honestly and skillfully giving true
facts and information. According to the situation, sample of goods, catalogue,
price list or other trade documents can be sent to the probable buyer.
c. Purchase order
After receipt of quotation letter from the various suppliers, the buyer compares
them to select the best supplier. He compares the quality, price, discount, system
of payment etc. and decides to make order for the goods. He then writes a
formal order letter mentioning the details for required quantity of goods. Order
letter is a formal agreement between the buyer and seller for delivery of goods
under stated terms and conditions. The order letter should contain the detailed
information like quantity and types of goods. It also needs to mention the quality,
brand, discount, date, place and time of delivery, way of packaging as well as
means of transportation. The clearly written order letter helps the supplier to
deliver the goods as intended by the buyer.
d. Confirmation/Acknowledgement
The seller gives confirmation to the buyer for receipt of order after receiving the
order letter. He forwards a letter for this purpose which is called confirmation
letter. It is also called acknowledgement letter because the seller acknowledges
the buyer through this letter. The seller assures the buyer that goods will be
dispatched as early as possible as per the order letter. Thus, a confirmation letter
is sent by the seller with a view to give confirmation for supply of goods and
make enquiry, if any.
e. Collection of goods
After sending the confirmation letter to the buyer, the seller has to collect the
goods to be delivered. If all the goods are available in his own warehouse, they are
collected at a place for packaging. If not, the required goods have to be collected
from outsiders. It should be done in time otherwise it causes delay in delivery.
f. Packing of goods
After collection of goods from warehouse and outsiders, they should be properly
packed. Some goods may be durable whereas others may be perishable or breakable.
Thus, the seller has to pack the goods according to their nature. If the buyer has
given any instruction regarding the packing, the seller should follow the same.
Otherwise, he should pack them using his judgement. The packing should be done
considering its attractiveness and safety of goods. It requires to give special care to
the perishable and breakable goods by mentioning the words like “Handle with
care”, “Breakable” or “Perishable”. Besides these, the brand name of goods and a
brief introduction to the buyer may be written on the face of packing.
g. Preparation of invoice
An invoice is a written document prepared by the seller and sent to the buyer
along with the goods delivered. It contains the details of goods like quantity,
price, specification, discount, expenses incurred, amounts payable, terms of
payment etc. After the goods are properly packed, the seller has to prepare an
invoice. In home trade, invoice is prepared in three copies. The original copy is
sent to the buyer, second copy is used for tax purpose and the remaining copy is
kept by the seller for official reference.
h. Delivery of goods
After preparation of invoice, the seller has to deliver the goods to the buyer through
the transportation company. If the buyer has given any instruction regarding the
means of payment, the seller has to follow the same. If not, it is better to dispatch
the goods through the fastest, cheapest and safest means of transportation. It
should be acceptable for both. The nature of goods also determines the means of
transportation to be used for delivery of goods.
i. Carriage of goods
After delivery of goods by the seller to the transportation company, it verifies
the goods comparing the invoice and provides a receipt to the seller as proof
which is called receipt of goods. It is an evidence for acceptance of goods by
the transportation company. The transportation company then carries goods to
the destination of the buyer in its own risk. The transportation company is fully
responsible till the carriage of goods to the place of the buyer.
Documents of home trade

Documents refer to the written statements exchanged between two parties. Thus,
the documents which are used by the buyer and seller under home trade are called
Trade 45
documents of home trade. They act as an evidence to settle the disputes between the
buyer and seller. Some of the important documents used in home trade are as follows:
 Enquiry letter  Quotation letter
 Order letter  Confirmation letter
 Invoice  Receipt of goods
Foreign trade
The trade conducted between two or more countries in the world is called foreign trade.
It is the act of buying and selling of goods between the individuals or organizations of
two different countries. It is also called external or international trade. The payment
of foreign trade is made on foreign currency. The parties involved in foreign trade are
called importer and exporter instead of buyer and seller. It means the buyer is called
importer and the seller is called exporter. The trade conducted between Nepal and
China or Nepal and India are the examples of foreign trade.
The act of buying and selling of goods between the individuals or organizations
of two different countries is known as foreign trade.
Types of foreign trade

Following are the types of foreign trade:
a. Import trade
When a trader of one country purchases goods from the trader of another country,
it is called import trade. Nepal imports machinery from America, Japan, Korea
etc. and petroleum products from Arabian countries through India.
b. Export trade
When a trader of one country sells goods to other countries, it is called export
trade. Nepal exports garments, handicrafts, herbs, carpets, vegetables etc. to
different countries in the world.
c. Entreport trade
If the goods are imported from one country and exported to other countries for
earning profit, it is called entreport trade. It is the act of buying goods from one
country and selling them to other countries. Hongkong imports gold from Brazil
and exports to Nepal and India. It is entreport trade for Hongkong.

 Import trade is the act of purchasing goods from another country for domestic use.
 Export trade is the act of selling goods to other countries with a view to earn profit.
 Entreport trade is the act of buying goods from one country and selling them to other countries with a
view to earn profit.

Procedures of foreign trade
Following are the common procedures to be followed in foreign trade :
a. Enquiry
Like home trade, in foreign trade also, the
probable importer has to make enquiry to M emory ips T
the exporter for receiving information about  Enquiry
 Reply to enquiry or quotation
goods. He has to make enquiry regarding the
 Purchase order
quality and types of goods, price, discount,  Confirmation or acknowledgement
transportation charge, packing, insurance  Collection of goods
terms of payment etc. The importer writes  Packing of goods
 Preparation of invoice
a letter and sends to the exporter which is  Delivery of goods
known as enquiry letter. He may write letter  Carriage of goods
to various exporters at a time so that the best
one can be chosen. The information relating to the exporters can be obtained from
websites, international magazines, trade agents and other channels.
b. Reply to enquiry or quotation
It is the second procedure of foreign trade. After receiving an enquiry letter from
the importer, the exporter sends a written reply to the enquiries made by him.
Such reply is known as reply to enquiry or quotation letter. The exporter has to
give reply according to the enquiries made by the importer. The quality of reply
attracts the importer and motivates him to forward the order of goods. Thus, the
exporter should prepare it with much attention.
c. Purchase order
When the importer collects quotation letters from various exporters, he compares
them and selects the best exporter. He has to consider the quality, price, discount,
terms of payment and other terms and conditions of foreign trade while selecting
the exporter. After selection of the suitable exporter, he has to write an order
letter for the quantity of goods to be imported. It should include the details of
goods so that the exporter can dispatch them easily.
d. Confirmation or acknowledgement
As soon as the order letter is received from the importer, the exporter has to give
confirmation to the importer for the receipt of order, he has to write a letter which
is called confirmation letter. It informs the importer about the acceptance of his
order. In this letter, the exporter assures him for the delivery of goods as per
the agreement as early as possible. If the exporter has any unclear matter in the
purchase order, he can raise question through this letter.
e. Collection of goods
The exporter has to collect the goods as per the order letter of the importer. If all
the goods as per the order are not available in the stock, they should be collected
from the market and made ready for packaging. The exporter should collect the
goods in time for timely delivery.
Trade 47
f. Packing of goods
After collection of goods for exporting purpose, the exporter has to pack them
properly. Packing of goods should be done as per their nature. If the importer has
given any instruction regarding the packing, the exporter has to follow the same.
Otherwise, it should be done by considering cost, safety and attractiveness of the
goods. Some instructions like ‘Breakable’, ‘Perishable’, ‘Handle with care’ etc can
be mentioned on the face or side that helps for loading and unloading of goods.
g. Preparation of invoice
Like home trade, the exporter has to prepare an invoice before delivery of goods
in foreign trade. It contains the details of goods like quantity, type, price, discount
allowed, expenses incurred, net payable amount, terms of payment and other
terms and conditions. The exporter should send the invoice to the importer along
with the goods delivered. Generally in foreign trade, four copies of invoice are
prepared. A copy is sent to the importer through transportation company, next
copy is kept by the exporter for official record and remaining two copies are sent
through bank for getting payment.
h) Delivery of goods
After preparation of invoice, the exporter has to deliver goods to the transportation
company. If the importer has given any instruction regarding the means of
transportation, the exporter should follow the same. Otherwise, the safest,
cheapest and the fastest means of transportation should be used. Generally in
foreign trade, water transportation is used for carrying goods.
Thus, the exporter delivers goods to shipping company to carry them to the
destination of importer. Along with the goods delivered, the exporter gives a
letter to the shipping company mentioning the details which is known as bill of
lading. After receipt of bill of lading, an authorised person verifies the physical
quantity and condition of goods. If all the goods are found as per bill of lading, a
copy of it is signed by the concerned officer of shipping company and returned
to the exporter which is known as receipt of goods. It is a proof of acceptance of
goods by the exporter for carrying them to the place of importer.
i. Carriage of goods
After the goods are transferred to the shipping company, it carries them to the
place of importer. During the carriage of goods, the transport company has to
take whole responsibility of goods.
 Bill of lading is a letter given by the exporter to the shipping company with the package of goods mentioning
the details of goods and instruction for carriage of goods.
 Bill of lading is called airway bill in air transportation, road consignment bill in road transportation and railway
receipt under railway transport.

Documents of foreign trade
Like in home trade, foreign trade also requires to create some documents for successful
completion of trade. Following are the important documents used in foreign trade:
 Enquiry letter  Quotation letter
 Order letter  Confirmation letter
 Invoice  Bill of lading
 Receipt of goods
Similarities between home trade and foreign trade

Following are the similarities between home trade and foreign trade:
 Both types of trade involve the exchange of goods.
 Both types of trade are performed with a view to earn profit.
 Both types of trade require to follow the similar procedures.
 Both trades are performed between two parties.
Differences between home trade and foreign trade
Following are the main differences between home trade and foreign trade:
Basis of difference Home trade Foreign trade
1. Meaning It is the act of buying and It is the act of buying and selling of
selling of goods between the goods between the traders of two
traders of same country. different countries.
2. Use of word The words buyer and seller are The words importer and exporter
used for the parties involved are used for the parties involved in
in trade. trade.
3. Types
Home trade are of two types i.e. Foreign trade are of three types i.e.
wholesale trade and retail trade. import, export and entreport.
4. Letter of credit It does not require to open the It requires to open the letter of credit
letter of credit. by the importer.
5. Copies of Generally, three copies of Generally, four copies of invoice are
invoice invoice are prepared. prepared.
Generally, land transportation
6. Modes of Generally, the water transportation
is used to carry the goods.
transport is used to carry the goods.
Terms and conditions of trade

Before conducting trade, it requires to have mutual agreement between the parties in
both home trade and foreign trade. The buyer and the seller or the importer and the
exporter must agree on some rules, terms and conditions. Such terms and conditions
are the main bases for settlement of disputes in the future. Some important terms
and conditions to be followed by the buyer/importer and the seller/exporter are
explained below:
Trade 49
a. Types of goods
The buyer or the importer and the seller or
the exporter must have clear understanding
Memory Tips
 Types of goods
regarding the types of goods. It includes the  Quantity of goods
name of goods, brand, size, colour, batch,  Price of goods
quality etc. All these information should be  Insurance
stated in the purchase order clearly.  Terms of payment
 Discount
b. Quantity of goods  Means of transportation
The quantity of goods refers to the number,  Means of payment
weight and measurement of the goods. The
buyer or the importer should mention the
required quantity of goods in the purchase order clearly. The seller or the exporter
should also dispatch the goods as per the order letter. The dispatching of more or
less quantity of goods creates disputes between two parties.
c. Price of goods
The seller or the exporter should mention the unit price of all kinds of goods
clearly in quotation. While placing the order, the buyer/importer should also
state the unit price of the goods properly. Later on, the seller/exporter should
consider the same unit price for preparation of invoice.
d. Insurance
First of all, the buyer/importer and the seller/exporter must be clear regarding
the need of insurance. If the insurance is done for the goods against the possible
risks, the name of the party i.e. importer/buyer or the exporter/seller who pays
of insurance premium should be mentioned clearly.
e. Terms of payment
The goods may be sold either in cash or credit. Thus, the buyer/importer and
the seller/exporter should make an agreement regarding the terms of payment
i.e. cash or credit. The payment can be made immediately in cash or after certain
period of time. If the goods are sold on credit, the duration of time for the
payment must be mentioned clearly.
f. Discount
Discount is the facility given by the seller/exporter to the buyer/importer.
There are two types of discount i.e. trade discount and cash discount. Thus, both
parties must be clear about the types and rate of discount. It affects the amount
of receivable and payable while preparing invoice. If the discount facility is not
available in quotation, the buyer/importer cannot claim for it later on.
g. Means of transportation
There are various means of transportation for carriage of goods. Both the
buyer/importer and seller/exporter must be confirmed regarding the use of
transportation to carry the goods. The goods can be dispatched through sea

transportation, land transportation or air transportation. Generally, the cheapest,
fastest and safest means of transportation should be used.
h. Means of payment
The buyer/importer and the seller/exporter must have agreement regarding
the means of payment to be used for settlement of trade. In case of home trade,
payment can be made in local currency. But in case of foreign trade, payment
should be made in the currency of exporter’s country. The popular means of
payment are cheque, draft, telegraphic transfer, ATM card, letter of credit etc.
Generally, the payment of foreign trade is made through letter of credit.
Invoice
An invoice is a bill or document prepared by the seller or the exporter and sent to the
buyer or importer along with the goods dispatched. It contains the valuable information
of goods like quantity, price, discount, net amount payable, expenses incurred etc.
It is prepared after collection of goods for dispatching. Invoice is considered as a
forwarding document in foreign trade sent along with the goods delivered. The seller
or the importer is liable to make the payment equal to the amount mentioned in the
invoice. The invoice sent by the seller or exporter is called outward invoice and the
invoice received by the buyer/importer is called inward invoice.
Invoice is a written document prepared by the seller or exporter mentioning

the details of goods and sent to the buyer or importer along with the goods
delivered.
Following is the specimen of invoice:

Readmore Publishers & Distributors
Kathmandu, Nepal
Tel:
Fax No:
E-mail: Invoice No:
Order No: Date:
To,
Janata Pustak Bhandar
Baglung
Credit terms: 10% cash discount if paid within 30 days, credit period 45 days
Particulars Quantity Rate Amount Totals Remarks
Errors and Omissions Expected.

Please quote invoice number while making payment.
Goods once sold are not returnable and exchangeable.

..............................
(Signature)
For Readmore Publishers & Distributors
Trade 51
Items included in invoice
The items to be included in an invoice may differ from one to another. It depends
upon the necessity, nature, condition and type of invoice. However, the following are
the common items to be included in all types of invoice:
 Name and address of the seller or exporter
 Name and address of the buyer or importer
 Date of dispatching goods
 Invoice number
 Order number or reference number
 Quantity, per unit price and total amount of goods
 Types and rate of discount allowed to the buyer or importer
 Any expenses incurred on behalf of the buyer or importer
 Net amount payable by the buyer or importer
 Types of packing and instruction in package
 The last date for making the payment
 Means and mode of carriage
 Signature of the seller or exporter or his authorized agent
 Remarks for any other information
Importance of invoice
Following are the main importance of invoice:
 It provides the details of goods like quantity, quality, brand name, rate and
total amount to the buyer or importer.
 It provides information of discount allowed and net amount payable by the
buyer or importer.
 It helps to know about the last date of payment for the value of goods.
 It acts as a written evidence for settling disputes and misunderstanding
between the parties.
 It helps the transport company and the importer for physical verification of
goods.
 It helps to settle the payment through bank in case of foreign trade.
 It helps to determine the amount of commission and receivables in consignment
trade.
Types of invoice
The invoice is an important document used in foreign trade. It can be prepared differently
according to the items of expenses and charges included in it. Thus, the different invoices

quote different prices for the same goods delivered to the importer. It is due to difference
in inclusion of different charges in the invoice. Thus, according to the items of payment
included in invoice, it can be classified into the following five types:
a. Loco invoice
The word Loco means local cost. It is a type of invoice
that includes only the cost price of the goods and
M
emory ips T
 Loco invoice
the profit margin required to the exporter. It means  Free on board (F.O.B.) invoice
loco invoice includes only the cost of production  Cost and freight (C & F) invoice
 Cost, insurance and freight (C.I.F.) invoice
and profit margin. It does not include any other  Franco invoice
expenses in the price of product which are incurred
for carriage of goods from the place of exporter to the place of importer. The importer
should bear all the expenses and charges incurred in the transit for carriage of goods to
his destination. If the exporter has incurred such expenses on behalf of importer, they
can be shown in the invoice separately.
The invoice which is prepared by including only the cost price of the goods and
profit margin required for the exporter is called loco invoice.
b. Free on board (F.O.B.) invoice

Free on board invoice is a type of invoice which is prepared by including the cost
of goods and expenses incurred from the exporter’s godown to the shipboard. It
includes cost of goods plus desired profit, packing charge, carriage upto the importer’s
shipboard, export duty, expenses incurred for the carriage of goods till the loading to
the shipboard. The expenses to be incurred after the goods loaded on shipboard are
free to the importer and thus not included in the invoice.
The invoice which is prepared by including the cost of goods and all the expenses
incurred till the loading of goods on shipboard is called free on board invoice.
c. Cost and freight (C & F) invoice

The invoice which is prepared by including the cost and freight of the goods is known
as cost and freight invoice. It includes all the expenses incurred in carriage of goods
from the factory of exporter to the importer except insurance charge. Thus, cost and
freight invoice includes cost of goods, profit margin, loading and unloading charges,
freights etc which are borne till the delivery of goods. This invoice does not include
the insurance premium as it is free to the importer.
The invoice which is prepared by including the cost of goods and all the expenses
incurred in the carriage of goods except insurance premium is called cost and
freight invoice.
Trade 53
d. Cost, insurance and freight (C.I.F.) invoice
It is a type of invoice that includes the cost of goods and all the expenses incurred till
the delivery of goods to the importer along with insurance premium. In this type of
invoice, no expenses are free to the importer. Thus, it includes cost of goods, export
duty, loading and unloading charges, freight charge, insurance premium etc.
The invoice which is prepared by mentioning all the expenses including freight
and insurance premium is called cost, insurance and freight invoice.
e. Franco invoice
The invoice which is drawn including all the expenses incurred for delivery of goods
in the cost price is known as franco invoice. The word ‘Franco’ means free. Thus,
this invoice shows only the cost of goods without disclosing other items separately.
It means all the expenses like freight, export duty, loading and unloading charge,
insurance etc are paid by the exporter but not shown separately in invoice. The
importer makes the payment of bill in lumpsum and thus seems everything like free
to him except the price of goods.
The invoice which is prepared by including all the expenses like loading and
unloading charges, export duty, insurance etc. in the cost price of the goods is
known as franco invoice.
The price to be written in different types of invoice is shown below:

Name Local
Transportation Freight on Invoice
of price of Insurance Others
upto shipboard shipboard price
invoice goods
LOCO 100 20 25 15 10 100

FOB 100 20 35 15 10 120
C&F 100 20 25 15 10 145
CIF 100 20 25 15 10 160
Franco 100 20 25 15 10 170
Means of payment
Means of payment refer to the mediums or instruments which are used to pay and
receive the amount in trade or other purpose. In both types of trade i.e. home trade
and foreign trade, any means of payment should be used for making the payment for
value of goods.
Some of the widely used means of payment are described below:
a. Cheque
Cheque is a written order issued by an
accountholder or depositor of the bank for making M T
emory ips
payment to the person or party. It is provided  Cheque
 Bank draft
by the bank to its account holder to facilitate the  Letter of credit
withdrawal and payment of amount from his/her  ATM card
 Electronic transfer
deposit. Thus, a buyer may issue cheque in the  Hundi
name of seller and payment can be collected by
presenting it into the bank. For encashment of cheque, the certain conditions have
to be fulfilled. Otherwise, it will be dishonoured. It is suitable and popular means of
payment to be used in home trade to pay a large sum of money. It can be a bearer or
order or even crossed considering its safety.
Cheque is an unconditional order issued by a depositor upon a specified banker

to pay on demand a certain sum of money to the particular person or the bearer
of the instrument.
b. Bank draft
Bank draft is a written order issued by a bank to its branch for payment of amount
mentioned on it. Thus, it is drawn by one bank to another. Under this means of
payment, the person who wants to pay the value of goods has to go to the bank of
his place and fill up a form. He also requires to mention the details along with the
submission of amount to be paid to another place with some charges. The bank then
prepares a draft and provides to the sender. The buyer has to send that draft using
postal service. After receiving the draft, the seller or exporter submits it into the bank
and receives the payment.
Actually, it is a cheque drawn by one bank to another bank directing to pay the
amount at far distant place. In case of loss of bank draft, the buyer himself should be
liable. It is considered as popular and economical means of remitting money from one
place to another. Bank draft may be general, crossed or account payee. The payment of
general bank draft is made immediately. The amount of crossed bank draft should be
deposited into account and it can be withdrawn by issuing new cheque. On the other
hand, account payee bank draft can be withdrawn by depositing into the account of
concerned person only.
Bank draft is a written order issued by a bank to its branch or another bank
directing to pay a certain sum of money to the person mentioned in it.
Trade 55
c. Letter of credit
Letter of credit is used in foreign trade to make payment to the exporter for the value
of goods. It is a document containing an order made by a bank of importer to the
bank of exporter to honour the cheque of a person mentioned there in upto the stated
limit. In other words, it is the act of giving guarantee by the bank of local party to the
foreign party to pay the value of goods. While importing goods and making payment
through it, the importer has to open the letter of credit into the local bank depositing
marginal amount, L.C charges and other necessary documents. The bank examines
all the documents and provides L.C. number to the importer. The importer sends the
same L.C number to the exporter. The exporter from the next side dispatches goods to
the importer after receiving the same number. After receiving the goods, the importer
has to pay the balance amount to the bank. Finally, the exporter collects the amount of
goods in foreign currency by submitting the documents to his banker.
Letter of credit is a guarantee letter issued by a bank of the importer giving

guarantee to the exporter for the payment of the value of goods to be imported.
d. ATM card
The full form of ATM is Automated Teller Machine. It is a modern computerised
device that provides modern financial services to the customers instantly without
involvement of manpower. ATM card is a rapid means of payment for withdrawal
of money under modern banking system. Using ATM card, a depositor can withdraw
money immediately at any time without use of cheque. Under this means of payment,
one has to get the ATM card by opening an account into the bank having this facility.
While using it, the card holder should insert the card into machine and enter the
PIN (Personal Identification Number). Then the machine examines the originality of
the card and provides various options to the customers. The customer can withdraw
money at any time as specified by the bank.
Nowadays, most of the joint venture banks have provided 24 hours ATM facility.
ATM cards are also of two types i.e. debit card and credit card. The debit card is used
to withdraw the amount that has been already deposited into the bank. It allows the
individual to withdraw the amount keeping minimum balance. On the other hand,
credit card is used even by non-accountholder to withdraw the certain amount from
bank as loan. Such amount should be repaid to the bank along with the interest. This
facility is provided by the bank only to trusted persons.

ATM card is a plastic coated magnetic card which provides withdrawal
facility to the customer using modern computerized device through personal
identification number.
e. Electronic transfer
Electronic transfer is a computer based process of transferring money from one
place to another. It is a specialised web based money transfer business like Western
Union Money Transfer, IME, Prabhu Money Exchange, Sewa Money Transfer etc.
The financial institutions like bank and other money transfer agents are engaged in
remitting money. Under this means of payment, a safe communication net working
is built and operated through computer. It requires to take help of an international
institution called SWIFT to transfer currency from one bank of a country to another
bank of next country. The full form of SWIFT is Society for Worldwide Interbank
Financial Tele-communication.
In order to make payment using it, the different banks are interrelated to perform the
work of currency of different countries. Those banks are called the member bank of
SWIFT. Under this means, a special numeric code is given to the individual to transfer
the amount. Then, he sends that code number to the receiver of amount through
telephone or any medium. The receiver of the amount has to fill up a form stating the
code number obtained from the sender. He also has to mention the particulars like
his and sender’s name and amount expected. After identification of right payee, the
amount is paid in cash at the counter or transferred to the bank account. However, it
does not require any bank account.
Electronic transfer is a computer based modern means of payment that provides

facility to make the payment in safer, faster, economical and convenient way.
f. Hundi
Hundi is a written order issued by one individual or business to another directing to
pay the amount mentioned in it. It contains information like name, address and the
signature of the person receiving hundi. Though it has not been legally accepted, it
is widely used means of payment. It can be used in home trade and foreign trade.
The hundi are of two types i.e. fixed deposit hundi and darshani hundi. Under fixed
deposit hundi, amount can be paid after a certain period and under darsani hundi,
amount should be paid immediately after receiving it.
Hundi is a written order issued by one individual or business firm to another

directing to pay the amount mentioned in it.
Trade 57
World Trade Organization (WTO)
Today, due to globalization, the world has become a single village. The trading activities
are also not limited to the national boundary. Due to technological advancement and
free movement of resources, variety of goods and services are exchanged between or
among the countries. However, many difficulties and challenges exist in international
trade. Thus, to conduct the international trade in systematic manner, maintain trade
discipline and solve the trade problems among the countries, a worldwide trading
organization has been established on 1st January 1995 AD which is known as World
Trade Organization. It aims to manage, regulate and facilitate the international
business by simplifying problems, reducing tariffs and maintaining standard. It is
the revised form of General Agreement on Trade and Tariffs (GATT). The GATT
was established in 1947 AD with the aim of simplifying world trade and to preserve
patent right on intellectual property. It could not deal with the various issues like
privatisation, liberalization, expansion of multilateral cooperation etc. In order to deal
with these issues effectively, several international conferences among GATT members
were held to establish an international trade organization.
The concept of WTO was introduced first in Uruguay Round in 1986 AD and finally
accepted in 1994 April 15 by the ministerial conference held at Marrakesh, Morakko.
The conference declared to establish world trade organization since 1st January 1995.
It is an institutional foundation of the multilateral trading system. It is a permanent
organization established under international treaty approved by the government and
legislature of member states. Nepal got the membership of WTO as the 147th member
on 23rd April 2004 AD. Till 29 July 2016 AD, 164 countries have got the membership of
this organization. It deals with trade in goods, services and intellectual property. The
headquarter of WTO is at Geneva of Switzerland.
WTO is an international level organization established to manage, regulate and

facilitate the international business by maintaining trade discipline, developing
trade rules, extending trade relations and solving trade problems among the
member countries.
Functions of World Trade Organization

Following are the main functions of world trade organization:
 To manage and implement the multi-trade agreements relating to an organization.
 To remove and settle the trade barriers and disputes among the member
countries.
 To provide multilateral platform for international discussion and conferences
on trade.
 To monitor and evaluate the national trade policies of its member countries.
 To conduct the training and provide technical assistance to the developing
countries.
 To extend the cooperation among other international institutions in trading
matters.
South Asian Free Trade Area (SAFTA)

South Asian Free Trade Area is the largest regional free trade area in the world. It
is established by the government of the SAARC member countries (Nepal, India,
Pakistan, Bangladesh, Bhutan, Maldives, Sri Lanka and Afghanistan). It is a permanent
and long-term agreement made for the development of trade and industry of the
member countries located in South Asia.
The concept of SAPTA (South Asian Preferential Trade Agreement) was formally
adopted after the 7th SAARC summit held in Dhaka, Bangladesh on 11th April 1993
AD. It aimed to uplift the living standard of the poor people of SAARC countries
strengthening the economy of the member nations. The major objective of SAPTA
was to increase trade by increasing investment and production. SAPTA at first was
endorsed by Nepal on 12th Aswin 2050 B.S. and finally endorsed by Bangladesh on 5th
November 1995.
The concept of free trade area was emerged on 9th SAARC summit held in 1997 A.D.
at Maley, Maldives to change the SAPTA into SAFTA. In 1998 A.D., the 10th SAARC
summit held on Columbo, Srilanka made the decision for the formation of expert
committee to prepare draft for the free trade area within SAARC countries. Again,
the 11th SAARC summit held in Kathmandu on 2002 A.D. decided to make SAARC
nations as free trade area. It also decided to prepare the structure for the SAFTA .The
final agreement for its implementation was made and signed by all the member
countries during 12th SAARC summit held in Islamabad, Pakistan on 6th January
2004 A.D. Finally the SAFTA came into effect since 1st January 2006 which replaced
the earlier SAPTA. The main aim of SAFTA is to reduce the custom duty, increase
investment and employment to improve the economy of member countries. Thus,
the free trade area is an agreement which defines the free flow of goods and services
among member countries without barriers.
SAFTA is the mutual agreement of the SAARC countries to promote and

enhance the mutual trade and economic cooperation and ensure the free flow of
goods and services among the member countries without barriers.
Trade 59
Functions or importance of SAFTA
The major functions or importance of SAFTA are as follows:
 To eliminate the trade barriers and facilitate the flow of goods and services
among the member countries in South Asia.
 To promote the fair competition in the free trade area and ensure equitable
benefits to the member countries as per their level and pattern of economic
development.
 To establish an effective mechanism for the implementation and application of
agreement among the member countries.
 To create a framework for further regional cooperation to expand and enhance
the mutual benefits of an agreement.
 To provide technical support to the least developed member countries to
promote the level of competitiveness.
Key
Terms
Acknowledgement – a letter informing the acceptance of something.
Bank draft – an order issued by a bank to another bank or its branch to pay a
certain amount to a particular person.
Bill of lading – a document given by the exporter to the shipping company with
the package of goods.
Consignment trade – act of sending goods on commission basis and at the risk of sender.
Dispatch – to deliver, send.
Electronic transfer – modern technology based means of payment for transferring
money from one place to another.
Enquiry – formal request for information about something.
Hundi – written order issued by one person or businessman to another
directing to pay the amount.
Invoice – trade document prepared and sent by the seller to the buyer along
with the goods delivered.
Letter of credit – a letter issued by a bank to an exporter giving guarantee for the
payment of the value of goods.
Trade – act of buying and selling of goods for earning profit.

1. Define the term trade.
2. Mention the types of home trade.
3. Write any two procedures of home trade.
4. Mention the types of foreign trade.
5. What do you mean by invoice?
6. Mention any two types of invoice.
7. Write the full form of F.O.B.
8. What is the full form of C.I.F.?
9. Give the meaning of loco invoice.
10. What is meant by bill of lading?
11. State any two means of payment used in trade.
12. Write the full form of L.C.
13. What is meant by letter of credit?
14. Give the meaning of franco invoice.
15. Write the full form of ATM.
16. What is meant by debit card and credit card?
17. Write the extended form of SWIFT.
18. Write the full form of WTO.
19. When was World Trade Organization established?
20. What is WTO aimed at?
21. When did Nepal get the membership of WTO ?
22. When and where was the concept of WTO introduced at first?
23. When was WTO finally ratified?
24. How many countries have got the membership of WTO till 29 July 2016 AD?
25. Write the full form of GATT.
26. What is the full form of SAPTA and SAFTA?
27. Who endorsed SAPTA at first and at last?
28. Give the meaning of hundi.
29. What is meant by electronic transfer?
30. Write the full form of SAARC.
Trade 61
1. Give the meaning of trade and describe its types.
2. What is invoice? State the importance of invoice in trade.
3. What are means of payment? Explain any four means of payment in brief.
4. What is meant by WTO? Mention its functions.
5. What is SAFTA? State the major functions of it.
6. Write any two similarities and three dissimilarities between home trade and
foreign trade.
7. Introduce WTO and write any four differences between WTO and SAFTA.

1. Define trade and describe briefly the procedures of home trade.
2. Define foreign trade and describe its procedures.
3. Explain briefly the terms and condition of foreign trade.
4. What is an invoice? Why is it prepared? Explain the types of invoice clearly.
5. Describe in brief about the various means of payment which can be used
in trade.


4 FINANCIAL
Chapter
INSTITUTIONS
Learning Objectives
be able to :
 define financial institution and mention
its types,
 define bank and explain its importance,
 mention the types of bank and describe
their functions,
 write the meaning of cheque and explain
its types,
 define insurance and describe the types
of life and non-life insurance,
 introduce employee provident fund and
state its functions,
 introduce citizen investment trust and
state its functions,
 introduce financial cooperatives and state
its functions.
Introduction
Financial institutions are the organized banking and non-banking institutions
established in the country. They accept the scattered money from general people and
organizations and form capital for economic development. They avail capital into
various productive sectors. Financial institutions grant loan to the needy people for
various purposes. Financial institutions are established as per Bank and Financial
Institutions Act 2063 in Nepal. The insurance company, employee provident fund,
citizen investment trust, cooperative society, finance company capital market, micro
finance company etc. are the types of financial institutions currently operating in
Nepal. All types of financial institutions perform the financial activities as per the
rules and regulations and support for economic development of the country.
Financial Institutions 63
Financial institution refers to the institution involved in some financial activities.
Financial activities include the collection of saving, granting loan and mobilization of
such saving in productive sectors. Thus, the financial institution deals with monetary
transactions. It accepts the scattered money from individuals and organizations as
deposits. Similarly, it grants loan to agricultural, industrial, cooperative and other
sectors against security deposit or on the guarantee of group. Financial institution
provides interest on the money of depositors and again charges interest on the
loan granted. It also provides other various services to the public and institutions
against some charges and commission. Thus, the financial institution plays the role
of mediator between the savers and users of money. It creates an organized market
for mobilization of capital and assist in economic development of the country.
Traditionally, financial institutions used to refer the institutions other than bank such
as finance companies, capital market, cooperative credit societies etc. However, at
present, financial institutions include both banking and non-banking institutions.
Followings are the definitions of financial institution:
“The financial institutions in Nepal refer to any institution established under the prevailing laws with
the objective of providing loan for agriculture, cooperatives, industry or any other specific economic
purpose of collecting deposits from the general public. The term also denotes as institutions prescribed
as financial institution by GON publishing notice in Nepal Gazette”. Nepal Rastra Bank Act 2058
“Financial institutions are investment intermediaries linking the savers and users of capital.” ATK Ukrant
Financial institutions are the banking and non-banking institutions established

under certain act which play the role of mediator between savers and users of
money for the economic development of a nation.

 Financial institution refers to both the banking and non-banking institutions.
 It plays the role of intermediary between the savers and users of money.
 It performs the functions like accepting deposits, granting loan to needy persons and organizations and
mobilizing an unused capital in productive sectors.
 Financial institutions grant loan against the collateral or even on the guarantee of the group.
 All the banking financial institutions are monitored, supervised and controlled by Nepal Rastra Bank in
Nepal.
Types of financial institutions

All the institutions involved in financial dealing of accepting deposits and granting
loan are called financial institutions. Nepal Rastra Bank as central bank has also
clearly specified about the classification of financial institutions. Thus, the financial
institutions are of different types. However, some of the financial institutions operating
in Nepal are listed below:
a) Bank b) Insurance company
c) Employee provident fund d) Citizen investment trust
e) Financial cooperatives
BANK

The word ‘bank’ is originated from the Italian language ‘Banco’ which means a bench.
Traditionally, Italian goldsmiths used to perform the monetary transactions by sitting
on a bench. So, the word ‘banco’ was used to denote the bench to perform monetary
transactions. Thus, the same word banco was later pronounced as bank. Gradually,
a single bench and limited place could not be sufficient for performing increasing
number of monetary transactions. The people felt the necessity of establishing an
organized institution. As a result, it gave birth to an institution called bank. In Nepal,
Nepal Bank Limited was established in 1994/07/30 B.S. as the first bank and modern
banking started since its establishment.
A bank is an institution that accepts the deposits from the public and grants loan to the
individuals and organizations. It avails loan to the various sectors such as agriculture,
industry and commercial sectors. A bank is a medium of financial transactions. It
performs the variety of functions relating to individual, corporation or government.
A bank may be established with government or private investment. It may provide
loan to the individuals or corporations with or without collateral security. Finally, a
bank as a financial institution contributes the nation for economic development.
Following are some popular definitions of bank:

“Bank is the one who in the ordinary course of his business receives money which he pays by honouring
cheque of persons from whom or whose accounts receives.” Dr. H.L. Hart
“A bank is an organization whose principal operations are concerned with the accumulation of the
temporarily idle money of the general public for the purpose of advancing to others for expenditure.”Kent
“Bank is an institution which collects money from those who have it to spare or who are saving it out of
their incomes and lends this money to those who require it.” Crowther
“Banks are financial institutions that fund in the form of deposits repayable on demand or in short
notice.” World bank
Bank is a financial institution which is involved in financial transactions of

accepting deposit, granting loan, performing agency function, transferring
money etc. for the economic development of a nation.
Importance of bank
The bank plays an important role in economic development of the country. It performs
the wide variety of functions. It is regarded as the wheel and back bone for the rapid
development of financial sector of a nation. On the other hand, the establishment,
promotion and development of the industries largely depend upon the establishment
and development of the bank in the country. Furthermore, we cannot imagine our
modern lifestyle without linking to banking activities. Thus, the main importance of
a bank can be described as follows:
a. Capital formation
The bank collects deposits from individuals
and organizations. It can be mobilised in Memory Tips
various sectors like industry, trade and other  Capital formation
service oriented areas of the country. A bank  Mobilization of capital
 Granting loan
introduces various saving schemes for the
 Issuing notes and coins
public to attract saving and accumulates  Encouraging for saving
huge capital. Thus, it collects the idle money  Creating and controlling credit
of the public by providing attractive rate of  Exchanging foreign currency
 Transferring money
interest. So, the bank is a mediator and main  Helping the government
source of capital formation for the economic  Promoting trade, industry and
development. othersectors
 Working as an agent
b. Mobilization of capital
The bank plays an important role in mobilisation of capital. It identifies the
productive and profitable sectors for investment and mobilises the collected
deposits into such sectors. In this connection, a bank acts as a mediator as it
accepts deposits from public and institutions and again transfers it into trade,
commerce, industry, agriculture and service sectors.
c. Granting loan
The bank provides loan to the individuals, traders, industrialists and investors
for various purposes. It provides such loan on short term, mid-term and
long-term basis against the collateral securities of the properties or even on the
guarantee of the group. It charges interest at certain rate to the borrowers on
such loan. The act of granting loan helps for establishment, development and
modernization of institutions and fulfilment of individual needs.
d. Issuing notes and coins

In order to deal with goods or services, the bank issues notes and coins under
certain provisions. Specially, the central bank of any country performs the function
of issuing notes and coins for exchange purpose. In Nepal, Nepal Rastra Bank
performs this function and circulates notes and coins throughout the country.
e. Encouraging for saving
The bank always encourages the public and institutions for regular saving. It launches
the various saving schemes to encourage them to deposit their surplus money. The
bank ensures the full security of deposit, provides attractive rate of interest and
makes insurance of depositor. Due to all these facilities, individuals and institutions
are encouraged for saving. It finally supports for formation of capital.
f. Creating and controlling credit
The bank provides loan to the individuals and organizations for various purposes.
It creates credit by providing much more loan than the deposit it has collected
on a certain period. It provides loan by keeping smaller amount of deposit as
reserve to meet day to day transactions. The credit created by commercial bank is
controlled by central bank. Creation of credit is necessary at the time of economic
depression and it should be controlled when the price is highly increased due to
overflow of loan.
g. Exchanging foreign currency
The bank also exchanges the foreign currencies as per the instruction and direction
of central bank. It facilitates and promotes the foreign trade. Thus, it fulfils the
requirement of the importer and the exporter for exchanging foreign currencies.
It also helps to increase national revenue.
h. Transferring money
The bank plays an important role in transferring money from one place to
another which is called remittance facility. It issues various credit instruments
like cheque, bank draft, letter of credit, telegraphic transfer, traveller’s cheque,
credit card etc for remittance of money. Such instruments provide easy, safe, fast
and reliable remittance of funds from one place to another.
i. Helping the government
The government of every country requires the details of economic condition
for formulation and implementation of various plans and policies. The bank
provides necessary financial data, statistics and information to the government.
It facilitates the government for preparation of fiscal policy, monetary policy and
tax policy required for the nation.
j. Promoting trade, industry and other sectors
The bank at first helps to establish the new company and industry by providing
technical and financial assistance. It supports to manage the capital by purchasing
and selling shares and deb entures of existing and newly established companies.
It also supports the trading, industrial and other sectors for establishment,
operation and promotion of its activities.
k. Working as an agent
The bank also functions as agent. It plays the role of agent for its customers, traders,
industrialists, government and other institutions. It collects the various incomes
such as dividend, interest, cheques, bills etc on behalf of its customers. Similarly,
it makes payment of subscription, life insurance premium, rent, electricity bill,
telephone bill, interest and income tax on behalf of its customers. It also performs
the function of underwriting shares or debentures on behalf of its clients.
 The first bank of the world is “Bank of Venice” which was established in Venice, Italy in 1157 A.D.
 Afterwards, the “Bank of Barcelona” and the “Bank of Genoa” were established in 1401 A.D. and 1407 A.D.
respectively.
 In 1694 A.D. “Bank of England” was established in England which was greater development in the banking
history of the world.
 In Nepal, an organized banking system was started only after the establishment of Nepal Bank Limited in
1994 B.S.
 Bank is an important financial institution because it accumulates and mobilises capital, grants loan, issues
notes and coins, encourages for regular saving, creates and controls credit, exchanges foreign currencies,
helps the government, promotes the industrial sector and works as an agent of customers.
Types of bank
According to the functions, banks can be classified into different groups. Some banks
operate their activities in industrial and commercial sector; some extend their services
in agricultural sectors whereas others contribute for the rural area. Thus, the following
are the main types of bank presently operating in Nepal:
Figure: 4.1 Types of bank
Bank
Central bank Commercial bank Development bank

According to Bank and Financial Institutions Act 2063, bank and financial institutions have been categorized
by Nepal Rastra Bank as follows:
Class A Financial institution (Commercial banks) Paid up capital Rs 2 billion
Class B Financial institution (Development banks) Paid up capital Rs 640 million
Class C Financial institution (Finance companies) Paid up capitalRs 200 million
Class D Financial institutions (Financial cooprtatives) Paid up capital Rs 100 million

Central bank
In every country, in order to control the monetary system and banking structure as
well as monitor the financial activities of all the financial institutions, a head bank
is established which is known as central bank. central bank of all the countries is
fulley owned by the government. It is the supreme bank of a nation, which holds
the topmost position in the banking structure of the country. It exercises the special
rights like issuing notes and coins, controlling foreign exchange, controlling credit
and acting as the representative of the government. It gives permission to establish
other banks and control their financial activities. It collects deposits from commercial
banks and other banks and provides loan in financial crisis.
The central bank also provides technical and financial support to other financial
institutions whenever required. It collects all the revenues of the government and
makes payment of expenditure on behalf of the government. Thus, the central bank
is regarded as the apex financial institution in the country. It is also called bank of
other banks. Finally, it acts as the lender of the last resort to other banking institutions.
The central bank of Nepal is Nepal Rastra Bank which was established on 14th
Baishakh 2013 B.S. under Nepal Rastra Bank Act 2012. The governer of Nepal Rastra
Bank is appointed by the government of Nepal, Council of Ministers on the basis of
recommendation of recomendation committee led by Finance Minister.
Some important definitions of central bank are presented below:
“Central bank may be defined as an institution which is charged with the responsibility of managing the
expansion and contraction of the volume of money in the interest of the public welfare.”Prof. R.P. Kent
“The central bank is the organ of the government that under takes the major financial operations of the
government and by its conduct of these operations and by other means it fences the behaviour of financial
institutions so as to support the economic policy of the government.” R.S. Sayers
“The central bank stands to the apex of the monetary and banking structure of its country is called a
central bank.” Dr. D. Kock
Short Notes to Remember (SNR4.4)
 The head office of Nepal Rastra bank i.e. central office is located at Baluwatar, Kathmandu.
 Central bank is fully owned, managed and controlled by the government.
 It is established with the aim of rendering banking services to the government and public rather than
earning profit.
 The first central bank in the world is “Reek Bank of Sweden” which was established in 1656 A.D.
 “Bank of England” is the central bank of England and “Reserve bank of India” is the central bank of India.
 “The National Bank of Denmark” is the central bank of Denmark, “Federal Reserve Bank” is the central bank
of USA and “Central Bank of China” is the central bank of China.
Functions of central bank
The central bank performs a number of functions Memory Tips


as described below:  Issuing notes and coins
 Working as the agent bank of
a. Issuing notes and coins government
 Working as the banker of banks
The central bank issues notes and coins as per  Controlling credit
the necessity of the country. It is the major  Controlling foreign exchange
 Developing banking system
function of central bank. It has monopoly to  Clearing house function
issue notes and coins. Under this this system,  Working as the lender of last resort
 Other functions
the central bank should maintain at least 50%
security of gold, silver and valuable coins and
remaining 50% security of foreign currencies in world bank to issue notes in the
country. In Nepal, Nepal Rastra Bank makes the arrangement of issuing notes
and coins and brings into use. It started to issue notes since 2016 B.S.
b. Working as the agent bank of government

The central bank is the bank of government. It is owned, managed and
controlled by the government. It functions as the representative of the government.
Thus, it acts as a banker, adviser and agent of the government. It provides
banking facilities to the governmental bodies i.e. ministries, departments and
other offices. As a representative bank, it collects the governmental revenues
and makes expenditures on behalf of the government. It maintains and
operates the accounts of government offices for various programs and projects.
It also provides loan to the government whenever required. It can purchase
and sell government securities and foreign currencies and also handles the
government bonds.
c. Working as the banker of banks

The central bank is the supreme bank of the country. It gives permission to
establish other banks and financial institutions in the country. It controls, advises
and assists other banks and financial institutions to create sound financial system
in the country. It gives order to other banks for maintaining certain percentage
of their deposits as cash reserve. It also provides loan to other banks in economic
crisis as the lender of the last resort. All the banks should obey the instructions
provided by the central bank for determining interest rate, accepting deposits
and performing other banking activities. Thus, the central bank acts as a guardian
bank of all banks and financial institutions established in the country.

d. Controlling credit
Credit control is one of the major functions of central bank. The commercial banks
and other banks create credit by providing much more loan to the individuals
and organizations. The central bank is the controller of credit created by other
banks in the country. The overflow and underflow of loan both are harmful to
the economy. Creation of credit is essential for expansion and growth of capital
for various sectors. Too much creation of credit results into overflow of currency
and thus invites inflation. Thus, the central bank controls credit according to
the direction of the government by implementing various methods. It adopts
the methods like change in proportion of cash reserve, fixation of credit quota,
buying and selling securities through capital market, change in interest rate etc
to control the credit.
e. Controlling foreign exchange

The central bank has sole right to regulate and control the foreign exchange. It
formulates exchange policy and fixes the exchange rate of foreign currency. It also
gives permission to other commercial banks to perform the function of exchanging
foreign currency. It provides advice and suggestions to the government in
implementing rules and regulations for controlling foreign exchange. The central
bank handles foreign currencies to maintain stability in the value of domestic
currency. Controlling over foreign exchange helps to promote foreign trade and
attract the foreign investors in the country.
f. Developing banking system

The central bank is the guardian bank of other banks. It plays an important
role to raise the living standard of people through economic development. It
gives permission to establish other banks in the country and encourages them
to open their branches in rural area for providing banking facilities to the poor
people. It encourages the public to make link with bank and take advantage of
taking interest free loan for conducting various income generating programs. It
provides some incentives to the commercial bank and development bank. Thus,
the central bank gives emphasis for the overall development of banking system
in the country.
g. Clearing house function

The central bank acts as a clearing house for transfer and settlement of mutual
claims of other banks and financial institutions. In the banking system, every
commercial bank should maintain cash reserve at certain rate in the central bank.
It facilitates to clear inter-bank transactions. It transfers funds from one bank to
another to facilitate the clearance of cheque and other outstanding bills. For this
purpose, central bank adjusts the accounts of commercial banks by passing debit
and credit entries in their respective accounts.
h. Working as the lender of last resort

The central bank acts as the lender of last resort to other banks. It provides
loan to other banks in economic crisis by charging interest. It provides financial
assistance to other banks to fulfil their financial demand in emergency period. As
the depositors demand their deposits at any time, the bank may not be able to
pay their amount due to lack of liquidity. The other banks ask the central bank
for loan and meet their responsibility. Thus, the central bank always works as the
lender to all other banks and creates economic stability in the country.
i. Other functions
Besides the functions mentioned above, central bank performs other various
functions. Some of them are given below:
 Mobilizing capital and managing debt
 Protecting cash fund
 Issuing letter of credit
 Purchasing and selling gold, silver and other securities
 Dealing with foreign banks
 Conducting economic survey, research and training programme
 Formulating fiscal and monetary policy etc.
Commercial bank
Generally, a bank refers to commercial bank. Commercial bank is a financial institution
which is established to promote the trading, commercial and industrial sectors of the
country. It performs the commercial functions such as accepting deposits, granting
loan and other agency functions. Commercial bank accepts the deposit from public
under various accounts and grants loan under short term, mid term and long-term
basis. It avails loan to the individuals, traders, and industrialists against the collateral
security.
The commercial bank is fully profit oriented banking institution. Such bank provides
modern facilities to its customers and earns profit. Commercial bank allows its
accountholders to withdraw the amount through cheque against the deposits. It also
performs a number of agency functions by charging commission from its client.
Thus, a commercial bank assists the trade, commerce and industry and emphasizes

for economic development of a nation. In the banking history of Nepal, Nepal
Bank Ltd. is the first commercial bank which was established in 1994 B.S. Another
commercial bank named “Rastriya Banijya Bank” was established in 2022 B.S. After
the restoration of democracy in Nepal, the government has adopted the economic
liberalisation policy. As a result, a number of commercial banks are established and
operating in Nepal.
Following are the definitions of commercial bank:
“Commercial banks are those banks which are established under this act to perform commercial functions
except those which are established for specific purpose like development banks, cooperatives etc.”
Commercial bank act 2031
“A bank is an establishment which makes to individuals such advances of money as may be required
and safety makes and to which individuals entrust money when not required by them for use.”
Prof Kinley
Commercial bank is a profit oriented financial institution of the country

established to promote the trading, commercial and industrial sector by
performing various commercial functions like accepting deposits, granting
loans and dealing with foreign currencies.
Functions of commercial bank

The major functions of commercial bank are described below:
a. Accepting deposits
The major function of commercial bank is to
accept deposit from the general people and  M
emory ips T
organizations. It accepts an idle and scattered  Accepting deposits
 Granting loan
saving of the public under different accounts. It
offers deposit on fixed deposit account, saving  Creating credit
account and current account having distinct  Exchanging foreign currency
features. Under fixed deposit account, the  Performing agency functions
 Issuing letter of credit
account holder cannot withdraw the deposited  Collecting and issuing credit
amount before expiry of the specified time. instruments
Under saving account, depositors can deposit  Performing other functions
their amount frequently but with limited
withdrawal facility. Under current account, the depositor can deposit and
withdraw money at any time as per the requirement. But, the depositor must
maintain the minimum balance at bank.
b. Granting loan
Another major function of commercial bank is to grant loans to the various users.
The users of loan may be traders, businessmen, industrialists and others. It provides
loan for specific purpose and specific time period. It gives loan for short term, mid-
term and long term period. The commercial bank grants loans to the borrower
against the collateral security of valuable properties. The borrower may show
gold, silver, precious stones, land and building, warehouse, shares and debentures
etc. as collateral security. Commercial bank also provides overdraft facility to its
current accountholder in case of having insufficient balance in their accounts.
c. Transferring money
The commercial bank also performs the function of transferring money from one
place to another. This function is also called remittance of money in and outside
the country. It issues different means of payment like bank draft, mail transfer,
telegraphic transfer, letter of credit, credit card etc. for fast, safe and reliable
remittance of money. It takes some commission or charges from its clients for
such transfer services.
d. Creating credit
Credit creation is one of the important functions of commercial bank. It creates
credit by granting much loan at the time of economic depression than the deposits
it has collected in a given period of time. It helps to fulfil the need of capital in
different sectors.
e. Exchanging foreign currency
The commercial bank also deals in foreign exchange by taking permission from
central bank. It exchanges foreign currencies to fulfil the requirement of foreign
traders which helps to promote the foreign trade.
f. Performing agency functions

The commercial bank acts as an agent for its customers. It performs a number of
agency functions on behalf of its clients. It collects income from different sources
and makes payment through different means of payment on behalf of customers.
It purchases and sells the securities on the request of clients. It also collects and
accepts the credit instruments and provides ATM facility to its clients. Thus, it
receives dividend, interest and similarly pays insurance premium, rent, income tax
etc on behalf of its customers. The commercial bank takes some charges for doing
all these agency functions.
g. Issuing letter of credit
A letter of credit is the act of giving guarantee to the exporter on behalf of the
local trader or importer to pay the value of goods imported. The commercial
bank helps the importer to import goods from foreign countries by issuing letter
of credit. It supports to promote the foreign trade and earn foreign currency.
h. Collecting and issuing credit instruments
Credit instruments refer to the means of payment which facilitates the customers
to make payments and settle accounts. The commercial bank accepts the credit

instruments such as cheque, bank draft and bill of exchange of its customers.
Similarly, it also issues the credit instruments such as letter of credit, traveller’s
cheque, bank draft, ATM card, demand draft etc for the purpose of easy and safe
payment.
i. Performing other functions
Besides the above mentioned functions, the commercial bank performs
other miscellaneous functions. It provides locker facility to the customers for
safeguarding the valuable goods or properties. It collects and provides financial
information. It also Issues gift cheque and vouchers. It also helps on issue of
shares and debenture for newly established companies.
Short Notes to Remember (SNR4.5)

 The account which is maintained to accept the deposit for a fixed period of time by providing higher rate
of interest is known as fixed deposit account.
 The account which is maintained to give facility of both the regular saving and withdrawal of amount to a
certain limit is called saving account.
 The maximum limit of amount that can be withdrawn from saving account depends on the volume of
amount, rules of bank and other conditions.
 The account which has no limitation for withdrawal and deposit of money is called current account.
 Generally, no interest is allowed in current account.
Differences between central bank and commercial

bank
Following are the major differences between central bank and commercial bank:
Basis of difference Central bank Commercial bank
1. Incorporation It is established under It is established under

act central bank act. commercial bank act.
Its ownership and Its ownership and management

2. Ownership
management belongs to the belongs either to the government
and management
government. or to public.
3. Objective Its main objective is to Its main objective is to earn

render services to the profit by providing qualitative
government and public. services to the public.
4. Position It holds the supreme It holds the middle position

position in the financial in the financial sector of the
sector of the country. country.
5. Creation and It is the controller of credit
control of created by commercial It is the creator of credit among
credit the individuals and institutions.
banks.
6. Acceptance of It does not collect the It accepts the deposit directly
deposit deposit directly from public from public and institutions
and institutions. under different accounts.
7. Issue of notes It has sole authority to issue It does not have right to issue
notes and coins. notes but circulates the notes
issued by central bank.
8. Relationship It is the banker of

It is the banker of public and
government and other
institutions.
banks.
9. Number It is single in a country. It may be established in many
number in a country.
Development bank
The banking institution which is established to develop the basic infrastructure of
the country by providing technical and financial assistance is known as development
bank. Development bank provides mid-term and long-term loan to the different
sectors such as trade, industry, transport, communication, hydro-electricity, agriculture
etc. The main objective of such bank is to develop the specific sector of the country by
providing long term capital. Besides, technical and financial assistance, development
bank also provides administrative and managerial assistance. In Nepal, development
banks are established under Bank and Financial Institutions Act 2063. Before
enactment of this act, Nepal Industrial Development Corporation (NIDC), Agriculture
Development Bank (ADB) and Rural Development Banks were established according
to the legal framework of the country.
Development bank is a financial institution established to develop the basic

infrastructure in the country by providing financial, technical and administrative
assistance to the concerned sector.

The first development bank of the world is Societe Generale De Beljique which was established in 1822 AD.
Functions of development bank

The development bank performs a number of functions for the economic development
of the country. Such functions can be classified into developmental functions and
banking functions. These both types of function are described below:
1. Developmental functions
Following are the main developmental functions of development bank:
a. Identification and selection of priority sector
The development bank identifies the priority sectors of the country for
development. It considers the various factors such as availability of natural
resources, geographical condition, transportation, availability of raw
materials, labour etc for selection of developmental needs. A paper factory
may be a developmental need of mountain region whereas sugar industry
may be a developmental need of terai region. Thus, before providing financial
and technical assistance, the development bank identifies and selects the
priority sectors which need to be developed.
b. Research of technology for new industries
After identification and selection of Memory Tips

priority sectors for development, the Developmental functions
 Identification and selection of priority
development bank performs study sector
and research on technology for new  Research of technology for new
industries. The same kind of technology industries
 Help in establishment and promotion of
is not suitable for all types of industry. industries
The different industries require different  Analysis of market and product
technologies. Thus, the development  Support in planning and
bank provides technical advice to the implementation
 Creating favourable environment for
newly established industries according to investment
their nature. Banking functions
 Accepting deposits
c. Help in establishment and promotion  Granting loan
of industries  Performing agency function
The development bank helps for the establishment of new industries. It

conducts the survey for suitable location, analyses the market and provides
capital required for the establishment of industries. After the establishment
of such industries , development bank provides financial and administrative
assistance frequently for the promotion of such industries.
d. Analysis of market and product
The development bank analyses the market and goods produced by
agricultural and industrial units. It evaluates the possible market in the
agriculture and industrial sector before launching any product. In order to
establish and promote different sectors, the development bank performs
study on availability of raw materials, supply of labour, managerial
aspect, market condition, product demand etc and makes conclusion for
public knowledge.
e. Support in planning and implementation
The development bank assists for the establishment of industrial units and
facilitates for their promotion and development. It directly or indirectly
involves in formulation of plan and its implementation towards industrial
activities. It formulates different plans relating to the management of raw
materials and capital items such as plant and machinery, land and building,
furniture, vehicles etc. It ensures the regular flow of production. It also
formulates the plan for effective and efficient utilization of various resources
to ensure the higher productivity at minimum cost.
f. Creating favourable environment for investment
The development bank encourages the domestic and foreign investors
for investment in the country. It assures them regarding the security of
their investment. Thus, the development bank encourages and attracts
the domestic and foreign investors to invest in the development oriented
industrial enterprises.
2. Banking functions
Following are the major banking functions of development bank:
a. Accepting deposits
The development bank accepts the deposits from public under current,
saving and fixed deposit account. It provides certain interest on the deposit
according to the types of account. It also provides withdrawal facility to its
depositors from their accounts. The procedures of operating the accounts of
development bank are similar to the procedures of the commercial bank.
b. Granting loan
According to the type and nature of development bank, it grants loan to
the agriculture and industrial sectors. The development bank provides short
term, mid-term and long term loans against the collateral security of assets
or on the guarantee of group. It grants loan for purchase of machinery, land
etc. for establishment and promotion of industries. It also grants loan for
various agricultural and industrial purposes which ensures the sustainable
economic development in the country.
c) Performing agency function
The development bank also acts as an agent for its customers. It performs
a number of agency functions on behalf of its clients. It receives dividend
and interest on investment etc. on behalf of customers and makes payment
under various heads. It also purchases and sells the securities like shares and
debentures on behalf of its customers.
Cheque
When a person or institution opens an account in any bank or financial institution, it
provides a document to withdraw the deposited amount which is known as cheque.
In simple words, a cheque is a written document provided by the banker to its account
holder to give facility of withdrawing money from his/her account. It is a written
instruction made by the depositor to the particular bank having deposit in it. It is a
printed form issued by the bank to the account holders so that they can demand to
pay a certain sum of money stated in it. After opening an account by fulfiling certain
procedures, he/she is provided a cheque book consisting many pages. The cheque
book is provided by the bank only to the current and saving account holder. It is used
to make the payment of large sum of money to the creditor, exporter or any other
parties. A cheque can be drawn either in the name of drawer/depositor or in the name
of other parties. It has been a popular as well as safe means of payment in the modern
business world.
cheque is an unconditional order drawn upon the specified banker signed by

the account holder to pay on demand a certain sum of money to the person
mentioned in it or the bearer.
Parties involved in a cheque

Following are the parties involved in a cheque:
a. Drawer
The person or party who draws, writes, or
issues the cheque upon the specified banker is
M emory ips T
 Drawer
known as drawer. The drawer is the depositor  Drawee
 Payee
or account holder who issues the cheque giving
instruction to the bank for payment of money
to the certain person or his order or the bearer.
Actually, the drawer is the account holder and maker of the cheque. For example, if
Miss Reshma has opened account in Himalayan Bank and she issues the cheque to
make the payment to her friend Sushma, Miss Reshma becomes the drawer of the
cheque.
b. Drawee
The institution or party who receives the order from the drawer to pay the amount
of cheque is known as drawee. In other words, drawee is the party upon whom the
cheque is drawn or issued. Generally, the bank itself becomes drawee in all types
of cheque. In above example, Himalayan Bank is drawee. The drawee is liable to
make the payment of cheque to the certain person or his order or the bearer.
c. Payee
The person or party who receives the payment by presenting the cheque into the
bank is known as payee. The payee may be the ordered person or the bearer of
the cheque. In above example, Miss Sushma becomes a payee. If the cheque is
issued by the drawer in his/her own name, the drawer and payee becomes same.
Types of cheque
A common cheque may be a bearer, order or crossed. Thus, on the basis of payment
procedure and safety, cheque can be classified into following three types:
a. Bearer cheque
Bearer means the person who carries the cheque and presents into the bank.
Thus, the cheque which can be presented into the bank to receive payment by any
person irrespective of the name mentioned
in it is known as bearer cheque. In other
words, the cheque which is issued by making  M
emory ips T
the provision for receipt of amount by any  Bearer cheque
person who presents it into the bank is called  Order cheque
bearer cheque. In this type of cheque, the  Crossed cheque
bank should encash the amount of cheque to the bearer immediately whenever
it is presented at the counter. The banker does not require to make enquiry to
ensure whether the bearer is right payee or not. Though it is easy to get payment,
it is not safe type of cheque because any person who finds it and presents into the
bank can get the payment. The bank cannot be made liable in case of receiving
payment by a wrong person. It is also known as open cheque and does not require
endorsement for its transfer.
Following is the specimen of bearer cheque:
2 8 1 1 2 0 7 4
Shushila Kumari Khadka

Rupees one lakh only.
Rs. 1,00,000/-
b. Order cheque
The cheque in which the payment can be made only to the person or party whose
name is mentioned in it is known as order cheque. In this type of cheque, the bank
makes payment only after making proper enquiry to the person to know whether
he is right payee or not. In fact, an order cheque is issued to the bank to pay the

specified sum only to the person mentioned therein. The bank can be made liable
if the payment is received by the wrong person. In order to avoid confusion,
the drawee normally verifies the signature of the payee. An order cheque can
be transferred to the third party after proper endorsement. This cheque is
comparatively safer than the bearer one for making payment. Following is the
specimen of order cheque:
2 8 1 1 2 0 7 4

Rs. 1,00,000/-
c. Crossed cheque
The cheque in which two diagonal parallel lines are drawn on top left corner
across its face is called crossed cheque. Crossing on cheque may be made with
or without having special instruction like ...... & Company, Not Negotiable, A/C
payee only etc. In this type of cheque, the bank does not make the payment
directly to the payee. The amount of such cheque should be deposited first in
the account of payee and again the payee should issue his/her own cheque to
withdraw money from the bank. The crossed cheque avoids the disadvantage
of bearer and order cheque. It is a safe and useful means for transferring money
from one place to another.
Crossed cheque may of following two types:

i. General crossed cheque
The crossed cheque in which two parallel lines are drawn without specifying the
name of collecting bank is called general crossing of cheque. Such type of crossed
cheque can be deposited in any bank where there is the account of payee. The
effect of general crossing is that any bank can collect the amount of cheque.
2 8 1 1 2 0 7 4

Rs. 1,00,000/-
ii. Special crossed cheque
The cheque in which two parallel lines are drawn with special instruction on
its face is called special crossing of cheque. Under special crossing of cheque,
different instructions can be given such as “Not Negotiable” or “Not over
Rs. ...........” or “A/C Payee only” or “.................Bank or Branch only” etc. It is the
safe way of payment as the amount of cheque can be deposited only in the bank
account of the payee which is mentioned in the parallel lines. In other words,
if the name of the particular bank or branch is mentioned inside the parallel
lines, only the bank mentioned in the crossing can collect the amount of cheque.
The duty of the drawee bank is to pay the amount of cheque only to the bank
mentioned in the crossing.
e
ye
Pa 2 8 1 1 2 0 7 4
C
A/ Shushila Kumari Khadka
Rs. 1,00,000/-
Rules for issuing a cheque

When a cheque is presented at the bank counter, the concerned authority must pay
the amount of cheque as soon as possible without any condition. If the drawer does
not make the cheque properly, the bank rejects for the payment. Thus, the following
rules should be followed by the drawer for proper encashment of cheque:
 The cheque should be written in official language.
 The date of issuing cheque should not be expired or future dated.
 The amount of cheque mentioned in words and figures must be matched.
 The signature of account holder or drawer should be matched with the
specimen signature provided to the bank.
 The name of the payee should be mentioned clearly.
 There should be sufficient balance at bank in the name of account holder.
 The account number should be mentioned correctly.
 There should not be crossing, rubbing or overwriting on the cheque. If any,
the drawer should make the signature in such place.
 The cheque should not be torn, wetted or spotted.
 The endorsement of order cheque and crossed cheque should be done properly.
 The points to be considered for issue of cheque are official language, date, amount of cheque, signature,
name of the payee, balance at bank, account number, crossing and rubbing, condition of the cheque and
endorsement.

Dishonour of cheque
Dishonour of cheque means the refusal made by the bank to make the payment of
cheque to the payee stating any cause. A cheque is refused or dishonoured by the
bank in case of following conditions or causes:
 If the date of issue is not mentioned or mentioned wrongly.
 If the date is expired or pre-date is mentioned.
 If the drawer has not signed in the cheque.
 If the account number is not written or written wrongly.
 If the amount written in words and figures are different.
 If the signature of drawer does not match with the specimen signature.
 If there is no sufficient balance in the account to make the payment.
 If the cheque is crossed, rubbed, overwritten or made unclear due to any reason.
 If the name of payee is not written in the cheque or written unclearly.
 If the bank has got order from the drawer to stop the payment of cheque.
 If the payee asks the amount directly from the crossed cheque.
 If the drawee has closed his account before presenting the cheque into bank.
 If the bank has received information about the death or insolvency or lunacy of
the drawer or accountholder.
Computerised system of bank for deposit and

encashment of cheque
Nowadays, most of the banking transactions are performed through computerised
system. A bank may establish different branches over the country and operate the
banking activities with the help of computer networking system. For this, all the
banking information are collected in a small card having code number and transmitted
in all the computers installed at branches. A customer can deposit and withdraw the
amount from any branch of the bank operated in different parts of the country with
the help of this code number. For example, a customer of Rastriya Banijya Bank,
Pokhara can withdraw money from Rastriya Banijya Bank of Kathmandu under this
networking system. Similarly, the customer of Himalayan Bank Limited, Bhairahawa
can deposit money at its Kathmandu branch or any other branches. Such facility is
known as Any Branch Banking Service (ABBS).
In Nepal, almost all the joint venture banks have installed computer networking
system to provide instant and safe banking services to customers. Banks take nominal
charge for providing such services. Due to this modern system, joint venture banks
have gained more popularity among the customers.
 Joint venture banks are those banks which are established with the joint investment of domestic and
foreign investors.
 Endorsement of cheque is the process of transferring the ownership of a cheque from one person to
another by writing the name and signing at the back of the cheque.
 The person who endorses the cheque is called endorser and the person to whom the cheque is endorsed
is called endorsee.
 A bearer cheque does not require endorsement, an order cheque can be endorsed properly and account
payee cheque cannot be endorsed to others.
 Nowadays, a bank provides card to its customer as a means of payment which is known as an ATM card.
The full form of ATM is Automated Teller Machine.
INSURANCE

Human beings have to face various kinds of risks and uncertainties in life. The risk
refers to the state of uncertainty of loss of life or damage and loss of other physical
properties causing huge financial loss. It may happen due to unexpected and
uncertain events such as setting of fire, theft, accident, earthquake, robbery etc. All
these unexpected events can not be controlled and eliminated. However, a person
can reduce such kind of financial loss with the help of a kind of cooperative scheme,
which is termed as insurance.
It is the way of reducing the financial losses arising from a number of unexpected
risks and uncertainties. It is the way that provides security to the human and his/
her property against the risks. It only provides the financial compensation against the
death of a person or loss and damage of the physical properties. Thus, insurance is a
cooperative means of transferring risk to the insurer in consideration of payment of
certain periodical amount called premium.
Insurance can be studied from two view points i.e. functional view point and legal
view point. According to the functional view point, insurance is a cooperative device
to spread the risks over a number of individuals who are exposed to it and who
agree to insure themselves against that risk. On the other hand, according to the
legal view point, insurance is a contract between two parties, in which one party
agrees to provide the financial compensation against the loss of human life or loss or
damage of physical properties and another party promises to pay the certain amount
as premium in order to get the financial protection in case such events take place. In
conclusion, insurance is cooperative scheme or contract which transfers the risks from
the individuals to the insurer and ensures the financial protection to the insured in
case of death of a person or loss and damage of the properties due to uncertain events.
Some of the popular definitions of insurance are given below:
“Insurance is a contract by which are party for a compensation called the premium assumes particular
risks of the other party and promises to pay to him or nominee a certain or ascertainable sum of money
on a specified contingency.” Edwin W. Peterson
“Insurance is a cooperative device to spend loss caused by a particular risk over a number of persons
who are exposed to it and agree to insure themselves against that risk.” Prof. R.S. Sharma
“Insurance business means life insurance business and non-life insurance business which also refers to
the reinsurance.” Insurance Act 2049
Insurance is a contract between two parties in which insurer promises to pay

financial compensation to the insured in case of loss of human life or physical
properties and insured agrees to pay the premium to the insurer.
 Insurance is a cooperative scheme of distributing the risks to a large number of persons who are exposed
to it and feel themselves secured against such risk by paying certain amount as premium.
 Insurance is a method of compensating financial loss occurred due to a particular risk.
 There are two parties involved in the insurance i.e. insurer and insured.
 The party which takes the responsibility or promises to pay financial compensation against the loss is
known as insurer and the party which agrees to shift the loss to the company by paying certain amount is
called insured.
 The periodical payment of money made by the insured to the insurer is known as insurance premium. It
can be paid weekly, monthly, quarterly, semiannually or annually.
Functions of insurance
Insurance performs a number of functions which can be described as follows:
Primary functions
The primary functions of insurance relate to the act of evaluating the risk, minimizing
financial risk and using remedial measures to protect from possible losses. Some of
the primary functions of insurance are described as follows:
a. Providing certainty
There are a large number of risks and uncertainties. The date of occuring risk
and its exact amount of loss connot be predicted. Insurance provides certainty
against such uncertainties that may cause huge loss of the property and even life.
It promises to compensate the loss of insured property against the amount paid
in the form of premium. Thus, to provide certainty against risk and uncertainty
is one of the primary functions of insurance.
b. Distributing risk
Insurance is a cooperative device of distributing risk among a large number
of persons who are exposed to it. It works under the cooperative concept and
collects the small amount of premium for distribution of such risk.
c. Providing protection
Individuals and their properties
are surrounded by greater risk and Memory Tips
 
uncertainties. They may be suffered from losses Primary functions
due to such risk and uncertainties. Insurance  Providing certainty
 Distributing risk
cannot eliminate the risk but can reduce by  Providing protection
way of cooperative device. It only provides Secondary functions
protection against such risk and uncertainties.  Formation of capital
It promises to pay a certain amount in case of  Promoting trade
 Maintaining financial stability
happening of event i.e. death of a person or loss  Increasing business efficiency
of property. Thus, it takes the responsibility  Creating awareness to prevent losses
of providing protection against the death of  Providing employment opportunities
insured or loss of properties.
Secondary functions
Insurance performs the following secondary functions:
a. Formation of capital
Insurance company collects the huge amount as premium from the large number
of insured persons and forms huge capital. The whole amount collected as
premium may not be compensated at a time. The remaining amount in fund
can be mobilized in the productive and profitable sectors. Thus, the insurance
company invests the unused capital as short-term, mid-term and long-term
investment in various industrial and commercial sectors. As a result, it supports
for the economic development of the country.
b. Promoting trade
Insurance plays an important role in promotion of internal and external trade.
While carrying goods from one place to another, there are a large number of risks
like accident, theft, robbery etc. If the trader has to bear huge loss due to such
unexpected events, he/she will be discouraged to carry out the trading activities.
The insurance helps to minimize all risks of financial losses assuring the trader
to provide financial compensation in consideration of insurance premium. Thus,
the insurance facilitates the trader to perform the trading activities conveniently.
c. Maintaining financial stability

Insurance helps to create favourable environment in financial and business world
ensuring to compensate the financial losses that may arise due to unexpected
events. It avails capital, provides assurance and financial protection to the
entrepreneurs. It also provides financial compensation to the insured person or
enterprise in case of financial loss due to any unexpected event. All these things
help to maintain financial stability in the country.

d. Increasing business efficiency
Insurance provides security against the financial losses due to risks and
uncertainties. The people who have insured their life and properties feel secured,
active and become free from mental tension. The feeling of security and activeness
makes the people more devoted towards their job, profession and business. As
a result, they can freely work and get an achievement from the job. Thus, the
insurance increases the business efficiency and makes them more enthusiastic.
e. Creating awareness to prevent losses

The insurance cannot avoid whole losses. But, it helps to minimize such losses.
It makes the people involved in various research and investigation program. It
helps to forecast the future and find out the scientific method for minimizing the
risk. Thus, due to insurance, people learn to be secured and protect their physical
properties.
f. Providing employment opportunities
Insurance is a kind of business. It requires the different types of human resources
to conduct business activities. It provides various employment opportunities
to the educated people. Furthermore, it provides a certain amount as financial
compensation in case of the event. It helps to perform some productive works
in the society. Thus, the insurance helps to create employment opportunities
directly and indirectly.
Types of insurance
Insurance can be done for human life and their physical properties. Thus, it can be
classified as follows:
Figure: 4.2 Types of insurance
Insurance
Life insurance Non-life insurance
Life insurance
People may die due to various reasons such as illness, accident, old age or others.
Sometimes, they may suffer from long illness or old age and may not be able to afford
medical treatment. On the other hand, due to early death of a parent or earner, his/
her dependent will be badly affected. They cannot survive conveniently in the society.
Thus, in order to get the financial security on such situation, insurance can be done for
his/her life which is known as life insurance. It is one of the popular types of insurance
in which the insurer promises to compensate a certain sum to the insured or his/
her dependant in case of untimely death, illness or old age etc. Under life insurance,
the insurance company agrees to compensate a fixed amount to the insured or his/
her nominee in case of the event i.e. early death or expiry of fixed period. It can be
considered as contingent contract because the loss of life cannot be compensated and
only a specified amount is paid if the policy holder dies or policy expires whichever
is earlier.
Life insurance involves both elements i.e. investment and protection. It is considered
as investment because insured gets the policy amount with bonus on the expiry of
policy period. It is considered as protection because the nominee will get the financial
compensation in case of early death of the insured person. It is estimated that life
insurance comprises eight percent of the total insurance business in the world. It was
commenced from England and other European countries in the sixteenth century. The
life insurance in modern kind was developed in the eighteenth century.
Following are the definitions of life insurance:
‘Life insurance business means the business relating to a contract in which a particular sum of amount
is paid in instalment on the basis of age for insuring of the person with the condition that his nominee
or dependent will receive a particular sum of amount at death or receives himself after expiry of fixed
period.” Insurance Act 2049
“Life insurance contract may be defined as the contract where by the insurer in consideration of a
premium under takes to pay a certain sum of money either on the death of the insured or on the expiry
of the fixed period.” M.N. Mishra
Life insurance is a contract done between insurer and insured to provide

compensation to the insured in case of the event within specified period in
return of premium paid by him or her.
Types of life insurance

On the basis of period and terms and condition, life insurance can be classified as
follows:
a. Endowment life insurance
Endowment life insurance is a type of insurance policy which is issued for a fixed
period of time. It is generally issued for 15 years, 20 years, 25 years etc. Under
this policy, the insured or policy holder has to pay the insurance premium till the
endowment period only. Then, the sum assured is payable to the policy holder
on the expiry of period along with bonus. But in case of death of the insured or
policy holder before expiry of the maturity period, the sum assured is payable to

his/her nominee or dependent. Endowment life insurance is done with a view to
provide financial security to the family as well as to accumulate funds in old age
or disability.
b. Anticipated endowment life insurance

Anticipated endowment life insurance is
a policy which is issued for a fixed period  M
emory ips T
 Endowment life insurance
providing a withdrawal facility of certain  Anticipated endowment life insurance
amount at certain intervals during endowment  Whole life insurance
period. Under this policy, a part of sum assured  Term life insurance
is paid at intervals during endowment period  Endowment life insurance with double
accident benefit
and balance of the assured amount is paid at  Children’s education and marriage
the maturity. If the policy holder dies before  endowment life insurance
maturity of policy period, the whole assured
amount is payable to the nominee with bonus at once.
This policy is also issued for certain duration like in endowment life insurance.
For payment of partial amount at certain intervals, it makes the certain provision.
For example, if policy is taken for 15 years, 25% is paid after 5 years, next 25% is
paid after 10 years and the balance is paid with bonus after 15 years or expiry of
the policy period.
c. Whole life insurance

Whole life insurance is a type of policy in which the policy holder has to pay the
insurance premium regularly for the agreed period during the life time. Under
this policy, the insurer pays the sum assured only after the death of the insured
or policyholder. The policyholder cannot get the sum assured during his/her
survival. After the death of the policyholder the nominee or dependent does not
have to pay the further premium. The main purpose of this type of life insurance
is to give financial protection to the dependent financially after the death of
policy holder.
d. Term life insurance
Term life insurance is a policy issued for the security of loan amount granted by
the creditor. It is issued for short term period. Under this policy, the sum assured
is payable on the death of policyholder before repayment of borrowed amount.
If the policyholder or borrower survives till the maturity of the policy period,
nothing is payable. He himself is liable to repay the loan amount borrowed from
the creditor.
This policy helps to recover the amount of debt from the insurance company in
case of death of the borrower or debtor. Thus, it is generally purchased by the
debtor to give protection to the amount of creditor. It provides complete financial
security to the creditor against the risk of recovery of amount due to sudden
death of the borrower or debtor.
e. Endowment life insurance with double accident benefit
This insurance policy is similar to an endowment life insurance. It is different
in the case that some additional premium is received by the insurer from the
insured to provide accident insurance facility. Under this policy, if the insured
dies before maturity of the period due to accident, his/her nominee will get the
double of assured amount. However in case of survival of the insured till the
policy period, the insured will be paid only the sum assured amount with the
bonus. It is beneficial when one desires to transfer the risk that may happen due
to accident.
f. Children’s education and marriage endowment life insurance
Under this type of life insurance, the concerned parents have to take a policy for a
certain period like in endowment life insurance. The parents should pay the amount
of premium regularly for the fixed period of time. A child becomes the nominee or
representative of the policyholder. After the maturity of the policy, the insurer pays
the sum assured to the policyholder that facilitates to manage for higher education
and perform marriage function of the nominee. In case of death of the policyholder
before maturity of the policy period, the sum assured will be paid to the nominee.
Non-life insurance
Non-life insurance refers to the insurance done for others than human life. It is the
insurance of goods and physical properties. It is done for short term period generally
for one year and can be renewed every year. Non-life insurance policy is taken to
compensate the loss of goods and other properties that may occur due to specified
cause mentioned in the contract. Under this policy, the insured has to pay the amount
of premium annually in advance. In conclusion, non-life insurance policy is taken as
a means of providing financial protection for furniture, vehicle, building, machinery
and equipment and merchandise items against the risk of fire, theft, robbery, accident,
earthquake etc.
Types of non-life insurance
Non-life insurance can be classified as follows:
a. Fire insurance
The physical properties and merchandise items of an individual and institutions are
in greater risk of fire. The setting of fire may destroy or damage the properties that
causes huge financial loss to the individual and businessman. Sometimes, goods in the
warehouse, plant and machinery in the factory or other properties may be destroyed
by the sudden setting of fire. Thus, in order to get the financial compensation over
such loss, insurance can be done by the owner of goods and properties which is
known as fire insurance.

Thus, fire insurance is a measure that provides
security against the risk of fire. It covers the risk of
fire only. It is a contract of indemnity under which
 emory ips
 Fire insurance
M T
the insured cannot claim anything more than the  Marine insurance
 Miscellaneous insurance
value of goods lost by fire or the amount insured
i. Motor insurance
whichever is less. It is also a cooperative effort ii. Employer’s liability insurance
to reduce the financial loss caused by fire among iii. Fidelity guarantee insurance
iv. Aviation insurance
insured persons. The necessity of fire insurance
was felt for the first time in England in 1666 AD when one third of the London was
destroyed by fire. Generally, the residential building, store and warehouses, plant
and machineries, business premises, cinema halls etc can be insured against the risk
of fire.
Fire insurance is the contract done between the insurer and insured to
compensate the insured against the loss or damage caused to a specified
property in consideration of premium paid by him/her in annual basis.
 In order to get financial compensation, the insured must have to prove that the loss is really occured due
to fire. It is accepted mainly in two conditions i.e. there must be actual fire and fire must be accidental.
b. Marine insurance
In course of sea journey, there may be a number of marine risks like collision of ship
with rock or another ship, attack from enemies, setting of fire, hijacking, standing
of the ship, explosion, capture by pirates, jettison, barratry etc. Thus, in order to get
the financial compensation over the loss caused due to such marine risks, insurance
can be done which is called marine insurance. It provides the financial protection
against such primary risks. It covers the risks of ship, cargo and passengers as per
the policy included. Under this insurance, the insured has to pay a certain amount of
premium according to the volume of risk to be covered by the insurance company.
The insurance company in return agrees to pay the sum to insured in case of loss
caused due to marine risks.
Marine insurance is the contract done between the insurer and insured to
indemnify the insured against the loss or damage due to sea perils against
consideration of a certain amount of premium paid him/her.
c. Miscellaneous insurance
Following are some common types of miscellaneous insurance:
i. Motor insurance
While using land transportation, the vehicle may be damaged due to accident
or lost due to theft or other similar type of events. In such case, the financial
compensation can be received from insurance company if that has been insured.
Thus, the insurance done to get financial protection against the risk of damage
to a motor car or vehicle due to accident, theft or other similar causes is known
as motor insurance. It covers the risk of all types of vehicles, loaded goods and
passenger within the fixed period. Motor insurance is compulsory in Nepal
The insurance which compensates the financial loss of motor car or vehicles due
to accident, theft and other similar causes is known as motor insurance.
ii. Employer’s liability insurance

A number of workers are engaged in the factory or in other institutions. There may
be injury, accident, death or disability of any worker while remaining at work. It
badly affects the survival of their family members or even for their own life. Thus,
in order to get the compensation in case of accident, death or disability, insurance
can be done which is known as employer’s liability insurance. Under this insurance
policy, the employer or factory owner has to pay the insurance premium regularly
to the insurance company to claim over such loss. Nowadays, many institutions
insure their employees by taking the policy from insurance company. It helps to
motivate the workers to increase the productivity of their institution.
The insurance which is done by the employer to provide financial compensation

to the employees in case of their injury, accident, disability or death at the time
of working is known as employer’s liability insurance.
iii. Fidelity guarantee insurance

Sometimes in an organization, loss may occur due to mistake or dishonesty of
the staff. Moreover, the staffs may commit frauds, embezzlement and theft in an
institution. Thus, to compensate the loss caused to organization due to such bad
intention or inefficiency of the staff, insurance can be done which is known as
fidelity guarantee insurance. Thus, it is issued to cover the loss to the employer
due to mistakes or dishonesty of employees knowingly or unknowingly.
The insurance which compensates the financial loss of motor car or vehicles due
to accident, theft and other similar causes is known as motor insurance.
iv. Aviation insurance

Air transportation is one of the popular and fastest means of transportation. It
has a number of risks in its journey. Sometimes, while carrying the passenger
from one place to another, accident may take place due to bad weather or some
mechanical problem. If the accident occurs, its losses are unbearable. So to cover
the risk relating to aircraft or aviation, insurance is done which is known as
aviation insurance. It provides the financial security to the body of aircraft, cargo,
passengers and third party.
The insurance which covers the risk of aviation and provides financial
compensation in case of loss of aircraft, cargo and death of passengers is known
as aviation insurance.
Differences between life insurance and non-life

insurance
Following are the differences between life insurance and non-life insurance:
Basis of difference Life insurance Non-life insurance
1. Meaning The insurance which is The insurance which is done for

done for human life is goods or physical properties is
known as life insurance. known as non-life insurance.
2. Duration It is done for a longer It is done for a short period i.e.

period of time i.e. 10, 15, generally one year and can be
20, 25, years and so on. renewed again.
3. Payment of The insured can pay The insured has to pay the
insurance the premium on certain premium once a year in advance
premium periodical basis like basis.
weekly, monthly, semi-
annually or annually.
4. Financial The insurer provides The insurer provides the

compensation the certain sum to the compensation to the insured
insured on expiry of only in case of loss of goods or
policy or to the nominee properties within the stipulated
in case of early death of time.
the insured.
5. Nature of It is a kind of saving It is a kind of business expenses
insurance scheme because the fixed because compensation will not be
amount will be refunded provided in case does not happen
to the insured or his the event as mentioned in policy.
nominee in both the
situations i.e. early death
or expiry of policy.
Employee provident fund
Employee provident fund is a non-banking financial institution which is established
under Provident Fund Act 2019. it axxepts 10% amount deducted from the basic
monthly salary of the employees working in the government offices, companies,
corporations and other organized institutions. It collects compulsony deducted
amount of permanent sfaffs of government offices, corporations, constitutional bodies
etc. and voluntany deduction of private personnel. An equal amount is contributed by
the government and deposited into one office which is called provident fund office.
Employee provident fund office accumulates the huge amount as provident fund and
utilizes for the welfare and economic benefits of the employees. It is one of the largest
non-banking financial institutions working in the social security sector. Under the
saving scheme of this institution, whole amount of deposits as provident fund will
be refunded after their retirement with interest and bonus. The provident fund office
invests and mobilises the funds into different productive and profitable sectors. It
fulfils the requirement of funds for capital market.
It was originally begun as Sainik Drabya Kosh (Army Provident Fund) in 1991 B.S.
to provide financial benefit to the army people after their retirement. Again in 2001
B.S., Nijamati Karmachari Sanchaya Kosh Bibhag (Civil Servants Provident Fund
Department) was established to serve the civil servants working in Kathmandu. In
2005 B.S., the scheme covered the entire civil servants of Nepal. In 2015 B.S. employee
provident fund department was established under Ministry of Finance and it merged
the Sainik Drabya Kosh and Nijamati Sanchaya Kosh both. It also covered the police
personnel. In 2019 B.S., employee provident fund act was passed.
Its head office is located at Pulchowk, Lalitpur. The present Karmachari Sanchaya
Kosh was established as a perpetual, independent and autonomous organization
under this act. As per the provision of rules under this act, all the government staffs
and organized institution having more than ten employees can manage the fund
and provide facilities to their employees. It is beneficial to the employees of the
government and private sectors both.
Employee provident fund is a non- banking financial institution established

under provident fund act 2019 with the main aim of providing future financial
security to the employees with the joint contribution of employer and employees.
Functions of employee provident fund

The main functions of employee provident fund as per the Provident Fund Act 2019
are as follows:

 Collecting provident fund deducted from the employees’ monthly basic salary
and equal amount contributed by their employers.
 Providing regular interest on the fund of all provident funds account holders.
 Providing employee welfare schemes to the civil and security employees.
 Providing financial compensation to the employee against accident and in
case of death paying amount to the legal heir or the nominee.
 Providing various kinds of loans such as housing loan, educational loan and
other specific loans to the accountholders.
 Granting funeral allowance to the nominee or legal heir in case of death of
employee while in service.
 Refunding the deposited amount to the concerned employee with interest and
bonus after their retirement.
 Managing the funds and mobilizing it in different productive and profitable
sectors.
 Maintaining the upto date record of collection, mobilisation and refund of
provident fund amount.
 Informing the accountholders about the services and facilities provided by the
provident fund office.
 Employee provident fund deducts provident fund equal to 10% of the monthly basic salary of employees.
 It provides interest on the fund of all the provident fund accountholders.
 It provides certain percentage of the total deposit as an additional benefit to the retired civil servants as
an incentive for their financial security.
 It provides loan to the members upto 90% of the accumulated deposit.
 It provides housing loans to the employees which is repayable within 20 years.
 The main sectors of provident fund for investment are:
a) Time deposit and cash certificate of other financial institutions.
b) Providing loans to corporations and industrial enterprises against collateral.
c) Purchase and sale of shares and debentures of different companies.
d) Conducting different housing schemes.
Citizen investment trust

Citizen investment trust is a non-banking financial institution registered and operated
under Citizen Investment Trust Act 2047. It was established on 4th Chaitra 2047 B.S
(March 18, 1991 AD). Formally it operated its activities since 1st Magh 2048 B.S. (15th
January 1992 AD). It is basically established to provide and expand investment
opportunities to the general public and encourage them for saving. It accepts the
amount deducted from monthly salary of employees working in government offices,
corporation and other organizations.
It is a voluntary deduction and can be collected at certain rate i.e. 5% or 10% or more
than that as per the wish of the employee and organization. The amount collected
by way of voluntary deduction is accumulated and invested in productive sectors.
The employees saving under this scheme will be provided a sum of money after their
retirement from the job or expiry of certain period. Employees are allowed to invest
individually or institutionally as per the suitability. There will be a board of at least
nine members to run and manage all the activities of this financial institution. It is
commonly called Nagarik Lagani Kosh in Nepali.
Citizen investment trust is a non-banking financial institution incorporated

with the main objective of increasing investment opportunity to the people by
encouraging for saving and bringing dynamism in the capital market.
Functions of citizen investment trust

The functions of citizen investment trust are broadly classified and mentioned into
the following groups
a. Mobilization of saving
The citizen investment trust performs the
following functions related to the mobilization
of saving:
M
 emory Tips
 Mobilization of saving
 Financial assistance and investment
 Operating various units scheme and mutual  Capital market service
fund scheme to both domestic and foreign
investors.
 Operating various kinds of retirement schemes like pension fund, gratuity,

subsidy fund and insurance fund.
 Operating investors account scheme.

b. Financial assistance and investment
The citizen investment trust performs the following functions relating to
financial assistance and investment:
 Investing the accumulated funds in share and debenture of organized
institutions and governmental bond and securities.
 Providing term loan and bridge financing to the organized institutions.
 Providing credit facilities to the investors for purchase and sale of securities of
different corporations.
 Providing credit for purchase or construction of housing building.

c. Capital market service
Following are the functions of citizen investment trust relating to capital market
service:
 Managing for the issue and sale of different securities of corporations.
 Providing service as a broker and market maker in stock exchange market.
 Providing efficient counselling in market for capital structure, price
determination, issue time and merge, amalgamation, purchase and
privatization of organized institutions.
 The shareholders of citizen investment trust are government of Nepal, Nepal Rastra Bank, Security
Exchange Centre, other bank and financial institutions and Nepalese citizens.
 Its head office is located at Kathmandu and other branches can be established in other geographical
places.
Financial co-operatives
Financial co-operative is another type of non-banking financial institution. It is
established with the investment of people having low level of income to fulfill their
social, economic and cultural expectations. The co-operative institutions are voluntary
associations of individuals having common interest and desires. The main objective
of such institution is to encourage the poor people for regular saving and contribute
for the economic development of the society. It accepts the small saving from their
members and grants loan at reasonable rate of interest. The group of financially
weaker will be highly benefitted from such institution.
It is owned, managed and controlled by its members. It is run under the concept of
self help and mutual cooperation. In Nepal, co-operative institutions are established
under Co-operative Act 2048. The co-operative societies have gained much popularity
in Nepal because other banks and financial institutions have no access in all the rural
communities of the country. In order to organize all these activities, a national co-
operative bank has also been established in the contribution of financial cooperatives.
Financial co-operative is the voluntary association of economically poor people

of the society established and run with a view to meet social, economic and
cultural expectations of the members.
Functions of financial co-operatives

Financial cooperative performs a number of functions considering their principles
and objectives. As per the provision of Cooperative Act 2048, it performs the following
functions:
 Making the poor people a member of cooperatives and encouraging for regular
saving.
 Collecting regular deposit from the members under different schemes.
 Providing interest at certain rate on deposits of members.
 Granting loan to the members for specific purposes at the cheaper rate of
interest.
 Extending mutual relationship among the members by organizing various
programmes.
 Conducting cooperative education programme to its members for educational
awareness.
 Managing the funds by investing in different income generating activities to
improve the economic status of the members.
 Maintaining books of account for collection of deposits and its mobilization
among members.
 Performing other various functions for the social welfare and benefits.
 Performing banking functions by taking permission from Nepal Rastra Bank.
 The concept of co-operative was started in the world with the establishment of a consumer
co-operative called ''Rochdale Society of Equitable Pioneers'' on 24th October 1844 A.D. by the British
Industrialist, Robert Owen.
 Financial co-operative is also known as saving and credit co-operative.
Key
Terms
Bank – financial institution established under the certain act to perform

monetary and credit transactions.
Barratry – wrongful or willful act of theft setting fire to the ship and
fraudlent selling of the cargo by the captain or crew of the ship.
Cheque – legal document prepared by the bank and issued by an account
holder to withdraw money from account.
Contingent – dependent on something that may or may not happen.
Contract – written agreement between two parties.
Debenture – an authorized official document issued by the company to show
the borrowing of money from a person.
Financial – related with monetary matter.
Financial institutions – the institution which deals with financial activities i.e. accepting
deposits and granting loan.
Fire insurance – insurance which is done for getting compensation of financial
loss arising due to uncertain events.
Insurance – legal contract between the insurer and insured for the
compensation of financial loss and happening of events.
Insurance premium – an amount which is paid to the insurance company in
consideration of transferring the financial risk.
Insurer – a party which promises to pay the financial compensation in case
of life and non-life insurance.
Jettison – the voluntary act of throwing away the goods by the crew to
protect the ship from sinking or other happening.
Joint venture – a project or business activity that is conducted by two or more parties.
Life insurance – insurance related to life of human beings.
Marine insurance – insurance that covers the risk against the perils incurred in the sea.
Negotiable – transferable.
Remittance – act of sending money to somebody in order to pay or something
that can be done through cheque or credit card.
Risk – probability of occurring unexpected events like death of person or
loss of physical properties.
Securities – valuable items that one agrees to keep with somebody for receiving
loan or document that proves the ownership of share or debenture.

1. What is meant by financial institution?
2. Which is the first bank of Nepal and when was it established?
3. Write the name of central bank of Nepal.
4. Write the name of any two financial institutions.
5. Write any two major functions of central bank.
6. Which is the first central bank in the world and when was it established?
7. Which bank specially performs the function of accepting deposit and granting
loan?
8. Name the types of account under which the commercial bank accepts the
deposit of general people?
9. Under what basis does the central bank issue notes and coins?
10. Which bank is known as the lender of the last resort?
11. Which is the first development bank in the world?
12. Write the full form of NIDC.
13. When was Agriculture Development Bank established?
14. Mention the parties of a cheque.
15. What is a bearer cheque?
16. Define crossed cheque.
17. State any two non-banking financial institutions operating in Nepal.
18. Write any two primary functions of insurance.
19. When and where was life insurance started first time in the world?
20. When was employee provident fund act enacted in Nepal?
21. Write the full establishment date of citizen investement trust.
22. What is the main difference between endowment life insurance and
anticipated endowment life insurance?
23. Name any two types of non-life insurance.

1. Define bank and describe its importance in brief.
2. What is cheque? Explain the parties involved in a cheque.
3. Describe briefly the types of cheque.
4. What do you mean by crossing of cheque? Explain the types of crossed
cheque.
5. Differentiate between central bank and commercial bank.
6. Mention the rules for encashment of cheque by the banker.
7. What is meant by dishonour of cheque ? Mention the causes of dishonouring
a cheque.
8. What is insurance? Explain its primary functions.
9. Differentiate between life insurance and non-life insurance.
10. Write in brief about employee provident fund with its major functions.
11. What is citizen investment trust? State its functions.
12. Introduce financial co-operatives and state its functions.

1. Define central bank and explain its any eight functions.
2. What is commercial bank? Describe its major functions in brief.
3. What is development bank? Describe its major functions in brief.
4. Why do we do life insurance? State any two reasons and describe the types
of life insurance.
5. What is meant by non-life insurance? Describe its types in brief.
6. Introduce financial institutions and describe any five types of financial
institutions in brief.


5 TRIAL BALANCE
Chapter
Learning Objectives
be able to :
 write the meaning of trial balance,
 state the objectives and advantages of
trial balance,
 mention the procedures of preparing trial
balance,
 prepare a trial balance after preparation
of ledger accounts or from the given
ledger balances,
 describe the accounting errors on the
basis of disclosure by trial balance,
 describe the concept of adjustment and
closing of trial balance by opening
suspense account.
Introduction
When all the transactions are posted into different ledger accounts, it is necessary
to know whether they are recorded and posted accurately or not. In order to ensure
the correctness in recording and posting, a statement is prepared which is known as
trial balance. While recording the transactions in primary books or posting them into
various ledgers, there may be errors or frauds committed knowingly or unknowingly.
If such errors remain in the books of account, finally it affects the net result of business
operation. Due to this reason too, the journal and ledgers should be checked to make
correction in the arithmetical records by preparing a statement which is termed as
trial balance. It is the third step of accounting process.
Trial Balance 101
Trial balance is the list of debit and credit balances or even the total of the ledger
accounts prepared at the particular date. If a trial balance is prepared on the basis of
ledger balances, all debit balances should be transferred into the debit column and
credit balances should be transferred into the credit column. The debit total and credit
total should be equal to each other. If debit and credit total remains equal, it is called
agreement of trial balance. But, if the debit total and credit total is found different,
it is assumed that there may be arithmetical errors in preparing the journal and the
ledgers. The following are the definitions of trial balance:
“A trial balance is a statement prepared with the debit and credit balances of ledger accounts to test
arithmetical accuracy of books.” J. R. Batliboi
“A trial balance is the list of debit and credit balance taken out from ledger; it also includes the balance
of cash and bank taken from cash book.” R. N. Carter
“A trial balance is a statement of the debit and credit balances of the various ledger accounts which is
prepared to check their arithmetical accuracy.” A.N. Agrawal
Trial balance is a statement of debit and credit balances or totals of ledger accounts
which is prepared at the particular date in order to prove the arithmetical
accuracy of the books of account.
Objectives of preparing a trial balance

The following are the main objectives of preparing trial balance:
a. To check the arithmetical accuracy

The main objective of preparing a trial balance
M
 emory Tips
 To check the arithmetical accuracy
is to check arithmetical accuracy of books of  To locate and rectify the errors and
frauds
account. It gathers the debit and credit balances
 To provide summary of all the ledger
of all ledger accounts at a place and checks accounts
whether the debit total equals to credit total or  To facilitate the preparation of final
accounts
not. If the debit total is not equal to the credit  To help in evaluation and decision
total, it indicates that there may be some errors making
existed in the books of account.
b. To locate and rectify the errors and frauds

The trial balance also helps to find out the errors and to correct them in time. The
disagreement in trial balance i.e. difference in debit and credit total indicates the
arithmetical errors in maintaining the books of accounts. Thus, it helps to identify
them and correct in time.

c. To provide summary of all the ledger accounts
As all the ledger balances are listed in a separate sheet of paper under a trial balance,
it provides the information about all ledger accounts. Thus, to provide summarized
information about ledger accounts is also another objective of a trial balance.
d. To facilitate the preparation of final accounts

Final accounts are prepared at the end of an accounting period to know the true
financial position. Such accounts are prepared on the basis of a trial balance. It
provides summary of personal, real and nominal accounts. Thus, to assist for the
preparation of final accounts is the next objective of a trial balance.
e. To help in evaluation and decision making

The trial balance provides the information about assets, liabilities, expenses,
income etc for a certain period. The trial balance drawn in different time periods
helps the management for evaluation and decision making process on different
business matters.
Advantages of a trial balance

Following are the main advantages of a trial balance:
 It helps to check the arithmetical accuracy of recording and posting of financial
transactions.
 It helps to locate and rectify the accounting errors and frauds.
 It helps to provide a summary of all the ledger accounts of the firm.
 It facilitates for preparation of final accounts.
 It helps in making evaluation and decision on various business matters.
 It supports for internal audit by providing complete, reliable and accurate
accounting information.
Specimen of a trial balance

Following is a general specimen of a trial balance:
Trial Balance of …..
As on ……..
S.N. Particulars L.F. Debit Rs. Credit Rs.
1 2 3 4 5
Trial Balance 103

In the above specimen, the following information are to be mentioned:
1. S. No The serial number of accounts likes 1, 2, 3, 4... is mentioned in
this column.
2. Particulars The name of different ledger accounts like cash account, capital
account etc is mentioned in this column.
3. Ledger Folio (L.F.) The page number of various ledger accounts from where they
have been taken is mentioned in this column.
4. Debit Rs. The amount of the debit balance of the ledger account is written
in this column.
5. Credit Rs. The amount of the credit balance of the ledger account is written
in this column.
Procedures for preparing a trial balance

Following are the procedures to be followed in preparation of a trial balance:
 The specimen of trial balance should be prepared.
 Name of the organization and the date of preparing trial balance should be
mentioned at the middle top.
 The serial numbers like 1, 2, 3, 4 .......... etc should be mentioned in first column
as per the number of ledger accounts.
 The name of ledger accounts like cash, capital, interest etc should be mentioned
in the second column.
 The page number of each ledger account should be written in third column.
 The amount of ledger accounts having debit balance should be posted in debit
column and the amount of ledger accounts having credit balance should be
posted in credit column.
 If only the ledger balances are given, the following rules should be applied to
post the amount either in debit or credit side of a trial balance:
a. Dr. all assets, expenses and losses
b. Cr. all liabilities, capital, income and gains
 Finally, the debit and credit sides should be totalled to ensure the correctness in
recording and posting which must be equal.
 If the debit and credit sides are not found equal, the difference should be
transferred to suspense account assuming some arithmetical errors. Later on,
they should be located and rectified.
Ill-1 The following transactions are given to you:

July 1 Business started with cash Rs. 1,50,000
July 3 Opened bank account with Rs. 1,00,000
July 12 Purchased goods for cash Rs. 40,000
July 18 Paid wages Rs. 10,000 by cheque.
July 26 Sold goods to Ramila for Rs. 50,000

Required:
a) Journal entries
b) Ledger accounts
c) Trial balance as on 31st July
a) Journal Entries
Date Particulars L.F. Debit Rs. Credit Rs.
July 1 Cash a/c . .................................................................................... Dr. 1,50,000

To Capital a/c 1,50,000
(Being business started with cash)
July 3 Bank a/c ...................................................................................... Dr. 1,00,000
To Cash a/c 1,00,000
(Being bank account opened)
July 12 Purchase a/c ............................................................................... Dr. 40,000
To Cash a/c 40,000
(Being goods purchased in cash)
July 18 Wages a/c ................................................................................... Dr. 10,000
To Bank a/c 10,000
(Being wages paid by cheque)
July 26 Ramila’s a/c ................................................................................ Dr. 50,000
To Sales a/c 50,000
(Being goods sold to Ramila on credit)
b) Ledger accounts
Dr. Cash Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
July 1 To Capital a/c................. 1,50,000 July 3 By Bank a/c..................... 1,00,000
July 12 By Purchase a/c ............. 40,000
July 31 By Balance c/d................. 10,000
1,50,000 1,50,000
Aug. 1 To Balance b/d...............
10,000
Dr. Capital Account Cr.

July 31 To Balance c/d..................... 1,50,000 July 1 By Cash a/c................... 1,50,000
1,50,000 1,50,000
Aug. 1 By Balance b/d.............. 1,50,000
Dr. Bank Account Cr.

July 3 To Cash a/c...................... 1,00,000 July 18 By Wages a/c.By Balance 10,000
July 31 c/d.................................... 90,000
1,00,000 1,00,000
Aug. 1 To Balance b/d.................
90,000
Trial Balance 105

Dr. Purchase Account Cr.
July 12 To Cash a/c....................... 40,000 July 31 By Balance c/d.................. 40,000
40,000 40,000
Aug. 1 To Balance b/d.................. 40,000
Dr. Wages Account Cr.

July 18 To Bank a/c....................... 10,000 July 31 By Balance c/d................. 10,000
10,000 10,000
Aug. 1 To Balance b/d..................
10,000
Dr. Ramila’s Account Cr.

July 26 To Sales a/c..................... 50,000 July 31 By Balance c/d.................. 50,000
50,000 50,000
Aug. 1 To Balance b/d................. 50,000
Dr. Sales Account Cr.
July 31 To Balance c/d..................... 50,000 July 26 By Ramila’s a/c.............. 50,000
50,000 50,000
Aug. 1 By Balance b/d.............. 50,000
c) Trial Balance
As on 31st July
S. No. Particulars L.F. Debit Rs. Credit Rs.

1. Cash a/c ........................................................................................................ 10,000 –
2. Capital a/c ...................................................................................................... – 1,50,000
3. Bank a/c ......................................................................................................... 90,000 –
4. Purchase a/c .................................................................................................. 40,000 –
5. Wages a/c ...................................................................................................... 10,000 –
6. Ramila’s a/c ................................................................................................... 50,000 –
7. Sales a/c ........................................................................................................ 50,000
Total................................................................................................................ 2,00,000 2,00,000
Preparation of a trial balance from the given ledger

balances
A trial balance is prepared on the basis of ledger balances drawn from the various
ledger accounts. The following rules should be followed for debiting and crediting
the items in trial balance:
 All assets, expenses and losses are debited
 All liabilities, capital, incomes and gains are credited

The following is the list of possible items to be debited and credited in a trial balance:
Trial Balance of ...........
As on …….
S.
Particulars L.F. Debit Rs. Credit Rs.
No.
1. Cash balance .................................................................................. ×××
2. Bank balance .................................................................................. ×××
3. Sundry debtors ............................................................................... ×××
4. Investment ...................................................................................... ×××
5. Bills receivable ................................................................................ ×××
6. Accounts receivable ....................................................................... ×××
7. Land and building ........................................................................... ×××
8. Plant and machinery ....................................................................... ×××
9. Furniture and fixture ....................................................................... ×××
10. Vehicles .......................................................................................... ×××
11. Loose tools ..................................................................................... ×××
12. Goodwill ......................................................................................... ×××
13. Patent ............................................................................................. ×××
14. Trademark ...................................................................................... ×××
15. Copy right ....................................................................................... ×××
16. Prepaid expenses ........................................................................... ×××
17. Accrued income .............................................................................. ×××
18. Loan given ...................................................................................... ×××
19. Business premises ......................................................................... ×××
20. Opening stock ................................................................................. ×××
21. Purchase ........................................................................................ ×××
22. Sales return .................................................................................... ×××
23. Carriage/freight inward ................................................................... ×××
24. Carriage/freight outward ................................................................. ×××
25. Purchase expenses ....................................................................... ×××
26. Import and export duty .................................................................... ×××
27. Wages and salaries ........................................................................ ×××
28. Factory expenses ........................................................................... ×××
29. Insurance premium ......................................................................... ×××
30. Rent, rates and tax ......................................................................... ×××
31. Office and administrative expenses ................................................ ×××
32. Interest paid .................................................................................... ×××
33. Commission paid ............................................................................ ×××
34. Advertisement ................................................................................. ×××
35. Heating and lighting charges........................................................... ×××
36. Communication charges.................................................................. ×××
37. Printing and stationery expenses ................................................... ×××
Trial Balance 107

38. Repairs and maintenance ............................................................... ×××
39. Depreciation.................................................................................... ×××
40. Fuel, coal and coke ........................................................................ ×××
41. Legal expenses .............................................................................. ×××
42. Establishment expenses ................................................................. ×××
43. Charity and donation ...................................................................... ×××
44. Bank charges .................................................................................. ×××
45. Discount allowed ............................................................................ ×××
46. Drawing .......................................................................................... ×××
47. Bad debts ....................................................................................... ×××
48. Loss on sale of assets .................................................................... ×××
49. Entertainment expenses ................................................................. ×××
50. General expenses .......................................................................... ×××
51. Delivery van expenses ................................................................... ×××
52. Value added tax .............................................................................. ×××
53. Capital ............................................................................................ ×××
54. Sundry creditors ............................................................................. ×××
55. Bank overdraft ................................................................................ ×××
56. General reserve .............................................................................. ×××
57. Reserve fund .................................................................................. ×××
58. Bills payable ................................................................................... ×××
59. Accounts payable ........................................................................... ×××
60. Loan received ................................................................................. ×××
61. Outstanding expenses .................................................................... ×××
62. Advance income ............................................................................. ×××
63. Capital reserve ............................................................................... ×××
64. Deposit from customers .................................................................. ×××
65. Purchase return ....................................................................... ×××
66. Commission received ..................................................................... ×××
67. Discount received ........................................................................... ×××
68. Interest received ............................................................................. ×××
69. Bad debts recovered ...................................................................... ×××
70. Provision for bad debts ................................................................... ×××
71. Apprentice premium ....................................................................... ×××
72. Interest on investment .................................................................... ×××
73. Gain on sale of assets .................................................................... ×××
74. Rent received ................................................................................. ×××
75. Sale of scrap ................................................................................... ×××
76. Miscellaneous income ................................................................... ×××
77. Sales ....................................................................................... ×××
Total................................................................................................. ××× ×××

Ill-2 The following are the ledger balances taken from the books of Anupama
on 31st Chaitra 2074.
Opening stock . ..................... Rs. 10,000 Sundry creditors.......... Rs. 40,000
Purchases................................ 90,000 Wages............................ 20,000
Sales......................................... 2,00,000 Commission received. 5,000
Purchase return..................... 5,000 Bank balance................ 9,000
Sales return............................. 7,000 Salary............................ 15,000
Sundry debtors...................... 50,000 Furniture . .................... 1,49,000
Capital..................................... 1,00,000
Required: Trial balance as on 31st Chaitra, 2074
Solution:
Trial Balance of Anupama
As on 31st Chaitra, 2074
1. Opening stock ................................................................................................ 10,000 –
2. Purchases ...................................................................................................... 90,000 –
3. Sales .............................................................................................................. 2,00,000
4. Purchase return ............................................................................................. 5,000
5. Sales return ................................................................................................... 7,000 –
6. Sundry debtors .............................................................................................. 50,000
7. Sundry creditors ............................................................................................ – 40,000
8. Wages ........................................................................................................... 20,000 –
9. Salary ............................................................................................................ 15,000 –
10. Commission received .................................................................................... – 5,000
11. Bank balance ................................................................................................. 9,000 –
12. Furniture ........................................................................................................ 1,49,000 –
13. Capital ........................................................................................................... – 1,00,000
Total................................................................................................................ 3,50,000 3,50,000
Adjustment and closing in a trial balance

A trial balance is a basis for preparation of final accounts. It provides summary of
all the ledger accounts drawn in a business firm. It should have equal amount in
both the debit and the credit columns. But sometimes due to any error, it may not be
equal in both columns. In such situation, the errors should be detected and rectified
in time. However sometimes, errors cannot be located easily in spite of hard efforts
of concerned staff. Due to which, a trial balance does not tally. On the other hand,
it causes delay in preparation of final accounts. Thus, to avoid such delay, a trial
balance is made equal by adding the balance amount in lighter side which is known
Trial Balance 109

as adjustment and closing of trial balance. Thus, in case of disagreement in trial
balance, it is made equal by putting the difference amount in any of the sides i.e. debit
or credit. In order to put the difference amount, an artificial account is used till the
location and rectification of errors which is called suspense account. It is a temporary
solution adopted to make the trial balance equal. When all the errors affecting the trial
balance are detected and rectified, the suspense account is automatically disposed off.
The following are some of the errors that causes disagreement in a trial balance:
 Posting of amount in wrong side of an account.
 Posting of wrong amount in one side of an account.
 Omission of posting in one side of an account.
 Wrong totaling and balancing of ledger account.
 Double posting in one account.
 Posting in wrong side of the trial balance.
 Omission of transferring balance of any account in the trial balance.
 Suspense account is an artificial account opened temporarily for the purpose of adjusting and closing the
trial balance until the errors are located and rectified.
 If the debit total of the trial balance is more than its credit total, suspense account is opened in credit side
by writing the difference amount.
 If the credit total of the trial balance is more than its debit total, suspense account is opened in debit side
by writing the difference amount.
 After all the errors are located and rectified, the suspense account automatically disappears from the
books of account
 Adjustment and closing of trial balance is an artificial process of making the trial balance equal by opening
suspense account in lighter side to avoid delay in preparation of final accounts.
Ill-3 The following are the balances of ledger accounts taken from the books
of Shalimar Concern on 31st Ashadh, 2074:
Opening stock.......................................... Rs. 60,000 Drawing...................................... Rs. 2,500

Purchase................................................. 1,20,000 Sales return................................ 1,800
Sundry debtors........................................ 55,000 Purchase return.......................... 2500
Capital .................................................... 1,70,000 Sundry creditors......................... 27,600
Cash balance........................................... 45,000 General reserve.......................... 15,000
Loan from bank........................................ 8,000 Salaries and wages.................... 12,500
Sales........................................................ 1,00,000 Interest received......................... 4,500
Repairs and maintenance........................ 6,800 Furniture..................................... 24,000

Required: Trial balance
Solution:
Trial Balance of Shalimar Concern
As on 31st Ashadh, 2074
1. Opening stock............................................................................................. 60,000 –
2. Purchases................................................................................................... 1,20,000 –
3. Sundry debtors........................................................................................... 55,000 –
4. Capital........................................................................................................ – 1,70,000
5. Cash balance.............................................................................................. 45,000 –
6. Loan from bank........................................................................................... – 8,000
7. Sales........................................................................................................... – 1,00,000
8. Repairs and maintenance........................................................................... 6,800 –
9. Drawing...................................................................................................... 2,500 –
10. Sales return................................................................................................ 1,800 –
11. Purchase return.......................................................................................... – 2,500
12. Sundry creditors......................................................................................... – 27,600
13. General reserve.......................................................................................... – 15,000
14. Salaries and wages.................................................................................... 12,500 –
15. Interest received......................................................................................... – 4,500
16. Furniture..................................................................................................... 24,000 –
Total............................................................................................................ 3,27,600 3,27,600
Ill-4 From the following balances of ledger accounts, draw a trial balance and
open suspense account, if needed:
Building..................................................... Rs. 1,90,000 Capital.................................................... Rs. 2,00,000

Advance income....................................... 14,000 Loan to Kreeti......................................... 30,000
Sales......................................................... 80,000 Bank overdraft........................................ 10,000
Purchase.................................................. 75,000 Cash in hand.......................................... 17,000
Commission paid...................................... 9,000 Closing stock.......................................... 12,000
Solution:
Trial Balance
As on …….
1. Building..................................................................................................... 1,90,000 –
2. Advance income....................................................................................... – 14,000
3. Sales......................................................................................................... – 80,000
4. Purchase.................................................................................................. 75,000 –
5. Commission paid...................................................................................... 9,000 –
6. Capital...................................................................................................... – 2,00,000
7. Loan to Kreeti........................................................................................... 30,000 –
8. Bank overdraft.......................................................................................... – 10,000
9. Cash in hand............................................................................................ 17,000 –
10. Closing stock............................................................................................ 12,000 –
11. Suspense account(Balancing figure)........................................................ – 29,000
Total.......................................................................................................... 3,33,000 3,33,000
Trial Balance 111

ACCOUNTING ERRORS

A number of errors may take place in the process of recording and posting the financial
transactions in the books of account. Such errors may be committed by the accounting
staff knowingly or unknowingly. Thus, errors may take place due to lack of proper
accounting knowledge or carelessness. Sometimes, the errors may take place due
to bad intention of the staff and frauds in expectation of receiving undue benefit.
Whatever the reason and mistake, all types of errors are called accounting errors.
Some errors affect the agreement of trial balance whereas some errors do not affect
the agreement of a trial balance. It means in spite of agreement of trial balance, there
may be some errors in the books of account. All types of accounting errors should be
located and rectified on time.
Accounting errors are the errors committed in recording, posting or summarizing

the transactions due to lack of accounting knowledge or carelessness or bad
intention of the staffs.
Types of accounting errors

Accounting errors can be classified under different bases. On the basis of disclosure
by trial balance, it may be classified as follows:
Figure: 5.1 Types of accounting errors
Accounting errors
Errors disclosed by Errors not disclosed

the trial balance by the trial balance
Errors disclosed by the trial balance

The accounting errors which cause the disagreement of the trial balance are known as
the errors disclosed by the trial balance. Following are the errors which are disclosed by
the trial balance:
a. Posting of amount in wrong side of an account
While posting the amount on ledger account, it should be posted on right side of
an account. If amount is posted on wrong side, it causes the disagreement in the

trial balance. For example, if goods purchased from Sneha on credit Rs. 10,000 is
wrongly posted on debit side of Sneha’s account instead of credit side, it makes
Sneha’s account excess by Rs. 20,000 and thus affects the total of the trial balance.
b. Posting of wrong amount in one side of an account

While posting the transactions from primary
books to ledger account, if wrong amount
is posted in one side of an account, the trial
M
emory ips T
 Posting of amount in wrong side of an
balance does not agree. For example, if salary account
paid to Nisha Rs. 10,000 is wrongly debited to  Posting of wrong amount in one side of
an account
salary account as Rs. 1,000 but credited to cash  Omission of posting in one side of an
account correctly by Rs. 10,000. Then, salary account
account remains less by Rs. 9,000 in debit side.  Wrong totalling or balancing of ledger
account
This type of error causes the disagreement in  Double posting in one account
a trial balance.  Posting on wrong side of a trial balance
 Omission of transferring ledger
c. Omission of posting in one side of an  balance in the trial balance
account  Wrong totalling of subsidiary book
Sometimes, the transaction may be posted
in one account and wrongly omitted in another account. In such case, only one
aspect of transaction is considered and thus a trial balance will not be equal.
For example, if cash received as interest Rs. 5,000 is debited to cash account but
omitted to post on the credit side of interest account, it will have less amount
in credit side of interest account by Rs. 5,000. As a result, a trial balance is also
affected by Rs. 5,000 being less in credit side.
d. Wrong totalling or balancing of ledger account
While making the total of any ledger account, it should be done correctly. Similarly,
the balance of any account should also be determined accurately. If any account is
wrongly totalled or balanced, it would cause the disagreement in the trial balance.
For example, if the totals of cash account Rs. 94,500 is wrongly written as Rs. 95,400,
It causes a wrong balance in account by Rs. 900 more. As a result, the trial balance
shows the difference amount on the debit and the credit side.
e. Double posting in one account
Sometimes, the posting may be done twice on the debit or credit side of any
ledger account. It affects the total of the trial balance and cause more amount in
account where the double posting is made. For example, salary paid Rs. 3,000 is
posted twice on the debit side of salary account but correctly posted on the credit
side of cash account. It causes the disagreement of trial balance.
f. Posting on wrong side of a trial balance
Sometimes, balance of any ledger account may be transferred on the wrong side
of the trial balance. It makes the trial balance unequal. For example, if the debit
Trial Balance 113
balance of purchase account is transferred on the credit side or the credit balance
of sales account is transferred on the debit side of the trial balance. In both or any
of the situations, the trial balance does not tally.
g. Omission of transferring ledger balance in the trial balance

Sometimes, any ledger balance may be forgotten to transfer in the trial balance. It
causes the disagreement in it. For example, if rent account having debit balance
Rs. 6,000 is omitted to transfer in the trial balance, it will have difference equal
to that amount.
h. Wrong totalling of subsidiary book
Sometimes, the subsidiary book may be wrongly totalled by more or less amount.
It affects the concerned ledger account and makes disagreement. For example,
if purchase book is wrongly totalled as Rs. 54,000 instead of Rs. 45,000, then the
purchase account will be higher by Rs. 9,000 on the debit side and affects the total
of trial balance.
Errors not disclosed by the trial balance

The agreement of trial balance is not a conclusive proof of accuracy of books of
account. Because there are some errors which do not affect the agreement of the trial
balance. Following are some errors which are not disclosed by a trial balance:
a. Errors of complete omission
When any transaction is not recorded at all
in the primary books or not posted in the M emory ipsT
ledger account, it is called error of complete  Errors of complete omission
 Errors of commission
omission. Such error completely ignores the  Errors of principle
dual aspects i.e. debit and credit in journals  Compensating errors
and ledger accounts. As a result, a trial  Errors of double posting
balance is affected by the equal amount and
causes agreement. For example, purchase of goods is not recorded in journal
and thus not posted into ledger accounts. Due to this error, neither the purchase
account is debited nor the cash account is credited. It affects the trial balance with
equal amount and causes agreement. Thus, such an error is not disclosed by a
trial balance.
The accounting error which occurs due to not recording of transaction in primary
books i.e. journal or subsidiary book is called error of complete omission.
b. Errors of commission
When any transaction is recorded but wrongly entered in the primary books or
in the ledger account, it is called errors of commission. Such errors occur when
wrong amount is recorded in journal or wrongly posted in both sides of the

ledger account. For example, if the purchase of goods from Ranjita Rs. 10,000 is
journalized by Rs. 1,000 and posted accordingly in both the purchase account
and Ranjita’s account. In this case, both sides are affected by equal amount so that
the trial balance remains agreed.
The accounting error which occurs due to wrong recording of the transaction
either by wrong amount or in wrong account is called error of commission.
c. Errors of principle
The errors which are committed by an accountant due to lack of proper knowledge
on application of accounting principles are called errors of principle. Such errors
may take place when the fundamental principles of accounting are violated by the
accounting staff. Such errors also occur due to wrong allocation of expenditures
between capital and revenue. For example, if the purchase of machinery is debited to
purchase account instead of machinery account, if sale of furniture is credited to sales
account instead of furniture account etc. Similarly, if payment of salary is debited to
personal account and receipt of income is credited to personal account instead of
nominal head etc. Such errors also do not affect the agreement of trial balance.
The accounting error which occurs due to violation of accounting principles for
recording the transaction is called error of principle.
d. Compensating errors
When the error committed previously is compensated or neutralised by another
error committed later on, it is called compensating error. In such error, the first
error is cancelled by the second error with equal amount. Compensating errors
do not affect the agreement of the trial balance. For example, cash paid to Manju
Rs. 3,000 is debited to her account by Rs. 300, and again cash paid to Minu Rs.
300 is debited to her account by Rs. 3,000. Though there are errors in both the
transactions, the first error of posting less amount Rs. 2,700 was compensated by
the posting of more amount i.e. Rs. 2,700 in the second error. Thus, the effect of
error is zero. Similarly, if commission allowed Rs. 1,500 is recorded as Rs.3,500
and again discount received Rs. 2,500 is recorded as Rs. 4,500 such errors do not
affect the agreement of trial balance.
The accounting errors on which one effect is cancelled or neutralised by another

effect is called compensating error.
e. Errors of double posting
When any transaction is recorded or posted twice in primary books or ledger
account, it is known as error of double posting. It affects the both sides of the
trial balance with equal amount and thus does not affect the agreement of it. For
example, purchase of goods from Sony for Rs. 5,000 is posted twice in purchase
Trial Balance 115
book or ledger account. It causes the trial balance equal as the affect will be equal
in both the sides.
The accounting error which occurs due to recording the transaction twice in
books of account is called error of double posting.
REVIEW ILLUSTRATIONS
Ill-5 The following are the business transactions of Shree Ganesh Enterprises
for the month of January 2018:
January 1 Business started with cash Rs. 6,40,000
January 3 Opened a bank account with cash Rs. 5,00,000
January 7 Purchased goods for cash Rs. 45,000
January 13 Sold goods for Rs. 35,000
January 19 Bought goods from Ajay Rs. 75,000
January 25 Paid wages in cash Rs. 15,000
January 27 Paid salary by cheque Rs. 50,000
January 28 Sold goods to Abha on credit for Rs. 50,000
January 30 Cash deposited into bank Rs. 25,000
January 31 Bought a computer for Rs. 30,000 and paid by cheque.
Required:
a) Journal entries
b) Ledger accounts
c) Trial balance as on 31st January, 2018
Solution:
a)
Journal Entries
Date Particulars L.F. Debit Rs. Credit Rs.
January 1 Cash a/c........................................................................................ Dr. 6,40,000
To Capital a/c 6,40,000
(Being business started with cash)
January 3 Bank a/c......................................................................................... Dr. 5,00,000
To Cash a/c 5,00,000
(Being a bank account opened)
January 7 Purchase a/c.................................................................................. Dr. 45,000
To Cash a/c 45,000
(Being goods purchased for cash)
January 13 Cash a/c ...................................................................................... Dr. 35,000
To Sales a/c 35,000
(Being goods sold for cash)

January 19 Purchase a/c.................................................................................. Dr. 75,000
To Ajay’s a/c 75,000
(Being goods purchased from Ajaya)
January 25 Wages a/c .................................................................................... Dr. 15,000

To Cash a/c 15,000
(Being wages paid)
January 27 Salary a/c ..................................................................................... Dr. 50,000

To Bank a/c 50,000
(Being salary paid by cheque)
January 28 Abha a/c ...................................................................................... Dr. 50,000

To Sales a/c 50,000
(Being goods sold to Abha)
January 30 Bank a/c ....................................................................................... Dr. 25,000

To Cash a/c 25,000
(Being cash deposited into bank)
January 31 Computer a/c ............................................................................... Dr. 30,000

To Bank a/c 30,000
(Being computer bought and paid through cheque)
b) Ledger accounts
Dr. Capital Account Cr.
Jan. 31 To Balance c/d................ 6,40,000 Jan. 1 By Cash a/c........................ 6,40,000
6,40,000 6,40,000
Feb. 1 By Balance b/d................... 6,40,000
Dr. Cash Account Cr.

Jan. 1 To Capital a/c.............. 6,40,000 Jan. 3 By Bank a/c......................... 5,00,000
Jan. 13 To Sales a/c................ 35,000 Jan. 7 By Purchase a/c.................. 45,000
Jan. By Wages a/c...................... 15,000
25 By Bank a/c......................... 25,000
Jan. By Balance c/d..................... 90,000
6,75,000 30 6,75,000
Jan 31
Feb. 1 To Balance b/d............ 90,000
Dr. Bank Account Cr.

Jan. 3 To Cash a/c................... 5,00,000 Jan. 27 By Salary a/c...................... 50,000
Jan. 30 To Cash a/c................... 25,000 Jan. 31 By Computer a/c................. 30,000
Jan. 31 By Balance c/d.................... 4,45,000
5,25,000 5,25,000
Feb. 1 To Balance b/d.............. 4,45,000
Trial Balance 117

Dr. Purchase Account Cr.
Jan. 7 To Cash a/c................... 45,000 Jan. 31 By Balance c/d..................... 1,20,000
Jan. 19 To Ajay’s a/c.................. 75,000
1,20,000 1,20,000
Feb. 1 To Balance b/d.............. 1,20,000
Dr. Sales Account Cr.
Jan. 31 To Balance c/d................ 85,000 Jan. 13 By Cash a/c...................... 35,000
Jan. 28 By Abha a/c...................... 50,000
85,000 85,000
Feb. 1 By Balance b/d................. 85,000
Dr. Ajay’s Account Cr.
Jan. 31 To Balance c/d................ 75,000 Jan. 19 By Purchase a/c................ 75,000
75,000 75,000
Feb. 1 By Balance b/d.................. 75,000
Dr. Wages Account Cr.
Jan. 25 To Cash a/c ................... 15,000 Jan. 31 By Balance c/d.................... 15,000
15,000 15,000
15,000
Feb. 1 To Balance b/d ..............
Dr. Salary Account Cr.

Jan. 27 To Bank a/c.............. 50,000 Jan. 31 By Balance c/d.................... 50,000
50,000 50,000
Feb. 1 To Balance b/d......... 50,000
Dr. Abha Account Cr.

Jan. 28 To Sales a/c........... 50,000 Jan. 31 By Balance c/d.................... 50,000
50,000 50,000
Feb. 1 To Balance b/d....... 50,000
Dr. Computer Account Cr.

Jan. 31 To Bank a/c........... 30,000 Jan. 31 By Balance c/d................... 30,000
30,000 30,000
Feb. 1 To Balance b/d...... 30,000

(c)
Trial Balance
As on 31st January, 2018
Credit
S. No. Particulars L.F. Debit Rs. Rs.
1. Capital a/c........................................................................................................ 6,40,000
2. Cash a/c.......................................................................................................... 90,000
3. Purchase a/c.................................................................................................... 1,20,000
4. Bank a/c........................................................................................................... 4,45,000
5. Sales a/c.......................................................................................................... 85,000
6. Ajay’s a/c......................................................................................................... 75,000
7. Wages a/c........................................................................................................ 15,000
8. Salary a/c......................................................................................................... 50,000
9. Abha’s a/c........................................................................................................ 50,000
10. Computer a/c................................................................................................... 30,000
Total................................................................................................................. 8,00,000 8,00,000
Ill-6 The following ledger balances are extracted from the books of Binayak
Traders for the year ending 31st December, 2017:
Cash................................................... Rs. 10,000 Purchases................................... Rs. 4,50,000
Sundry debtors................................... 2,80,000 Salary......................................... 55,000
Sundry creditors................................. 1,45,000 Office expenses.......................... 35,000
Land and building............................... 4,38,000 Advertisement............................. 57,000
Capital................................................ 6,00,000 Sales return................................ 10,000
Furniture and fixtures.......................... 2,50,000 Purchase return.......................... 5,000
Commission received ........................ 15,000 Carriage inward.......................... 40,000
Sales................................................... 8,90,000 Commission paid........................ 30,000
Required Trial balance
Solution:
Trial Balance of Binayak Traders
As on 31st December, 2017
1. Cash 10,000
2. Sundry debtors ......................................................................................... 2,80,000
3. Sundry creditors ....................................................................................... 1,45,000
4. Land and building ..................................................................................... 4,38,000
5. Capital ...................................................................................................... 6,00,000
6. Furniture and fixtures ............................................................................... 2,50,000
7. Commission received ............................................................................... 15,000
8. Sales ........................................................................................................ 8,90,000
9. Purchases ................................................................................................ 4,50,000
Trial Balance 119

10. Salary ....................................................................................................... 55,000
11. Office expenses ....................................................................................... 35,000
12. Advertisement .......................................................................................... 57,000
13. Sales return .............................................................................................. 10,000
14. Purchase return ........................................................................................ 5,000
15. Carriage inward ........................................................................................ 40,000
16. Commission paid ...................................................................................... 30,000
Total .......................................................................................................... 16,55, 000 16,55,000
Ill-7 Prepare a trial balance from the given ledger balances of Durga Company
as on 31st Ashadh, 2074:
Opening stock........................................... Rs. 10,000 Accounts payable............................... Rs.70,000

Wages...................................................... 60,000 Rent, rates and taxes......................... 14,000
Purchases................................................. 2,00,000 Plant and machinery........................... 95,000
Sales......................................................... 5,00,000 Vehicles.............................................. 1,25,000
Capital...................................................... 2,00,000 Loan................................................... 60,000
Drawings................................................... 5,000 Import duty.......................................... 30,000
Carriage outward...................................... 10,000 Factory expenses............................... 35,000
Bank balance............................................ 59,000 Interest paid........................................ 12,000
Investment................................................ 1,00,000 General reserve.................................. 4,000
Accounts receivable................................. 90,000 Interest on investment........................ 11,000
Solution:
Trial Balance of Durga Company
1. Opening stock.................................................................................................. 10,000
2. Wages............................................................................................................. 60,000
3. Purchases........................................................................................................ 2,00,000
4. Sales................................................................................................................ 5,00,000
5. Capital............................................................................................................. 2,00,000
6. Drawing........................................................................................................... 5,000
7. Carriage outward............................................................................................. 10,000
8. Bank balance................................................................................................... 59,000
9. Investment....................................................................................................... 1,00,000
10. Accounts receivable........................................................................................ 90,000
11. Accounts payable............................................................................................ 70,000
12. Rent, rates and taxes...................................................................................... 14,000
13. Plant and machinery........................................................................................ 95,000
14. Vehicles........................................................................................................... 1,25,000
15. Loan................................................................................................................ 60,000
16. Import duty....................................................................................................... 30,000

17. Factory expenses............................................................................................ 35,000
18. Interest paid..................................................................................................... 12,000
19. General reserve.............................................................................................. 4,000
20. Interest on investment..................................................................................... 11,000
Total ............................................................................................................... 8,45,000 8,45,000
Ill-8 Prepare a trial balance from the given ledger balances of John Traders on
31st Chaitra, 2074:
Bills receivable............................................ Rs. 25,000 Bad debts........................................... Rs. 6,000

Goodwill...................................................... 1,00,000 Capital ............................................... 2,95,000
Copyright.................................................... 50,000 Bills payable....................................... 30,000
Insurance premium..................................... 5,000 Bank overdraft.................................... 42,000
Office expenses.......................................... 37,000 Outstanding expenses........................ 7,000
Communication charge............................... 13,000 Bad debts recovered.......................... 3,000
Depreciation............................................... 10,000 Sales................................................... 4,00,000
Business premises..................................... 3,00,000 Purchases........................................... 2,10,000
Legal expenses.......................................... 15,000 Discount received............................... 8,000
Bank charge............................................... 2,000 Discount allowed................................ 12,000
Solution:
Trial Balance of John Traders
1. Bills receivable................................................................................................. 25,000
2. Goodwill........................................................................................................... 1,00,000
3. Copyright......................................................................................................... 50,000
4. Insurance premium.......................................................................................... 5,000
5. Office expenses............................................................................................... 37,000
6. Communication charges.................................................................................. 13,000
7. Depreciation.................................................................................................... 10,000
8. Business premises.......................................................................................... 3,00,000
9. Legal expenses............................................................................................... 15,000
10. Bank charges................................................................................................... 2,000
11. Bad debts........................................................................................................ 6,000
12. Bills payable.................................................................................................... 30,000
13. Capital............................................................................................................. 2,95,000
14. Bank overdraft................................................................................................. 42,000
15. Outstanding expenses..................................................................................... 7,000
16. Bad debts recovered....................................................................................... 3,000
17. Sales ............................................................................................................... 4,00,000
18. Purchases........................................................................................................ 2,10,000
19. Discount received............................................................................................ 8,000
20. Discount allowed............................................................................................ 12,000
Total ........................................................................................................... 7,85,000 7,85,000
Trial Balance 121

Ill-9 Prepare a trial balance from the given ledger balances of Himalayan
Trade Centre as on 30th June, 2017. Open suspense account, if needed:
Patent right ................................................ Rs. 60,000 Capital.................................................... Rs. 2,25,000

Export duty................................................. 20,000 Reserve fund.......................................... 38,000
Administrative expenses............................. 30,000 Prepaid expenses................................... 5,000
Printing and stationery................................ 10,000 Provision for bad debts........................... 2,000
Repair and maintenance............................ 15,000 Rent received......................................... 14,000
Entertainment expenses............................. 25,000 Sales of scrap......................................... 1,000
Purchases................................................... 2,50,000 Loss on sale of assets............................ 9,000
General expenses...................................... 8,000 Accrued income...................................... 11,000
Sales.......................................................... 4,00,000 Other assets........................................... 2,00,000
Solution:
Trial Balance of Himalayan Trade Centre
As on 30th June 2017
1. Patent right...................................................................................................... 60,000
2. Export duty...................................................................................................... 20,000
3. Administrative expenses.................................................................................. 30,000
4. Printing and stationery..................................................................................... 10,000
5. Repair and maintenance................................................................................. 15,000
6. Entertainment expenses.................................................................................. 25,000
7. Purchases........................................................................................................ 2,50,000
8. General expenses........................................................................................... 8,000
9. Sales................................................................................................................ 4,00,000
10. Capital............................................................................................................. 2,25,000
11. Reserve fund................................................................................................... 38,000
12. Prepaid expenses............................................................................................ 5,000
13. Provision for bad debts.................................................................................... 2,000
14. Rent received.................................................................................................. 14,000
15. Sale of scrap.................................................................................................... 1,000
16. Loss on sale of assets..................................................................................... 9,000
17. Accrued income............................................................................................... 11,000
18. Other assets.................................................................................................... 2,00,000
19. Suspense account (Balancing figure).............................................................. 37,000
Total ........................................................................................................... 6,80,000 6,80,000

Key
Terms
Accounting errors – errors committed unintentionally due lack of
accounting knowledge or principles.
Adjustment and closing – artificial process of equalising and closing
the trial balance.
Compensating error – error in which one error neutrilize the effect of
another in the books of account.
Disagreement of trial balance – difference in debit and credit side of trial balance
due to some accounting errors in recording and
posting.
Error of commission – error which occurs due to wrong recording of
the transaction either by wrong amount
or in wrong account.
Error of omission – error which occurs due to absolute leaving of
recording the transaction in the books.
Error of principle – error which occurs due to violation of
accounting principles or prevalent provisions of
law.
Final accounts – summarized financial statements prepared to
determine the operating results and
true financial condition of the business.
Frauds – errors committed intentionally to
take undue benefit.

1. What is a trial balance?
2. Write any two items which are placed in debit column of the trial balance.
3. Write any two items which are placed in credit column of the trial balance.
4. What is meant by error of commission?
5. Give the meaning of compensating error.
6. What do you mean by error of omission?
7. Why is suspense account opened?
8. Write any two errors that are not revealed by a trial balance.
Trial Balance 123

9. Give any two examples due to which the trial balance disagrees.
10. Give the meaning of error of principle.

1. What is a trial balance? Mention the objectives of preparing it.
2. Show the specimen of a trial balance and mention the information to be
written in it.
3. What are the advantages of preparing a trial balance? State them.
4. Mention the procedures for preparing a trial balance.
5. What is meant by adjustment and closing in the trial balance? Explain its
procedures.
1. What do you mean by accounting errors? Explain in brief the errors which are
disclosed by a trial balance.
2. Describe with example about the errors which are not revealed by a trial balance.
3. “Agreement of a trial balance is not a conclusive proof for the arithmetical
accuracy of the books of account.” Support this statement with any five arguments.
PRACTICAL PROBLEMS(PP)
PP-1 Following transactions are given to you:
January 2 Ganesh started business with cash Rs. 3,00,000

January 5 Purchased goods in cash Rs. 40,000
January 10 Sold goods for Rs. 25,000
January 14 Cash deposited into bank Rs. 2,00,000
January 20 Purchased goods from Yogesh for Rs. 60,000
January 26 Paid rent by cheque Rs. 10,000
Required:
a) Journal entries
b) Necessary ledger accounts
c) Trial balance as on 31st January
Ans: b) Balance: Capital account Rs. 3,00,000, Cash account Rs. 85,000, Purchase account Rs. 1,00,000, Sales
account Rs. 25,000, Bank account Rs. 1,90,000, Yogesh account Rs. 60,000, Rent account Rs. 10,000 c) Total
Rs.3,85,000

PP-2 The following are the transactions of Manakamana traders for the month
of Shrawan 2074:
Shrawan 1 Commenced business with bank balance Rs.4,00,000.

Shrawan 2 Bought goods for Rs. 50,000 from John.
Shrawan 9 Paid wages by cheque Rs. 20,000.
Shrawan 17 Sold goods in cash Rs. 45,000.
Shrawan 25 Withdrawn cash Rs. 40,000 from bank for office use.
Shrawan 28 Purchased goods for cash Rs. 30,000.
Required:
a) Journal entries
b) Necessary ledger accounts
c) Trial balance as on 30th Shrawan 2074
Ans: b) Balance: Capital account Rs. 4,00,000, Purchase account Rs. 80,000, John account Rs. 50,000, Wages
account Rs. 20,000, Bank account Rs. 3,40,000, Sales account Rs. 45,000, Cash account Rs. 55,000, c) Total Rs.
4,95,000
PP-3 The following ledger balances are extracted from the books of Everest
Enterprises as on 31st Chaitra, 2074:
Capital........................................................ Rs. 1,75,000 Sundry debtors................................... Rs. 95,000
Purchases................................................... 2,15,000 Sundry creditors................................. 80,000
Sales........................................................... 4,70,000 Machinery........................................... 1,39,000
Sales return................................................ 10,000 Cash in hand...................................... 8,000
Purchase return.......................................... 15,000 Land and building............................... 2,60,000
Salary......................................................... 40,000 Cash at bank...................................... 23,000
Rent............................................................ 50,000 Bank loan............................................ 1,00,000
Required: Trial balance as on 31st Chaitra, 2074

Ans: Total Rs. 8,40,000
PP-4 The following list of balances has been extracted from the books of Aabha
as on 31st December 2017:
Purchases................................................... Rs.1,80,000 Rent and rates........................................ Rs. 45,000
Sales........................................................... 4,13,000 Office expenses...................................... 38,000
Capital........................................................ 3,00,000 Creditors................................................. 70,000
Purchase return.......................................... 5,000 Bank loan................................................ 60,000
Sales return................................................ 3,000 Cash at bank.......................................... 82,000
Plant and machinery................................... 2,95,000 Commission allowed............................... 20,000
Computer and equipment .......................... 1,10,000 Debtors................................................. 75,000
Required: Trial balance as on 31st December, 2017 Ans: Total Rs. 8,48,000
Trial Balance 125

PP-5 Prepare a trial balance from the given ledger balances on 31st Ashadh 2017:
Opening stock............................................. Rs. 25,000 Investment........................................... Rs. 99,000
Sales........................................................... 4,00,000 Cash and bank balance.Administrative 78,000
Purchases................................................... 1,90,000 expenses............................................. 40,000
Wages........................................................ 30,000 Loan from friends................................. 50,000
Office equipment........................................ 90,000 Advertisement ..................................... 35,000
Accounts receivable................................... 1,85,000 Capital................................................. 2,60,000
Accounts payable....................................... 80,000 Carriage............................................. 18,000
PP-6 The following ledger balances of Nepal Trade Centre are provided to you:
Commission allowed................................... Rs. 10,000 Accounts receivable ........................... Rs. 40,000
Discount received....................................... 8,000 Interest on loan.................................... 6,000
Capital........................................................ 1,00,000 Accounts payable................................ 49,000
Loan........................................................... 56,000 Vehicles............................................... 1,45,000
Wages........................................................ 30,000 Loose tools.......................................... 11,000
Freight........................................................ 15,000 Opening stock...................................... 19,000
Custom duty............................................... 13,000 Purchases............................................ 1,80,000
Bills receivable............................................ 29,000 Sales.................................................. 2,85,000
Required: Trial balance Ans: Total Rs. 4,98,000
PP-7 The following ledger balances are extracted from the books of Sujan Trade
Concern as on 31st December, 2017:
Opening inventory...................................... Rs. 26,000 Carriage outward................................ Rs. 17,000
Capital........................................................ 2,25,000 Sales................................................... 5,00,000
Drawing...................................................... 5,000 Purchases........................................... 3,00,000
Commission received................................. 10,000 Insurance premium............................. 19,000
Discount allowed........................................ 13,000 Bills payable....................................... 24,000
Miscellaneous Income................................ 6,000 Legal expenses.................................. 15,000
Goodwill...................................................... 50,000 Bank overdraft.................................... 40,000
Business premises..................................... 3,40,000 Printing and stationery........................ 20,000
Required: Trial balance as on 31st December 2017 Ans: Total Rs. 8,05,000
PP-8 The following are the ledger accounts balances taken from the books of
Durga Trade Concern on 30th June, 2016:
Bank balance.............................................. Rs. 61,000 Rent, rates and taxes.......................... Rs. 51,000
Trade mark................................................. 1,00,000 Sales.................................................... 2,95,000
Prepaid expenses....................................... 10,000 Telephone charges.............................. 18,000
Outstanding expenses................................ 20,000 Repair and maintenance..................... 22,000
Loan given.................................................. 50,000 Business premises.............................. 1,41,000
Purchases................................................... 1,00,000 Bank charges....................................... 4,000
Import duty.................................................. 25,000 Capital................................................. 3,10,000
Wages and salary....................................... 30,000 Drawing............................................. 13,000
Required: Trial balance Ans: Total Rs. 6,25,000

PP-9 The following ledger balances as on 31st Chaitra 2074 are available:
Capital........................................................ Rs. 3,10,000 Purchases ......................................... Rs. 2,13,000
Bad debts................................................... 5,000 General reserve................................... 23,000
Advertisement............................................. 1,60,000 Entertainment expenses...................... 19,000
Bad debt recovered.................................... 3,000 Bank overdraft..................................... 30,000
Furniture..................................................... 3,26,000 Prepaid expenses................................ 8,000
Outstanding expenses................................ 10,000 Advance income.................................. 16,000
Sales........................................................... 4,00,000 Repair and maintenance..................... 22,000
Depreciation............................................... 20,000 Sundry expenses............................... 19,000
Required: Trial balance

PP-10 The following ledger balances are extracted from the book of Mamata
Company as on 31st Ashadh, 2074:
Leasehold property..................................... Rs. 1,20,000 Goodwill ............................................. Rs. 25,000
Accounts receivable................................... 20,000 Import duty.......................................... 10,000
Entertainment expenses ............................ 5,000 Capital................................................ 1,50,000
Drawings..................................................... 4,000 Reserve fund...................................... 20,000
Advance service income............................. 48,000 Accrued interest on investment ......... 6,000
Bank overdraft............................................ 12,000 Investment.......................................... 40,000
Carriage outward........................................ 9,000 Royalty ............................................... 11,000
Accounts payable....................................... 17,000 Rent received..................................... 3,000
Required : Trial balance

PP-11 The following balances of ledger accounts are extracted from the books of
a trader as on 31st December 2017:
Salary and wages....................................... Rs. 60,000 Printing expenses................................ Rs. 44,000
Capital........................................................ 3,00,000 Plant and machinery............................ 3,64,000
Purchases................................................... 2,00,000 Discount allowed................................. 26,000
Sales........................................................... 5,00,000 Prepaid printing expenses................... 7,000
Accrued income.......................................... 15,000 Bad debts............................................ 4,000
Provision for bad debts............................... 5,000 Bills receivable..................................... 90,000
Outstanding salary...................................... 13,000 Beginning inventory............................. 50,000
Unearned income.................................. 2,000 Bills payable........................................ 40,000
Required: Trial balance as on 31st December, 2017
Trial Balance 127

PP-12 The following are the business transactions of John Enterprises for the
month of Chaitra 2074:
Opening stock............................................. Rs. 40,000 General expenses............................... Rs. 58,000
Bank balance.............................................. 34,000 Investment........................................... 1,00,000
Accrued commission.................................. 5,000 Sales.................................................... 4,25,000
Unearned commission................................ 10,000 Interest received.................................. 13,000
Capital........................................................ 3,50,000 Creditors.............................................. 59,000
Loan from Prime Bank................................ 1,00,000 Debtors................................................ 78,000
Purchases................................................... 2,00,000 Land and building................................ 3,50,000
Carriage inward.......................................... 50,000 Depreciation...................................... 14,000
Required: Trial balance as on 31st Chaitra, 2074, open suspense account if needed.
Ans: Total Rs. 9,57,000, Suspense account Rs. 28,000
PP-13 Prepare a trial balance of Sunflower Trading Concern, Balaju as on 31st

Chaitra 2074, from the following ledger balances:
Stock on 1st Baishakh................................ Rs.60,000 Suppliers.............................................. Rs. 12,000
Capital........................................................ 2,70,000 Bad debts............................................ 8,000
Motor car.................................................... 2,00,000 Repairs and maintenance.................... 14,000
Purchases................................................... 2,30,000 Bankers............................................... 24,000
Sales revenue............................................. 2,50,000 Hari a/c (Dr)......................................... 30,000
Carriage outward........................................ 10,000 General reserve................................... 40,000
Customers.................................................. 75,000 Advance income................................ 4,000
Ans: Total Rs. 6,27,000, Suspense account` (Cr.) Rs. 27,000


6 FINAL ACCOUNTS
Chapter
Learning Objectives
be able to :
 define final accounts and mention their
objectives,
 define trading account and state its
objectives,
 define profit and loss account and state
its objectives,
 calculate the gross profit or gross loss of
the business firm by preparing a trading
account,
 calculate the net profit or net loss of the
business firm by preparing a profit and
loss account,
 define balance sheet and state its
advantages to the firm,
 prepare a balance sheet from the items of
assets and liabilities.
Introduction
Every business firm would like to know its profit or loss and financial position at the end of accounting
period. In order to know the gross profit or gross loss and net profit or net loss, it has to prepare the
trading account and profit and loss account respectively. At the particular date, the balance sheet is
prepared to know the true financial position of the business firm. The combined form of trading account,
profit and loss account and balance sheet is known as final accounts. Thus, final accounts refer to the
combination of trading account, profit and loss account and balance sheet which are prepared at the end
of year to know the profit or loss and true financial position. The preparation of final account is the last
step of accounting process. The trading account and profit and loss account show the operating results
of business by recording trading and operating activities of the firm respectively. On the other hand,
balance sheet provides information relating to capital, assets and liabilities of the business firm at the
end of accounting period.
Final Accounts 129
Final account is the final step of accounting process. It is the combined form of trading,
profit and loss account and balance sheet of the business firm. Trading account is
prepared to calculate the amount of gross profit or gross loss of a firm during a period.
Profit and loss account determines the net operating results of the firm at the end of
accounting period. Balance sheet is the statement of financial position relating to the
business firm. It discloses the position of assets, liabilities and capital of the firm at
the particular date. Thus, final accounts include trading, profit and loss account and
balance sheet. Trading and profit and loss account is colletively known as income
statement.
Some of the popular definitions of final accounts are given below:
“Final account is the account which is prepared at the end of a given year period to see the profit and
loss position as well as the financial position of a going concern for the period given.” S. Mukharjee
“Final accounts are the means of communication of the financial position and performance of a business
enterprise to its various user groups.” Ghos, Banerjee and Bansal
Final accounts are the statements prepared at the end of accounting period to
determine the operating result and financial condition of the business firm at
the particular date.
Objectives of final accounts

The major objectives of final accounts are given below:
 To determine the trading and operating results of the business firm during the
period.
 To ascertain the true financial position of the business i.e. capital, assets and
liabilities at the particular date.
 To maintain the effective control over financial resources of the business firm.
 To facilitate for formulation of various business plans and policies.
 To communicate the business results and performance to the various users of
the firm.
 To prepare the accounting summary of financial transactions relating to the
business firm.
 Final account is the final step of accounting process which is prepared at the end of accounting period.
 It is prepared to know the profit or loss and financial position of the business firm at the particular date.
 It comprises the trading account, profit and loss account and balance sheet.

Preparation of final accounts
The parts and preparation of final accounts of a business firm is explained below:
a) Trading account
b) Profit and loss account
c) Balance sheet
Trading account
Trading account is the first step of final account. It is prepared by the business firm to
determine the gross profit or gross loss at the end of accounting period. It shows all the
direct expenses relating to purchase and manufacture of the finished goods in debit
side and direct income relating to sales and closing stock to the credit side . Thus, the
business firm at the end of accounting period needs to know its gross profit or loss
resulted from the business operation by preparing a trading account. If the credit side
is higher than debit side, it is termed as gross profit and if the debit side is higher than
credit, the result is termed as gross loss.
Trading account is an account prepared at the end of accounting period to

determine the gross profit or gross loss of the business firm at the particular
date.
Advantages of trading account

The trading account has the following advantages:
 It provides information about the gross profit or gross loss of the business firm
during a period.
 It helps to know about the purchase and sales of the firm during a year.
 It helps to measure the operating efficiency of the business firm.
 It helps to calculate the ratio between direct expenses and gross profit.
 It helps to know about total direct expenses and direct incomes of the firm
during the year.
 It helps to calculate the ratio between gross profit and net sales of the firm.
 It helps to perform the comparative study of income and expenditure during
the period.
 It facilitates the preparation of profit and loss account.
 Direct expenses refer to the expenses related to purchase of materials and other manufacturing costs.
 Direct income means the amount of sales revenue and closing stock of the business.
Final Accounts 131

Specimen of trading account
The specimen of trading account is as follows:
Trading Account of ...................
Dr. For the year ending ……………. Cr.
Particulars Amount Particulars Amount
To Opening stock.............................................. ××× By Sales ................................................... ×××
To Purchase............................................... ××× Less: Sales return ..................................... ××× ×××
Less: Purchase return............................... ××× ××× By Closing stock .............................................. ×××
To Carriage inward........................................... ××× By Gross loss c/d (if any)................................. ×××
To Freight inward.............................................. ×××
To Custom / Import duty................................... ×××
To Octroi charge .............................................. ×××
To Manufacturing wages................................... ×××
To Royalty......................................................... ×××
To Dock charges............................................... ×××
To Clearing charges.......................................... ×××
To Factory rent and insurance.......................... ×××
To Factory heating and lighting......................... ×××
To Coal and coal............................................... ×××
To Fuel, gas and water..................................... ×××
To Excise duty.................................................. ×××
To Store consumed........................................... ×××
To Motive power............................................... ×××
To Coolie and cartage....................................... ×××
To Other direct and factory expenses............... ×××
To Gross profit c/d (if any)............................... ×××
××× ×××
Items included in trading account

The trading account is prepared in the form of ledger account. Thus, it contains
the debit and credit side. The items included in the debit and credit side of trading
account are as follows:
Items relating to debit side

The trading account includes the following items in its debit side:
a. Opening stock
The stock of goods remained unsold at the end of previous accounting period
and available at the opening day of this year is called opening stock. Hence, the

closing stock of previous year is considered as the opening stock of current year.
In the beginning year of the business, there will be no opening stock.
b. Purchases
Purchases mean the total of cash purchase and credit purchase of goods for resale
purpose or further process during the year. It does not include the purchases
other than resale goods. The amount of purchase return is deducted from the
total purchase to show the net amount of purchase.
c. Purchase related expenses
Purchase related expenses are those expenses which are incurred in the transit
while purchasing or buying the goods. Such expenses are debited to profit and
loss account before determination of gross profit or gross loss. Carriage inward,
freight inward, import duty, custom duty, octroi, coolie and cartage, clearing
charges, dock charges etc. are some of the examples of purchase related expenses.
d. Factory or manufacturing or productive expenses
All the expenses which are incurred inside the factory for the manufacture or production
of goods are called manufacturing or productive expenses. Those expenses are incurred
in the process of converting the raw materials into finished product. Factory rent and
insurance, factory heating and lighting supervisor’s salary, motive power, wages, coal,
coke and gas, consumable stores, excise duty, royalties, primary packing and other factory
expenses are the examples of manufacturing or productive expenses.
Items relating to credit side

The trading account includes the following items in its credit side:
a. Sales
Sales are the sources of revenue of the business firm. It includes the total of both
the cash sales and credit sales of goods which are meant for resale purpose. In
order to know the net amount of sales, sales return is deducted from sales and
credited in trading account.
b. Closing stock
Closing stock is the value of goods, remained unsold in the business at the end of
accounting period. It should be valued at cost price or market price which ever
is less. Closing stock is treated as assets and shown in balance sheet if it is given
outside of trial balance. Closing stock appeared in trial balance is not credited in
trading account and shown only in balance sheet.
Procedures of preparing trading account

Following are the procedures of preparing trading account:
 It is prepared in the form of ledger account and thus it contains two sides debit
and credit.
Final Accounts 133
 It is treated as nominal account and all the losses and expenses are debited and
all gains and incomes are credited.
 The items related to direct expenses such as opening stock, net purchase,
purchase related expenses, wages and other manufacturing expenses should
be debited.
 The items related to direct income like net sales and closing stock should be
credited.
 The gross profit or gross loss should be determined by comparing the debit
total and credit total.
 The balancing figure appearing in debit side is termed as gross profit under the
word “To gross profit c/d” and the balancing figure appearing in credit side is
termed as gross loss under the word “By gross loss c/d”.
 After the determination of gross profit or gross loss, it should be closed by
drawing two parallel lines.
Ill-1 The following items are extracted from the Supriya & Brothers
Company for the year ended 31st December, 2017:
Opening stock.................................................. Rs.65,000 Manufacturing expenses........................................ Rs.24,500
Purchases........................................................ 2,80,000 Sales return............................................................ 5,000
Carriage on purchase...................................... 14,500 Purchase return...................................................... 10,000
Import duties.................................................... 7,500 Factory rent and insurance.................................... 28,750
Sales ............................................................... 4,75,000 Coal and coke......................................................... 9,800
Productive wages............................................ 40,200 Store consumed .................................................... 18,500
Excise duty...................................................... 12,200 Stock on 31st December....................................... 90,000
Coolie and cartage ......................................... 13,000
Required: Trading account

Solution:
Trading Account of Supriya & Brothers Company
Dr For the year ended 31st December, 2017 Cr
To Opening stock ...................................... 65,000 By Sales ...................................... 4,75,000
To Purchases .............................. 2,80,000 Less: Sales return ............................ 5,000 4,70,000
Less: Purchase return ................... 10,000 2,70,000 By Closing stock........................................ 90,000
To Carriage on purchase........................... 14,500
To Import duties......................................... 7,500
To Productive wages ................................ 40,200
To Excise duty........................................... 12,200
To Coolie and cartage................................ 13,000
To Manufacturing expenses....................... 24,500
To Factory rent and insurance .................. 28,750
To Coal and coke....................................... 9,800
To Store consumed.................................... 18,500
To Gross profit c/d.................................... 56,050
5,60,000 5,60,000

Profit and loss account
Profit and loss account is the second step of final account. It is prepared to determine
the net profit or net loss of the business firm at the end of year. After the determination
of gross profit or gross loss by trading account, again net profit or net loss is determined
from the profit and loss account. The gross profit obtained from the trading account
is transferred in the credit side of profit and loss account. Similarly, the gross loss
obtained from trading account is shown in the debit side. All the indirect expenses are
shown in debit side and indirect incomes are posted in credit side. The result obtained
from this account is called net profit or net loss. If the credit side is higher than debit
side, it is termed as net profit and if the debit side is higher than credit side, it is
termed as net loss. The result obtained from the profit and loss account i.e. net profit
or net loss is transferred to the balance sheet.
Profit and loss account is an account prepared at the end of accounting period to
determine the net profit or net loss of the business firm during a year.
Advantages of profit and loss account

Profit and loss account has the following advantages:
 It provides information about the net profit or net loss of the business firm
during the year.
 It helps to measure the operational efficiency of the business firm.
 It helps to calculate the ratio between total indirect expenses and net profit.
 It helps to know about total indirect expenses and indirect incomes of the
firm during the year.
 It helps to calculate the ratio between gross profit and net profit of the firm.
 It helps to perform the comparative study of income and expenditure during
the period.
 It facilitates for the preparation of balance sheet.
 Indirect expenses refer to office and administrative expenses, selling and distribution expenses, business
 operating expenses and other financial expenses etc.
 Indirect income refers to all other incomes of the business firm except sales revenue of the firm..
Final Accounts 135

Specimen of profit and loss account
The specimen of profit and loss account is as follows:
Profit and Loss Account of ...................

To Gross loss b/d............................................. ××× By Gross profit b/d........................................... ×××
To Salary and wages....................................... ××× By Rent received ............................................ ×××
To Rent, rates and taxes.................................. ××× By Commission received ................................ ×××
To Printing and stationeries............................. ××× By Interest received ........................................ ×××
To Postage and telegram................................. ××× By Dividend received....................................... ×××
To Communication charges............................. ××× By Discount received....................................... ×××
To Insurance premium .................................... ××× By Compensation received ............................. ×××
To Legal charges............................................. ××× By Income from investment............................. ×××
To Audit fees ................................................... ××× By Bad debts recovered.................................. ×××
To Bank charges.............................................. ××× By Gain on sale of fixed assets ...................... ×××
To Interest on loan .......................................... ××× By Gain on sale of investment......................... ×××
To Free sample distribution............................. ××× By Apprenticeship premium............................. ×××
To Establishment charges............................... ××× By Sale of scrap.............................................. ×××
To Carriage on sales........................................ ××× By Miscellaneous receipts............................... ×××
To Warehouse expenses ................................ ××× By Net loss c/d (Transferred to capital)........... ×××
To Advertisement and publicity........................ ×××
To Salesman commission................................ ×××
To General expenses....................................... ×××
To Discount allowed......................................... ×××
To Donation and charities................................ ×××
To Office and administrative expenses ........... ×××
To Selling and distribution expenses............... ×××
To Refreshment expenses .............................. ×××
To Entertainment expenses ............................ ×××
To Sales tax (value added tax)........................ ×××
To Trade expenses.......................................... ×××
To Repair and maintenance............................. ×××
To Depreciation on fixed assets....................... ×××
To Bad debts.................................................... ×××
To Delivery van expenses................................ ×××
To Loss on sale of fixed assets........................ ×××
To Travelling expenses.................................... ×××
To Other indirect expenses.............................. ×××
To Net profit c/d (Transferred to capital).......... ×××
××× ×××

Items included in profit and loss account
The profit and loss account is prepared in the form of ledger account. Thus, it contains
the debit and credit side. The items included in the debit and credit side of profit and
loss account are as follows:
Items relating to debit side

The profit and loss account includes the following items in its debit side:
a. Office and administrative expenses
All the expenses which are incurred for running the office are called office and
administrative expenses. Those expenses include office salary, rent, insurance,
audit fee, printing and stationery, postage and telegram, water and electricity,
communication charges, office lighting and heating, employee bonus, welfare
expenses etc.
b. Selling and distribution expenses

All the expenses which are incurred to promote the sales and distribute
the finished goods to different geographical locations are called selling and
distribution expenses. Such expenses include salesman salary and commission,
advertisement, carriage outward, publicity, travelling expenses, warehouse rent,
packing on sales, free sample distribution, delivery van expenses, commission to
agents, export duty, sales tax etc.
c. Financial expenses
All those expenses which are incurred for the supply and use of finance in the
business are called financial expenses. Such expenses include interest on loan,
interest on overdraft, interest on capital, bank charge, discount allowed etc.
d. Other miscellaneous expenses and losses

All the expenses and losses which do not come under any of the above heads
are included in this heading. Such expenses and losses are depreciation on fixed
assets, repair and maintenance, bad debts, provision for bad and doubtful debts,
loss of goods, loss on sale of fixed assets, provision for discount on debtors etc.
Such items are debited in profit and loss account.
Items relating to credit side

The profit and loss account includes the following items in its credit side:
a. Gross profit
The gross profit obtained from trading account is credited to profit and loss account.
b. Indirect incomes and gains

All the indirect incomes and gains are credited in profit and loss account. Such
incomes and gains include interest on investment, interest on deposit, discount
Final Accounts 137

received, commission received, dividend received, bad debts recovered, rent
earned, gain on sale of fixed assets, sale of scrap, compensation received,
apprentice premium, miscellaneous receipts etc.
Procedures of preparing profit and loss account

Following are the procedures of preparing profit and loss account:
 It is prepared in the form of ledger account and thus it contains two sides i.e.
debit and credit.
 It is treated as nominal account and all the losses and expenses are debited and
all gains and incomes are credited.
 The gross profit should be transferred to the credit side and gross loss should
be transferred to the debit side.
 All the indirect expenses and losses such as office and administrative expenses,
selling and distribution expenses, financial expenses and other miscellaneous
expenses and losses should be debited in profit and loss account.
 All the items relating to indirect incomes and gains should be credited to profit
and loss account.
 The net profit or net loss of the business firm should be determined by
comparing the total of debit side and credit side.
 The balancing figure appearing in debit side is termed as net profit under the
word “To net profit c/d” and the balancing figure appearing in credit side is
termed as net loss under the word “By net loss c/d”.
 After determination of net profit or net loss, it should be closed by drawing
two parallel lines.
Ill-2 The following ledger balances are taken from the books of Namaste
Trading Concern on 31st Ashadh, 2074 :
Gross profit .................................................. Rs.43,950 Discount received.............................................. Rs.4,800
Discount allowed .......................................... 3,400 Export duty........................................................ 4,250
Salary and wages ......................................... 18,500 Dividend received.............................................. 18,000
Trade expenses ............................................ 7,250 Entertainment expenses.................................... 4,000
Advertisement .............................................. 6,000 Carriage outward............................................... 3,500
Printing and stationery ................................. 12,000 Insurance premium............................................ 2,500
Rent received ............................................... 3,000 Depreciation on plant......................................... 6,000
Charity and donation .................................... 1,200 Interest received................................................ 12,500
General expenses ........................................ 1,850 Gain on sale of furniture.................................... 4,500
Salesmen commission ................................. 1,600 Compensation received..................................... 1,000
Miscellaneous income.................................. 11,500
Required: Profit and loss account

Solution:
Profit and Loss Account of
Namaste Trading Concern
Dr. For the year ending 31st Ashadh, 2074 Cr.
To Discount allowed......................................... 3,400 By Gross profit................................................... 43,950
To Salary and wages ...................................... 18,500 By Discount received......................................... 4,800
To Trade expenses.......................................... 7,250 By Dividend received......................................... 18,000
To Advertisement............................................. 6,000 By Rent received............................................... 3,000
To Export duty.................................................. 4,250 By Miscellaneous income.................................. 11,500
To Entertainment expenses............................. 4,000 By Interest received........................................... 12,500
To Carriage outward........................................ 3,500 By Gain on sale of furniture............................... 4,500
To Printing and stationery................................ 12,000 By Compensation received................................ 1,000
To Charity and donation .................................. 1,200
To General expenses....................................... 1,850
To Salesmen commission................................ 1,600
To Insurance premium..................................... 2,500
To Depreciation on plant.................................. 6,000
To Net profit c/d............................................... 27,200
99,250 99,250
Combined specimen of trading and profit and loss

account
The combined specimen of trading account and profit and loss account for
determination of gross profit or gross loss and net profit or net loss is as follows:
Trading and Profit and Loss Account of ...............

To Opening stock............................................. ××× By Sales ................................................... ×××
To Purchase .............................................. ××× Less: Sales return ..................................... ××× ×××
Less: Purchase return............................... ××× ××× By Closing stock ............................................. ×××
To Carriage inward.......................................... ××× By Gross loss c/d (If any)............................... ×××
To Freight inward............................................. ×××
To Custom / Import duty.................................. ×××
To Octroi charge ............................................. ×××
Final Accounts 139

To Manufacturing wages.................................. ×××
To Royalty........................................................ ×××
To Duck charges.............................................. ×××
To Clearing charges......................................... ×××
To Factory rent and insurance......................... ×××
To Factory heating and lighting........................ ×××
To Coal and coke............................................. ×××

To Fuel, gas and water....................................
×××
To Excise duty.................................................
×××
To Store consumed..........................................
×××
To Motive power..............................................
×××
To Coolie and cartage......................................
×××
To Other direct and factory expenses..............
×××
To Gross profit c/d (If any)...............................
×××
××× ×××
To Gross loss b/d............................................. ××× By Gross profit b/d........................................... ×××
To Salary and wages....................................... ××× By Rent received ............................................ ×××
To Rent, rates and taxes.................................. ××× By Commission received ................................ ×××
To Printing and stationeries............................. ××× By Interest received ........................................ ×××
To Postage and telegram................................. ××× By Dividend received....................................... ×××
To Communication charges............................. ××× By Discount received....................................... ×××
To Insurance premium .................................... ××× By Compensation received ............................. ×××
To Legal charges............................................. ××× By Income from investment............................. ×××

By Bad debts recovered.................................. ×××
To Audit fees ................................................... ×××
To Bank charges.............................................. ××× By Gain on sale of fixed assets ...................... ×××
By Gain on sale of investment........................ ×××

To Interest on loan .......................................... ×××
By Apprenticeship premium............................. ×××
To Free sample distribution............................. ×××
By Sale of scarp.............................................. ×××
To Establishment charges............................... ×××
By Transfer fees received................................ ×××
To Carriage on sales........................................ ×××
To Warehouse expenses ................................ By Miscellaneous receipts...............................
××× ×××

To Advertisement and publicity........................ By Net loss c/d (Transferred to capital)...........
××× ×××
To Salesman commission................................
×××
To General expenses.......................................
×××
To Discount allowed.........................................
×××
To Donation and charities................................
×××
To Office and administrative expenses ...........
×××
To Selling and distribution expenses...............
×××
To Refreshment expenses ..............................
×××
To Entertainment expenses ............................
×××
To Sales tax.....................................................
×××
To Trade expenses..........................................
×××
To Repair and maintenance.............................
×××
To Depreciation on fixed assets.......................
×××
To Bad debts....................................................
×××
To Delivery van expenses................................
×××
To Loss on sale of fixed assets........................
×××
To Travelling expenses....................................
×××
To Other indirect expenses..............................
×××
To Net profit c/d (Transferred to capital)..........
×××
××× ×××
Ill-3 Prepare a trading and profit and loss account of Ram Lal Trading Concern
for the year ended 31st Ashadh 2074 from the following particulars:
Opening stock............................. Rs.42,000 Custom duty................................ Rs.2,400
Purchases..................................... 1,80,000 Closing stock................................ 48,000
Manufacturing wages................ 24,000 Sales............................................... 2,98,500
Carriage outward....................... 14,500 Sales return................................... 8,500
Selling expenses.......................... 6,000 Purchase return........................... 2,500
Audit fees.................................... 1,400 Salesman commission................. 8,750
Factory heating and lighting.... 6,500 Commission (Cr.)........................ 2,800
Bad debts..................................... 1,200 Coal, coke and fuel..................... 4,000
Communication charge............. 1,800 Carriage inward.......................... 3,500
Final Accounts 141

Solution:
Trading and Profit and Loss Account of
Ram Lal Trading Concern
Dr. For the year ended 31st Ashadh, 2074 Cr.

To Opening stock............................................. 42,000 By Sales............................................ 2,98,500
To Purchases..................................... 1,80,000 Less: Return........................................... 8,500 2,90,000
Less: Return........................................... 2,500 1,77,500 By Closing stock.............................................. 48,000
To Manufacturing wages ................................. 24,000
To Factory heating and lighting ....................... 6,500
To Custom duty ............................................... 2,400
To Coal, Coke and fuel ................................... 4,000
To Carriage inward ......................................... 3,500
To Gross profit c/d .......................................... 78,100
3,38,000 3,38,000
To Carriage outward ....................................... 14,500 By Gross profit b/d .......................................... 78,100
To Selling expenses ........................................ 6,000 By Commission ............................................... 2,800
To Audit fees ................................................... 1,400
To Bad debts ................................................... 1,200
To Communication charge .............................. 1,800
To Salesman commission ............................... 8,750
To Net profit c/d............................................... 47,250
.................................................................. 80,900 80,900
Differences between trading account and profit and

loss account
Following are the main differences between trading and profit and loss account:
Basis of difference Trading account Profit and loss account
1. Meaning It is the account prepared by the It is the account prepared by the firm
firm to find out the gross result at to find out the net result at the end of
the end of year. year.
2. Step It is the first step of final account. It is the second step of final account.
3. Purpose It is prepared to know the gross It is prepared to know the net profit or
profit or gross loss of the business net loss of the business at the particular
at the particular date. date.
4. Recording It records the direct expenses It records the indirect expenses and
and direct income of the business losses and indirect incomes of the firm
firm during the period. during the period.

5. Help It helps to prepare the profit and It helps to prepare the balance sheet.
loss account.
6. Transfer of result The gross profit or gross loss The net profit is added to the capital
obtained by this account is and the net loss is deducted from the
transferred to the credit side capital in balance sheet.
and debit side of profit and loss
account respectively.
Balance sheet
Balance sheet is a statement of capital, liabilities and assets of the business firm prepared
at the particular date. After the determination of net profit or net loss of the business firm,
it is necessary to ascertain the true financial position at the particular date. The business
firm prepares a statement at the end of year on the basis of ledger account balances for
this purpose. It helps to determine the actual financial position of the business at the
particular date. Balance sheet is not an account but a statement of capital and liabilities
and assets and properties which discloses the financial condition of a firm. It is prepared
on the basis of balances of personal and real accounts. The accounts showing debit
balance represents assets and showing credit balance represents liabilities.
Following are the major definitions of balance sheet:
“Balance sheet is a statement prepared with a view to measure the exact financial position of a business
on a certain date.” J.R. Batliboi
“A balance sheet is a list of all the assets and all the liabilities of a business enterprise on a given date
and shows its financial position on that date.” Dr. A.N Agrawala
Balance sheet is a statement of capital, liabilities and assets of the business firm
prepared to determine the true financial position at particular date.
Advantages of balance sheet

Balance sheet has the following advantages:
 It presents the true financial position of a business in terms of assets liabilities
and capital on a particular date.
 It discloses the amount of trade debtors and trade creditors.
 It shows the nature, value and position of all the assets and liabilities of the
business.
 It judges the liquidity and solvency position of the business.
 It acts as an evidence for setting disputes and misunderstanding whenever
required.
 It provides information of net profit or net loss, closing capital and investment
of the business firm.
Final Accounts 143

 It helps in evaluating the strengths and weakness of the business.
 It supplies reliable information regarding assets and liabilities for formulating
plans and policies and making proper decision.
 It facilitates in obtaining loan from financial institutions by reflecting the true
financial position of the business.
 It helps in determining the true value of the business at the time of sale or
liquidation.
Specimen of balance sheet

Generally, the balance sheet is prepared at the last day of the accounting period. It is
prepared after preparation of profit and loss account. It has two sides i.e. left hand
side and right hand side. All the capital and liabilities are shown on the left hand side
and all the assets items are shown on right hand side. The common specimen of a
balance sheet is as follows:
Balance Sheet ……
As on …………….
Capital and liabilities Amount Assets Amount
Capital.......................................................××× Goodwill........................................................... ×××
Add: Net profit ..........................................××× Patent and designs.......................................... ×××
××× Trademark....................................................... ×××
Less: Net loss............................................××× Copyright......................................................... ×××
Less: Drawing............................................××× ××× Software.......................................................... ×××
General reserve.......................................... ××× Land and building....................................... ×××
Other reserve funds.................................... ××× Plant and machinery................................... ×××
Loans.............................................................. ××× Furniture and fittings....................................... ×××
Sundry creditors............................................. ××× Vehicles.......................................................... ×××
Bills payable................................................... ××× Loose tools..................................................... ×××
Bank overdraft ............................................... ××× Investment...................................................... ×××
Outstanding expenses.................................... ××× Fixed deposit.................................................. ×××
Advance income............................................. ××× Loan given...................................................... ×××
Livestock......................................................... ×××
Preliminary expenses..................................... ×××
Closing stock.................................................. ×××
Sundry debtors............................................... ×××
Bills receivable................................................ ×××
Prepaid expenses........................................... ×××
Accrued income.............................................. ×××
Cash at bank.................................................. ×××
Cash in hand.................................................. ×××
××× ×××

 Balance sheet helps to know the actual financial position of the business on a particular date.
 If net loss is obtained from profit and loss account, it is deducted from the amount of capital in balance
sheet.
 The amount of drawings if any is always deducted from the capital as it reduces the amount of capital.
 The items of assets and liabilities in a balance sheet can be arranged in two ways i.e. in order of liquidity
and in order of permanency.
 In above specimen of balance sheet, assets and liabilities have been arranged in order of permanency. If
they are arranged in order of liquidity, it will be the reverse of the permanency order.
Items included in a balance sheet

The items to be included in the balance sheet are as follows:
Items included in liabilities side
A balance sheet contains the following items on its liabilities side:

a. Capital
Capital refers to the amount of cash or any kinds invested by the owner in the
business at the time of establishment and operational period of business. It is the
important source of funds for business.
b. Net profit or net loss
The excess amount of income over expenditure is known as net profit and the
excess amount of expenditure over incomes is known as net loss. It is obtained
from profit and loss account. The amount of net profit is added to the capital and
net loss is deducted from the capital.
c. Drawing
Drawing is an amount withdrawn by the owner from the business in terms of
cash or kind for his/her personal use. It reduces the amount of capital and thus
deducted from the capital in balance sheet.
d. Reserve and surplus
Reserve is the amount set aside by the firm out of the profit for the year to meet
future contingencies and losses. The business firm may create different types of
funds for this purpose. Reserve fund, pension fund, depreciation fund, sinking
fund, general reserve, contingency fund, dividend equalization fund etc. are
some of the examples of reserve and surplus.
e. Loan
Loan is an amount borrowed from the individuals and financial institutions for
various business purposes. The business firm should pay interest at certain rate
on the loan borrowed. Loan may be short term or long term.
Final Accounts 145

f. Creditors
Creditors are the suppliers of trading goods purchased on credit to the business
firms. They are the persons or parties to whom the business should pay against
the goods bought on credit. It is short term liability of the business firm.
g. Bills payable
Bills payable is the amount payable to creditors for acceptance of bill drawn by
him/her. It is a kind of promising in written form to pay the due amount of goods
purchased on credit on certain date. It is a short term payable and generally paid
within three months.
h. Bank overdraft
Bank overdraft is the facility provided by the bank to its accountholders to
withdraw the amount of cash more than the bank deposit through cheque. For
example, if the business firm has Rs.1,00,000 bank balance on a particular date
and gets permission to withdraw Rs.1,20,000, the excess amount withdrawn
Rs.20,000 is called bank overdraft. It is short term liability and should be repaid
within three months.
i. Outstanding expenses
Those expenses which are expired but due for payment till the end of accounting
period are called outstanding expenses. Such expenses are also called unpaid
expenses or expenses payable.
j. Advance income
The incomes which are received in advance but not earned are called advance
incomes. It is also called unearned income or pre-received income of the business.
Items included in assets side

A balance sheet contains the following items on its assets side:
a. Fixed assets
The assets and properties which are acquired by the business firm for long term
use but not for resale purpose are called fixed assets. Fixed assets are also of
following two types:
i) Tangible fixed assets: Those fixed assets which have physical existence and
can be seen and touched. are called tangible fixed assets Land and building,
plant and machinery, furniture and fixtures, vehicles etc. are some examples
of tangible fixed assets.
ii) Intangible fixed assets: Intangible fixed assets are those assets which cannot
be seen and touched. Such assets do not have any physical form. Goodwill,
patent, trademark, copyright etc. are some of its examples.

b. Current assets
The assets and properties which are acquired by the business for a short term i.e.
less than a year and which can be easily converted into cash are called current
assets. These assets are also called floating or circulating assets because their
value and form is frequently changeable. Following are some of the examples of
current assets:
i) Closing stock
Closing stock refers to the value of resale or processing goods remained
unsold or unused at the end of accounting period.
ii) Debtors
Debtors are the buyers of trading goods on credit from the business. They are
the individuals or parties from whom the business should collect the amount
against goods sold on credit.
iii) Bills receivable
Bills receivable is the amount receivable from debtors for drawing of bills
and accepted by him/her. It is a kind of written promise made by the debtor
to pay the due amount of goods sold on credit on certain date.
iv) Accrued income
Income earned in current accounting period but not yet received is called
accrued income. It is receivables to the business and thus treated as assets.
v) Prepaid expenses
Any expenses which is not expired and paid in advance for future or next
accounting year is called prepaid expenses. It is also called advance expenses
or unexpired expenses and treated as assets of the business.
vi) Cash at bank
It refers to the balance of cash in the bank account of business on a particular
date.
vii) Cash in hand
It refers to the balance of cash remained in the business at the end of accounting
period. It also includes the petty cash fund balance and undeposited amount
of cheque.
c. Fictitious assets
Those assets which do not have any real value and physical form are called
fictitious assets. They are considered as assets only on legal and technical
grounds. Such assets include preliminary expenses, discount on issue of share
and debenture, loss on issue of share, developmental expenditures etc.
Final Accounts 147

d. Investment
The amount which is invested outside the business to earn additional income is
called investment. The business firm may invest in share, debenture or any other
government securities.
e. Loan given
The amount of loan provided by the business firm to any individual or institution is
considered as an asset. The business receives interest on such loan provided.
Ill-4 The following items are taken from the book of Mrs. Champa & Sons
as on 31st Ashadh 2074 :
Capital............................................. Rs.2,60,000 Loan provided..................................... Rs.12,000
Bank loan........................................ 75,000 Net profit.............................................. 56,000
Closing stock.................................. 24,000 Prepaid salary...................................... 8,000
Land and building........................ 1,40,000 Accrued income................................... 6,800
Goodwill......................................... 25,000 Fixed deposit........................................ 18,000
Debtors............................................ 14,000 General reserve.................................... 18,500
Drawing.......................................... 12,000 Cash in hand........................................ 5,600
Loose tools...................................... 6,000 Cash at bank......................................... 12,500
Other reserve fund........................ 36,000 Motor car.............................................. 1,00,000
Short term loan.............................. 40,000 Outstanding rent................................. 10,000
Investment in share....................... 24,000 Bills payable......................................... 16,000
Trademark...................................... 22,000 Creditors............................................... 12,500
Plant and machinery..................... 60,000 Furniture and fixtures......................... 46,100
Bank overdraft............................... 14,000 Advance income.................................. 16,000
Bills receivable............................... 18,000
Required: Balance sheet

Solution:
Balance Sheet of
Mrs. Champa & Sons
Capital................................................2,60,000 Goodwill............................................................ 25,000
Add: Net profit ......................................56,000 Trademark........................................................ 22,000
. 3,16,000 Land and building............................................. 1,40,000
Less: Drawing........................................12,000 3,04,000 Plant and machinery......................................... 60,000
General reserve................................................ 18,500 Furniture and fixtures ....................................... 46,100
Other reserve fund............................................ 36,000 Motor car.......................................................... 1,00,000
Bank loan.......................................................... 75,000 Loose tools....................................................... 6,000
Short term loan................................................. 40,000 Investment in share.......................................... 24,000
Creditors........................................................... 12,500 Fixed deposit ................................................... 18,000
Bills payable .................................................... 16,000 Loan provided................................................... 12,000
Bank overdraft.................................................. 14,000 Closing stock.................................................... 24,000
Outstanding rent............................................... 10,000 Debtors............................................................. 14,000
Advance income............................................... 16,000 Bills receivable.................................................. 18,000
Prepaid salary................................................... 8,000
Accrued income................................................ 6,800
Cash at bank ................................................... 12,500
Cash in hand.................................................... 5,600
5,42,000 5,42,000

Ill-5 The following is a trial balance of Khanal & Basnet Concern as on 31st
December, 2017:
Debit items Rs. Credit items Rs.
Cash at bank............................................. 85,000 Capital ....................................................... 2,70,000
Plant and machinery.................................. 1,50,000 Sales........................................................... 3,15,000
Furniture and fittings.................................. 75,000 Bills payable............................................... 87,500
Stock on 1st January ................................ 60,000 Sundry creditors......................................... 30,000
Investment ................................................ 2,00,000 Interest on investment................................ 24,000
Sundry debtors.......................................... 50,000 Bank loan.................................................... 1,46,000
Bills receivable........................................... 35,000 General reserve.......................................... 80,000
Salary........................................................ 18,000 Commission received................................. 6,500
Wages to labourers................................... 24,000 Bank overdrafts.......................................... 20,000
Purchases.................................................. 1,80,000 Return outward........................................... 3,500
Return inward............................................ 15,000
Drawings.................................................... 18,000
Factory rent and insurance........................ 28,000
Rent paid................................................... 34,000
Bad debts.................................................. 6,000
Insurance premium.................................... 4,500
9,82,500 9,82,500
Required:
a) Trading and profit and loss account b) Balance sheet

Solution:
a)
Khanal & Basnet Concern
Dr. For the year ending 31st December , 2017 Cr.
To Opening stock ................................... 60,000 By Sales..................................................3,15,000
To Purchases ...........................1,80,000 Less: Return inward ...................................15,000 3,00,000
Less: Return outward.....................3,500 1,76,500
To Wages to labourers ............................ 24,000
To Factory rent and insurance................... 28,000
To Gross profit c/d ..................................... 11,500
3,00,000 3,00,000
To Salary ................................................ 18,000 By Gross profit b/d ............................................ 11,500
To Rent .............................................. 34,000 By Interest on investment ................................. 24,000
To Bad debts ................................... 6,000 By Commission received .................................. 6,500
To Insurance premium ............................... 4,500 By Net loss c/d .................................................. 20,500
62,500 62,500
Final Accounts 149

b)
Balance Sheet of
Khanal & Basnet Concern

Capital............................................... 2,70,000 Plant and machinery ....................................... 1,50,000
Less: Net loss....................................... 20,500 Furniture and fittings ....................................... 75,000
2,49,500 Investment ...................................................... 2,00,000
Less: Drawings..................................... 18,000 2,31,500 Sundry debtors................................................ 50,000
General reserve............................................... 80,000 Bills receivable................................................. 35,000
Bank loan......................................................... 1,46,000 Cash at bank................................................... 85,000
Sundry creditors.............................................. 30,000
Bills payables .................................................. 87,500
Bank overdrafts .............................................. 20,000
5,95,000 5,95,000
Similarities between trial balance and balance sheet

Trial balance and balance sheet are similar in the following points:
 Both the trial balance and balance sheet are statements but not account.
 Both the trial balance and balance sheet are prepared on the basis of ledger
account balances.
 Both statements are prepared on a particular date.
 Both of these statements do not use the prefix ‘To’ and ‘By’.
 Both of these statements record only those accounts which have balance.
 Both of these statements ensure the principle of double entry system.
Differences between a trial balance and balance sheet

Following are the main differences between a trial balance and balance sheet:
Basis of Trial balance Balance sheet

difference
1. Meaning It is the statement of debit It is the statement of assets and
and credit balance of ledger liabilities of the business firm at
accounts. the particular date.
2. Purpose It is prepared to check the It is prepared to know the true
arithmetical accuracy of financial position of the business
books of account. firm.
3. Basis of It is prepared on the basis It is prepared on the basis of trial
preparation of ledger accounts. balance.

4. Preparation It can be prepared at any It is generally prepared at the end
date date after closing of ledger of accounting period.
accounts.
5. Number of It has five columns i.e. It has four columns i.e. liabilities
columns serial no, particulars, L.F.,and amount in left hand side and
debit and credit assets and amount in right hand
side.
6. Legal It is not legally compulsory It is necessary to prepare balance
compulsion to prepare trial balance. sheet at the end of accounting
period.
7. Types of It includes all types of It includes the balances only of
account account having balances. personal and real accounts.
8. Recording of It generally records the It records the value of closing
stock value of opening stock. stock.
9. Documentary It is not accepted as It is accepted as documentary
proof documentary proof by the proof by the court for making
court of law. decision.
10. Information It does not provide It provides information of net
of profit and information of profit or profit or net loss of the business.
loss loss.
Adjustments in final accounts

Adjustments refer to those transactions which are related to current accounting
period but not recorded in the books of account. Such transactions do not appear in
trial balance and thus have dual effect in final accounts. Thus, to ensure the correct
ascertainment of profit or loss and financial position of business, all unrecorded
financial transactions and internal events should be adjusted after the preparation of
trial balance while preparing final accounts.
There are various adjustments to be considered while preparing final accounts.

However, according to the curriculum of this grade only the following adjustments
have been explained with their accounting treatment:
Closing stock
Closing stock refers to the value of goods remained unsold or unused remaining in
the store of business at the end of accounting period. It should be valued at cost price
or market price whichever is less. Closing stock is credited to trading account and
shown in balance sheet as assets. Its accounting treatment can be shown as follows:
Final Accounts 151

Closing stock
Given in trial balance Given in adjustment
Assets side of Credit side of Assets side of

balance sheet Trading account balance sheet
Prepaid expenses
Prepaid expenses means any expenses paid in advance for next accounting period in
the current accounting year. It is treated as the assets of the business. It is deducted
from the concerned item in the debit side of trading or profit and loss account and
shown on assets side of balance sheet. It can be shown as below:
Prepaid/Advance expenses
Debit side of trading or profit and loss

Assets side of Assets side of
account (Deducted from respective
balance sheet expenses head) balance sheet
Outstanding expenses
Those expenses which are incurred during the current year but remained unpaid till
the end of accounting period are called outstanding expenses. It is liability of the
business. It is added to the concerned head in the debit side of trading or profit and
loss account and shown on liability side of balance sheet. Its accounting treatment can
be shown as follows:

Outstanding expenses
Given in Given in
trial balance adjustment
Liabilities side of
balance sheet
Debit side of trading/ Liabilities side of

profit and loss account balance sheet
(added with respective
expenses head)
Depreciation on fixed assets

Depreciation is the gradual and permanent decrease in the value of fixed assets due
to regular use over a period of time. It is loss for the business. It is debited to profit
and loss account and deducted from the concerned fixed assets on the balance sheet
as shown below:
Depreciation on fixed assets
Debit side of profit Debit side of profit Assets side of balance sheet
and loss account and loss account (Deducted from related fixed assets)
Final Accounts 153

Ill-6 The following trial balance of Golden Enterprise as on 31st Chaitra, 2074
is given to you:
Particulars Debit Rs. Particulars Credit Rs.
Inventory at beginning .............................. 80,000 Capital ....................................................... 5,86,000
Purchases.................................................. 5,17,000 Purchase return.......................................... 17,000
Sales return............................................... 12,000 Sales........................................................... 8,12,000
Productive wages...................................... 1,80,000 Accounts payable....................................... 1,75,000
Factory insurance...................................... 21,000 Miscellaneous income................................ 13,000
Factory expenses...................................... 30,000 Loan from Himalayan bank......................... 65,000
Power and fuel........................................... 14,000 Commission received................................. 7,100
Import duty................................................. 20,000 Bills payable............................................... 30,000
Administrative expenses............................ 52,000
Trademark................................................. 1,50,000
Loan to Krishna ........................................ 1,00,000
Accounts receivable.................................. 1,65,000
Closing stock............................................. 50,000
Bills receivable........................................... 45,000
Cash and bank.......................................... 75,600
Interest....................................................... 13,500
Travelling expenses................................... 14,000
Office equipment....................................... 1,20,000
Depreciation.............................................. 19,000
Salaries and wages................................... 27,000
17,05,100 17,05,100
Required:
Solution:
a) Trading and Profit and Loss Account of
Golden Enterprise
Dr. For the year ending 31st Chaitra, 2074 Cr.
To Opening stock ................................... 80,000 By Sales................................... 8,12,000
To Purchases............................ 5,17,000 Less: Sales return........................ 12,000 8,00,000
Less: Purchase return................. 17,000 5,00,000 By Gross loss c/d.................................... 45,000
To Productive wages.............................. 1,80,000
To Factory insurance.............................. 21,000
To Factory expenses.............................. 30,000
To Power and fuel................................... 14,000
To Import duty......................................... 20,000
8,45,000 8,45,000
To Gross loss b/d ................................... 45,000 By Miscellaneous income ...................... 13,000
To Administrative expenses.................... 52,000 By Commission received........................ 7,100
To Interest............................................... 13,500 By Net loss c/d........................................ 1,50,400
To Travelling expenses .......................... 14,000
To Depreciation....................................... 19,000
To Salaries and wages........................... 27,000
1,70,500 1,70,500

b)
Balance Sheet of
Golden Enterprise
Capital................................................5,86,000 Trademark.................................................... 1,50,000
Less: Net loss.....................................1,50,400 4,35,600 Office equipment.......................................... 1,20,000
Account payable...................................... 1,75,000 Account receivable....................................... 1,65,000
Loan from Himalayan bank...................... 65,000 Closing stock................................................ 50,000
Bills payable............................................ 30,000 Bills receivable.............................................. 45,000
Cash at bank................................................ 75,600
Loan to Krishna............................................ 1,00,000
7,05,600 7,05,600
Ill-7 From the following trial balance and additional information, prepare
trading and profit and loss account and balance sheet for the year ending
31st Ashad 2074:
S.N. Particulars Debit Rs. Credit Rs.
1. Opening stock........................................................................... 95,000 –
2. Drawing and capital ................................................................. 15,000 3,76,000
3. Purchases and sales................................................................ 2,30,000 3,82,500
4. Return....................................................................................... 6,000 5,000
5. Sundry debtors and sundry creditors ....................................... 65,000 25,000
6. Bills receivable and bills payable ............................................ 84,000 15,000
7. Land and building .................................................................... 1,50,000
8. Office salary ............................................................................. 34,000
9. Wages ..................................................................................... 24,500
10. Carriage inward ....................................................................... 6,500
11. General reserve ....................................................................... – 24,000
12. Commission ............................................................................ 4,000 2,000
13. Plant and machinery................................................................. 80,000
14. Cash at bank............................................................................ 12,000
15. Discount allowed and received ................................................ 3,500 3,500
16. Factory heating and lighting .................................................... 8,500
17. Interest on investment ............................................................. 5,000
18. Investments ............................................................................. 50,000
19. Bank loan ................................................................................. 38,000
20. Advertisement .......................................................................... 8,000
Total......................................................................................... 8,76,000 8,76,000
Final Accounts 155

Additional information:
i) Closing stock was valued at Rs.60,000 as cost price and Rs.65,000 as market price.
ii) Wages outstanding Rs. 5,500
iii) Office salary is paid in advance Rs.4,000.
iv) Depreciate plant and machinery by Rs.8,000 per annum.
Solution:
a)
Trading and Profit and Loss Account
To Opening stock ............................................. 95,000 By Sales..............................................3,82,500
To Purchases .....................................2,30,000 Less: Return........................................... 6,000 3,76,500
Less: Returns..........................................5,000 2,25,000 By Closing stock ............................................... 60,000
To Wages ..............................................24,500
Add: Outstanding ....................................5,500 30,000
To Carriage inward .......................................... 6,500
To Factory, heating and lighting........................ 8,500
To Gross profit c/d .......................................... 71,500
4,36,500 4,36,500
To Office salary .....................................34,000 By Gross profit b/d............................................. 71,500
Less: Prepaid...........................................4,000 30,000 By Commission received................................... 2,000
To Commission ................................................ 4,000 By Discount received ........................................ 3,500
To Discount allowed ......................................... 3,500 By Internet on investment ................................. 5,000
To Advertisements ........................................... 8,000
To Depreciation on plant and machinery.......... 8,000
To Net profit c/d ............................................... 28,500
82,000 82,000
b) Balance Sheet
Capital...............................................3,76,000 Land and building............................................ 1,50,000
Add: Net profit.......................................28,500 Plant and machinery............................. 80,000
4,04,500 Less: Depreciation.................................. 8,000 72,000
Less: Drawings.....................................15,000 3,89,500 Investments..................................................... 50,000
General reserve............................................... 24,000 Sundry debtors................................................ 65,000
Bank loan......................................................... 38,000 Bills receivable................................................. 84,000
Sundry creditors.............................................. 25,000 Closing stock................................................... 60,000
Bills payable.................................................... 15,000 Prepaid office salary........................................ 4,000
Outstanding wages.......................................... 5,500 Cash at bank................................................... 12,000
4,97,000 4,97,000

Ill-8 From the following trial balance of Muna Madan Shopping Complex,
prepare a trading and profit and loss account determining gross profit
or gross loss and net profit or net loss for the year ended 31st Chaitra,
current year:
Trial Balance
As on 31st Chaitra, Current year
S.N. Accounts head L.F. Debit Rs. Credit Rs.
1. Stock (As on 1st Baishakh).............................................................................. 56,500
2. Purchases and sales revenue.......................................................................... 1,80,000 3,13,750
3. Return inward and outward ............................................................................. 4,500 2,500
4. Closing stock ................................................................................................... 34,000
5. Office rent rates and taxes .............................................................................. 18,500
6. Interest on investment...................................................................................... 8,500
7. Import duty........................................................................................................ 12,500
8. Primary packing charges ................................................................................. 6,550
9. Bad debts ........................................................................................................ 3,000
10. Insurance ......................................................................................................... 4,200
11. Commission received ..................................................................................... 14,000
12. Discount on purchase ...................................................................................... 4,800
13. Printing and stationary ..................................................................................... 6,000
14. Salary to staff ................................................................................................... 16,000
15. Wages to factory workers................................................................................. 9,000
16. Bonus to staff .................................................................................................. 4,800
17. Apprenticeship premium .................................................................................. 5,800
18. Clearing charges ............................................................................................. 8,000
19. Audit fees ...................................................................................................... 3,800
20. Dividend received ........................................................................................... 18, 000
Total ................................................................................................................ 3,67,350 3,67,350
Final Accounts 157

Solution:
Muna Madan Shopping Complex
Dr. For the year ended 31st Chaitra, Current year Cr.
To Opening stock ................................. 56,500 By Sales revenue ........................3,13,750
To Purchases .......................... 1,80,000 Less: Return .....................................4,500 3,09,250
Less: Return................................. 2,500 1,77,500
To Import duty ....................................... 12,500
To Primary packing charges ................. 6,550
To Wage to factory workers .................. 9,000
To Clearing charge................................ 8,000
To Gross profit c/d ............................... 39,200
3,09,250 3,09,250
To Office rent, rates and taxes............... 18,500 By Gross profit b/d ..................................... 39,200
To Bad debts ........................................ 3,000 By Interest on investment ......................... 8,500
To Insurance.......................................... 4,200 By Commission received............................ 14,000
To Printing and stationery .................... 6,000 By Discount on purchase........................... 4,800
To Salary to staff.................................... 16,000 By Apprenticeship premium........................ 5,800
To Bonus to staff.................................... 4,800 By Dividend received.................................. 18,000
To Audit fees ......................................... 3,800
To Net profit c/d .................................... 34,000
90,300 90,300
Ill-9 The following trial balance is taken from the books of Kamal & Sons as
on 31st December, 2017:
1. Kamal’s drawing and capital.............................................................. 10,000 1,95,000
2. Purchases and sales......................................................................... 3,00,000 7,00,000
3. Return................................................................................................ 5,000 8,000
4. Plant and machinery.......................................................................... 2,00,000
5. Furniture and fixtures ........................................................................ 1,00,000
6. Carriage inward................................................................................. 26,000
7. Wages and salaries........................................................................... 50,000
8. Rent, rates and taxes ....................................................................... 41,000
9. Cash at bank..................................................................................... 68,000
10 Telephone expenses.......................................................................... 15,000
11. Book debts ........................................................................................ 1,60,000
12. Sundry creditors .............................................................................. 1,40,000
13. Bank loan........................................................................................... 1,50,000

14. Bad debts.......................................................................................... 5,000
15. Selling expenses .............................................................................. 1,29,000
16. Interest .............................................................................................. 16,000
17. Dividend received ............................................................................ 17,000
18. Vehicles ............................................................................................ 1,35,000
19. Bills payable...................................................................................... 50,000
Total.................................................................................................. 12,60,000 12,60,000
Required:
Solution:
a)
Trading and Profit and loss Account of
Kamal & Sons
Dr. For the year ended 31st December, 2017 Cr.
To Purchases ...........................3,00,000 By Sales....................................... 7,00,000
Less: Return..................................8,000 2,92,000 Less: Return...................................... 5,000 6,95,000
To Carriage inward ................................ 26,000
To Wages and salaries .......................... 50,000
To Gross profit c/d ................................ 3,27,000
6,95,000 6,95,000
To Rent rates and taxes ......................... 41,000 By Gross profit b/d...................................... 3,27,000
To Telephone expenses.......................... 15,000 By Dividend received.................................. 17,000
To Bad debts ......................................... 5,000
To Selling expenses ............................... 1,29,000
To Interest .............................................. 16,000
To Net profit c/d ..................................... 1,38,000
3,44,000 3,44,000
b) Balance Sheet of
Kamal & sons
Kamal’s capital...................................... 1,95,000 Plant and machinery.................................... 2,00,000

Less: Drawings......................................... 10,000 Furniture and fixtures................................... 1,00,000
1,85,000 Vehicles........................................................ 1,35,000
Add: Net profit........................................ 1,38,000 3,23,000 Cash at bank................................................ 68,000
Sundry creditors.............................................. 1,40,000 Book debts.................................................... 1,60,000
Bank loan......................................................... 1,50,000
Bills payable.................................................... 50,000
6,63,000 6,63,000
Final Accounts 159

Ill-10 The following ledger balances are extracted from the books of Sakar as
on 31st Ashadh, 2074 :
Purchase ............................................... Rs.5,00,000 Sakar’s capital................................................ Rs.10,90,000
Sales ...................................................... 9,60,000 Printing and stationery.................................... 10,000
Purchase return ..................................... 10,000 Advertisement................................................. 17,000
Computer and equipment ...................... 1,70,000 Carriage outward............................................ 21,000
Land and building .................................. 7,60,000 Bad debts....................................................... 1,000
Cash at bank ......................................... 1,03,000 Travelling expenses........................................ 13,000
Sundry debtors ...................................... 1,30,000 Commission received..................................... 20,000
Sundry creditors .................................... 1,50,000 Discount allowed............................................ 5,000
Wages ................................................... 60,000 Loan from friends............................................ 1,30,000
Salary .................................................... 30,000 Goodwill.......................................................... 1,50,000
Rent, rates and taxes ............................ 37,000 Closing stock.................................................. 1,00,000
Power expenses .................................... 32,000 Sakar’s drawing.............................................. 15,000
Opening stock ........................................ 85,000 Investment...................................................... 1,25,000
Bad debt recovered ................................ 8,000 Legal charges................................................. 4,000
Required:
a) Trading and profit and loss account
b) Balance sheet
Solution:
a)
Trading and Profit and Loss Account of Sakar
To Opening stock ................................ 85,000 By Sales............................................... 9,60,000
To Purchases .........................5,00,000
Less Purchases return...............10,000 4,90,000
To Wages ............................................. 60,000
To Power expenses ............................. 32,000
To Gross profit c/d .............................. 2,93,000
9,60,000 9,60,000
To Salary .............................................. 30,000 By Gross profit b/d ............................... 2,93,000
To Rent, rates and taxes ...................... 37,000 By Bad debt recovered ....................... 8,000
To Printing and stationery..................... 10,000 By Commission received...................... 20,000
To Advertisement ................................ 17,000
To Carriage outward ............................ 21,000
To Bad debts ....................................... 1,000
To Travelling expenses ........................ 13,000
To Discount allowed ............................. 5,000
To Legal charges ................................. 4,000
To Net profit c/d ................................... 1,83,000
3,21,000 3,21,000

b) Balance Sheet of Sakar
Sakar’s capital..................................10,90,000 Land and building........................................... 7,60,000
Less: Drawings......................................15,000 Computer and equipment .............................. 1,70,000
10,75,000 Investment...................................................... 1,25,000
Add: Net profit....................................1, 83,000 12,58,000 Cash at bank.................................................. 1,03,000
Loan from friends.............................................. 1,30,000 Sundry debtors............................................... 1,30,000
Sundry creditors............................................... 1,50,000 Closing stock.................................................. 1,00,000
Goodwill.......................................................... 1,50,000
15,38,000 15,38,000
Ill-11 Following are the balances extracted from the books of Sushmita
Enterprises for the year ending 31st Chaitra 2074:
Particulars Debit Rs. Credit Rs.
Gross loss........................................................................................................................ 34,000
Goodwill........................................................................................................................... 25,000
Debtors and creditors .................................................................................................... 60,000 50,000
Insurance ....................................................................................................................... 24,000
Office rent ....................................................................................................................... 24,000
Communication charges ................................................................................................. 6,500
Furniture and fitting.......................................................................................................... 40,000
Bank loan......................................................................................................................... 95,000
Drawing and capital ....................................................................................................... 6,000 2,80,000
Salary ............................................................................................................................. 22,000
Copyright......................................................................................................................... 12,000
Interest on loan .............................................................................................................. 6,400
Cash in hand .................................................................................................................. 4,000
Cash at bank................................................................................................................... 14,000
Commission to salesman ............................................................................................... 4,500
Bad debts....................................................................................................................... 3,000
Bad debts recovered ..................................................................................................... 4,800
Provision for bad debts ................................................................................................... 6,000
Bills receivable and bills payable..................................................................................... 20,000 28,600
Closing stock................................................................................................................... 30,000
Preliminary expenses...................................................................................................... 13,000
Plant and machinery........................................................................................................ 80,000
Reserve fund................................................................................................................... 32,000
Investment....................................................................................................................... 80,000
Outstanding wages.......................................................................................................... 2,800
Commission received...................................................................................................... 9,200
Total 5,08,400 5,08,400
Final Accounts 161

The following adjustments are also provided:
a) Salary due to pay Rs.2,000.
b) Office rent is paid in advance Rs.4,000.
c) Depreciation is to be provided @ 10% on plant and machinery.
Required:
Solution:
a)
Sushmita Enterprises
Dr. For the year ended 31st Chaitra, 2074 Cr.

To Gross loss b/d ................................... 34,000 By Bad debts recovered................................ 4,800
To Insurance .......................................... 24,000 By Provision for bad debts............................. 6,000
To Office rent ...............................24,000 By Commission received............................... 9,200
Less: Paid in advance....................4,000 20,000 By Net loss c/d............................................... 1,10,400
To Communication charges..................... 6,500
To Salary ........................................ 22,000
Add: Salary due................................ 2,000 24,000
To Interest on loan ................................... 6,400
To Commission to salesman...................... 4,500
To Bad debts.............................................. 3,000
To Depreciation on plant and machinery (10%
on Rs. 80,000).................................... 8,000
1,30,400 1,30,400
b)
Balance Sheet of
Sushmita Enterprises
Capital.............................................. 2,80,000 Goodwill.......................................................... 25,000
Less: Drawings...................................... 6,000 Copyright ....................................................... 12,000
2,74,000 Plant and machinery............................ 80,000
Less: Net loss.................................. 1, 10,400 1,63,600 Less: Depreciation................................. 8,000 72,000
Reserve fund.................................................. 32,000 Furniture and fittings....................................... 40,000
Bank loan ....................................................... 95,000 Debtors........................................................... 60,000
Creditors......................................................... 50,000 Closing stock.................................................. 30,000
Bills payable................................................... 28,600 Investment...................................................... 80,000
Outstanding wages......................................... 2,800 Bills receivable................................................ 20,000
Salary due...................................................... 2,000 Preliminary expenses..................................... 13,000
Cash at bank.................................................. 14,000
Cash in hand.................................................. 4,000
Advance office rent......................................... 4,000
3,74,000 3,74,000

Ill-12 The following is a trial balance of Kantipur Trading Concern for the year
ending Chaitra last year are provided to you:
Debit items Amount Credit items Amount
Purchase................................................... 2,02,500 Bank overdraft........................................... 25,700
Sales return .............................................. 5,000 Sundry creditors........................................ 27,000
Wages....................................................... 48,000 Purchase return......................................... 2,500
Salary........................................................ 36,000 Sales.......................................................... 3,25,000
Sundry debtors.......................................... 60,000 Capital....................................................... 2,95,000
Factory rent............................................... 25,000 General reserve......................................... 20,000
Office rent, rates and taxes....................... 24,500 Loan ......................................................... 40,000
Building...................................................... 1,00,000 Commission received................................ 2,500
Bad debts ................................................. 6,000 Outstanding expenses............................... 6,800
Cash in hand............................................. 15,000
Discount on sales...................................... 4,500
Freight outward.......................................... 4,000
Goodwill..................................................... 25,000
Drawings.................................................... 14,000
Investment................................................. 75,000
Business premises.................................... 80,000
General expenses..................................... 5,000
Patent........................................................ 15,000
7,44,500 7,44,500
Other information:
i) The value of closing stock on Chaitra last year was Rs.68,000.
ii) Factory rent is due for two months.
iii) Wage is prepaid by Rs.8,000.
iv) The value of building was depreciated by Rs.16,000.
Required:
Solution:
a) Trading and Profit and Loss Account of
Kantipur Trading Concern
Dr. For the year ending Chaitra last year Cr.
To Purchases ............................2,02,500 By Sales ...................................... 3,25,000
Less: Purchase return ..................2,500 2,00,000 Less: Sales return ............................. 5,000 3,20,000
To Wages .....................................48,000 By Closing stock...................................... 68,000
Less: Prepaid .................................8,000 40,000
To Factory rent .............................25,000
Add: Outstanding ...........................5,000 30,000
To Gross profit c/d................................... 1,18,000
3,88,000 3,88,000
Final Accounts 163

To Salary ................................................ 36,000 By Gross profit b/d .................................... 1,18,000
To Office rent, rates and taxes................. 24,500 By Commission received........................... 2,500
To Bad debts............................................ 6,000
To Discount on sales .............................. 4,500
To Freight outward ................................. 4,000
To General expenses .............................. 5,000
To Depreciation on building ................... 16,000
To Net profit c/d ...................................... 24,500
1,20,500 1,20,500
b)
Balance Sheet of
Kantipur Trading Concern
As on 31st Chaitra, Last Year
Capital.............................................2,95,000 Goodwill......................................................... 25,000
Less: Drawings...................................14,000 Patent ........................................................... 15,000
2,81,000 Business premises........................................ 80,000
Add: Net profit.....................................24,500 3,05,500 Building........................................... 1,00,000
General reserve ............................................ 20,000 Less: Depreciation............................. 16,000 84,000
Loan ............................................................. 40,000 Investment..................................................... 75,000
Sundry creditors............................................ 27,000 Closing stock................................................. 68,000
Bank overdraft............................................... 25,700 Sundry debtors ............................................. 60,000
Outstanding expenses................................... 6,800 Prepaid wages............................................... 8,000
Factory rent due............................................ 5,000 Cash in hand................................................. 15,000
4,30,000 4,30,000
25,000
Working note: Factory rent due = x 2 = Rs. 5,000
10
Ill-13 From the following ledger balances and adjustments taken from the
books of Sunflower Trading Concern, prepare a trading and profit and
loss account and balance sheet as on 31st Ashadh last year:
Opening stock.................................................... Rs.46,000 Land and building.......................................... Rs.1,20,000

Discount............................................................. 4,000 Cash at bank................................................. 30,000
Bank loan........................................................... 65,000 Drawings........................................................ 5,000
Rent (Cr.) ....................................................... 18,000 Capital........................................................... 4,00,000
Plant and machinery.......................................... 1,50,000 Return from customers.................................. 4,000
Trademark ........................................................ 35,000 Return to suppliers........................................ 7,000
Salaries.............................................................. 30,000 Wages and salaries....................................... 8,000
Prepaid insurance.............................................. 6,000 Carriage inward............................................. 2,500
Bad debts.......................................................... 7,500 Suppliers........................................................ 60,000
Customers......................................................... 50,000 Leasehold premises...................................... 55,000
Investment......................................................... 90,000 Purchases...................................................... 1,80,000
Sales.................................................................. 3,00,000 Royalty........................................................... 9,500
Factory lighting.................................................. 13,500 Excise duty.................................................... 3,000
Motive power..................................................... 4,800 Compensation received................................. 3,800

Adjustments:
a) Depreciate plant and machinery by 10% and land and building by 20%.
b) Prepaid insurance is expired to the extent of Rs. 4,500.
c) Wages unpaid Rs. 2,000.
d) Value of closing stock Rs. 65,000 (market price Rs. 56,000)
Solution:
a)
Trading and Profit and loss Account of
Sunflower Trading Concern
Dr. For the year ending 31st Ashadh, last year Cr.
To Opening stock........................................... 46,000 By Sales ................................................ 3,00,000
To Purchases .................................. 1,80,000 Less: Sales return ....................................... 4,000 2,96,000
Less: Return ....................................... 7,000 1,73,000 By Closing stock................................................... 56,000
To Factory lighting ........................................ 13,500
To Motive power ........................................... 4,800
To Wages and salaries ........................ 8,000
Add: Unpaid ......................................... 2,000 10,000
To Royalty...................................................... 9,500
To Excise duty............................................... 3,000
To Carriage inward........................................ 2,500
To Gross profit c/d......................................... 89,700
3,52,000 3,52,000
To Discount.................................................... 4,000 By Gross profit b/d ............................................... 89,700
To Salaries ................................................... 30,000 By Rent received.................................................. 18,000
To Insurance.................................................. 4,500 By Compensation received................................... 3,800
To Bad debts.................................................. 7,500
To Depreciation on plant and machinery ...... 15,000
To Depreciation on land and building............ 24,000
To Net profit c/d ............................................ 26,500
1,11,500 1,11,500
b)
Balance Sheet of
Sunflower Trading Concern
As on 31st Ashadh, last year

Capital...............................................4,00,000 Land and building........................... 1,20,000
Less: Drawings.......................................5,000 Less: Depreciation............................. 24,000
3,95,000 Plant and machinery....................... 1,50,000 96,000
Add: Net profit.......................................26,500 4,21,500 Less: Depreciation............................. 15,000 1,35,000
Bank loan ........................................................ 65,000 Trademark.................................................... 35,000
Suppliers.......................................................... 60,000 Leasehold premises..................................... 55,000
Unpaid wages.................................................. 2,000 Investment.................................................... 90,000
Closing stock................................................ 56,000
Prepaid insurance (6,000 - 4,500)................ 1,500
Customers.................................................... 50,000
Cash at bank................................................ 30,000
5,48,500 5,48,500
Final Accounts 165

Key
Terms
Accrued income – income earned but not received.
Adjustment entries – entries passed for the transactions not included in the trial
balance.
Advance income – income received but not yet earned.
Apprentice premium – amount collected by providing training to the learners.
Balance sheet – a statement prepared to disclose the position of capital,
liabilities and assets at the particular date.
Closing stock – value of raw materials, semi-finished goods and finished
goods remained in stock at the end of accounting period.
Direct expenses – all the expenses related to purchase of materials and
production of finished goods.
Direct income – income received by selling goods and valuing closing stock.
Final accounts – accounts and statements prepared at the end of year to know
the operating result and financial position of the firm.
Gross loss – excess amount of direct expenses over direct income.
Gross profit – amount of profit obtained by deducting all the direct
expenses from the total direct income i.e totals of sale and
closing stock.
Indirect expenses – all the expenses related to office and administration, selling
and distribution and financial headings.
Indirect income – income received from the heads other than sales and closing
stock.
Net loss – excess amount of indirect expenses over indirect income.
Net profit – amount of profit obtained by adding all indirect incomes to
gross profit and deducting all indirect expenses.
Opening stock – stock of raw materials, semi finished goods and finished
goods at the beginning of an accounting period.
Outstanding expenses – expenses incurred/expired but not yet paid.
Preliminary expenses – expenses incurred before establishment of an organization.
Prepaid expenses – amount paid in advance for next period.
Profit and loss account – account prepared to determine the net profit or loss of a
business firm.
Royalty – amount to be paid to the landlord of mines and tea gardens
for the proper use of mines and gardens.
Trading account – account prepared to determine the gross profit or loss of a
business firm.
1. What is meant by final accounts?
2. What is trading account?
3. Why is profit and loss account prepared?
4. How is gross profit ascertained?
5. How is net profit determined?
6. When are final accounts prepared?
7. Write name of any two direct expenses.
8. Name any two direct incomes of the business firm.
9. What do you mean by indirect expenses and indirect incomes?
10. What is meant by closing stock?
11. Write any two items of indirect expenses.
12. How is closing stock valued at the business firm?
13. How is the accounting treatment of closing stock made in final account if
given as adjustment?
14. What are accrued incomes?
15. What do you mean by advance incomes?
16. How do you treat the outstanding expenses and prepaid expenses in final
account if they are given as adjustment?
17. Why is balance sheet prepared?
18. Mention any two items of assets to be shown in balance sheet.
19. Mention any two items of liabilities to be shown in balance sheet.
20. How is depreciation treated in final account if given in adjustment?
21. Write any two examples of intangible fixed assets.
22. Give any two examples of tangible fixed assets.
23. What do you mean by current assets?
24. How is drawing adjusted in balance sheet?
25. How is net profit or net loss treated in balance sheet?
1. What do you mean by final accounts? Mention its objectives.
2. What is trading account? Write its advantages.
3. What is profit and loss account? Write the advantages of preparing it.
4. What is balance sheet? Write the advantages of preparing balance sheet.
5. In what respects the trial balance and balance sheet are similar? Give any
five points.
6. Mention the procedures of preparing trading and profit and loss account.
Final Accounts 167

1. Describe the items that are debited and credited in trading and profit and
loss account.
2. Differentiate between trial balance and balance sheet.
3. What do you mean by adjustments in final account? Discuss the following
adjustments to be made in final accounts with their accounting treatment:
a) Closing stock
b) Outstanding expenses
c) Prepaid expenses
d) Depreciation on fixed assets
Trading account
PP-1 From the following particulars, prepare a trading account of Mixmax Store
for the year ending 31st Chaitra 2074 and determine the gross profit or gross
loss:
Opening stock................................................Rs.35,000 Sales................................................Rs.1,95,000
Purchase........................................................... 1,20,000 Sales return...............................................5,000
Purchase return.................................................... 4,000 Carriage inward.....................................6,500
Import duty........................................................... 8,500 Closing stock.........................................40,000
Coolie and cartage expenses............................... 6,000 Store consumed..................................14,000
Factory rent ........................................................ 12,000 Royalties.................................................8,000
Coal and coke....................................................... 7,500
Ans: Gross profit Rs. 16,500
PP-2 The following ledger balances are extracted the books of Monark
Manufacturing Company for the year ended 31st Decmber, 2017:
Opening stock................................... Rs.1,00,000 Sales............................................Rs.10,00,000
Purchase..................................................4,50,000 Return inward.....................................20,000
Return outward.........................................10,000 Power expenses.................................45,000
Freight inward...........................................40,000
Coal, coke and oil..............................19,000
Direct wages............................................1,20,000
Duty and clearing charge . .....................25,000 Water supply.......................................12,000
Excise duty.................................................15,000 Closing stock.......................................75,000
Factory insurance......................................15,000 Factory rent........................................10,000
Required: Trading account to determine the gross profit or gross loss

Ans: Gross profit Rs.2,14,000

PP-3 You are provided the following particulars from the books of Sushan
Trading Concern on 31st December, 2017:
Stock on 1st January ...................... Rs.65,000 Sales........................................................ Rs.3,20,000
Freight inward ............................... 18,000 Return inward....................................... 2,000
Purchases ........................................ 2,45,000 Productive wages................................. 24,000
Return outward .............................. 5,000 Fuel and gas.......................................... 19,500
Factory heating and lighting ........ 15,000 Manufacturing expenses..................... 25,000
st
Stock on 31 December ................ 48,000 Coal and coke....................................... 6,500
Custom duty .................................. 12,000 Carriage on purchase........................... 4,00 0
Store consumed ............................. 24,000 Factory insurance................................. 7,500
Required: Trading account to determine the gross profit or gross loss

Ans: Gross loss Rs. 94,500
PP-4 Ascertain the gross profit or gross loss from the following particulars of
Bishal Manufacturing Company for the year ended 31st Chaitra:
Stock on 1st Baisakh................ Rs. 68,000 Factory, rent and insurance....... Rs. 8,000
Purchase..................................... 3,70,000 Coal and coke............................. 6,850
Carriage inward....................... 8,600 Clearing charge........................... 4,000
Royalties..................................... 16,000 Store consumed.......................... 13,000
Sales............................................ 4,55,000 Stock on 31st Chaitra.................. 45,000
Wages......................................... 14,500 Primary packing......................... 3,500
Manufacturing expenses........ 6,500 Octroi charges............................. 4,000
Sales return................................ 8,550 Excise duty.................................. 5,000
Coolie and cartage................... 14,250 Dock charges............................... 4,500
Power, heating & lighting...... 12,750 Foreman salary........................... 11,000
Ans: Gross loss Rs. 79,000
PP-5 Following are the ledger balances of Sangam Enterprises for the year
ended 31st Ashadh, 2074:
Heating and lighting............................. Rs.14,000 Sales....................................................... Rs.3,60,750
Purchases................................................ 2,80,000 Return from customer........................ 8,000
Return to supplier................................. 4,000 Stock at the end .................................. 67,000
Excise duty............................................. 8,500 Store consumed .................................. 6,000
Stock at the beginning.......................... 16,000 Wages and salaries.............................. 28,000
Freight inward....................................... 6,000 Royalties............................................... 14,000
Manufacturing expenses...................... 25,750 Factory rent.......................................... 18,000
Fuel, power and gas.............................. 6,750 Other factory expenses....................... 6,500
Coolie and cartage................................ 8,250
Required: Trading account Ans: Gross loss Rs. 14,000
Final Accounts 169

Profit and loss account
PP-6 From the following transactions of Ganesh Company, prepare profit and
loss account for the year ended 31st Dec, 2017 to determine the net profit or
net loss:
Gross profit......................................... Rs.2,70,500 Carriage outward...................................... Rs.15,500
Office rent........................................... 13,000 Advertisement........................................... 16,000
Salaries................................................ 20,000 Legal charges............................................. 1,800
Printing and stationery..................... 10,000 Bank charges.............................................. 1,200
Discount allowed.............................. 1,000 Commission received............................... 3,000
Telephone charges............................. 8,500 Discount received...................................... 5,000
Ans: Net profit Rs. 1,91,500

PP-7 Prepare a profit and loss account of a trading concern for the year ended
Chaitra 30, 2074 to ascertain the net profit or net loss:
Gross profit...................................... Rs.4,28,000 Repair and maintenance............ Rs.12,000
Rent, rates and taxes...................... 1,10,000 Audit fees..................................... 17,000
Salary............................................... 1,20,000 Rent received............................... 10,500
Carriage outward........................... 19,000 Postage and telegrams................ 7,000
Advertisement................................ 25,000 Commission allowed.................. 9,000
Discount received........................... 6,000 Other office expenses.................. 8,000
PP-8 The following particulars are extracted from the books of Durga as on 31st
Ashadh, 2074. You are required to prepare a profit and loss account:
General expenses........................ Rs.67,000 Miscellaneous receipts...................... Rs.16,000
Gross profit................................. 5,01,000 Communication charges.................. 13,000
Establishment expenses............ 68,000 Carriage on sales............................... 29,000
Bad debts..................................... 12,000 Depreciation on assets......................
31,000
Travelling expenses.................... 80,000
Electricity charges ...................... 22,000
Interest on investment............... 27,000
PP-9 Prepare a profit and loss account of Amar Company for the year ended 31st
March, 2017:
Gross loss............................................ Rs.1,02,000 Travelling expenses................................... Rs.27,000
Salary.................................................. 81,000 Depreciation . ............................................ 18,000
Establishment charges...................... 45,000 Electricity charges..................................... 13,500
Bad debts written off........................ 30,000 Telephone charges..................................... 11,600
Miscellaneous expenses................... 49,000 Rent, rates and taxes................................. 55,000
Carriage on sales .............................. 39,000 Legal expenses.......................................... 10,000
Interest on investment...................... 25,000 Insurance premium................................... 7,000
Ans: Net loss Rs. 4,63,100

PP-10 From the following information, prepare a profit and loss account for the
year ended 31st March, 2017:
Gross loss............................... Rs.71,500 Entertainment expenses...................... Rs.8,900
Office expenses..................... 81,000 Bad debt recovered.............................. 13,000
Salaries and wages............... 73,000 Selling expenses.................................... 23,700
Commission earned............. 23,000 Interest on investment......................... 40,000
Directors fees........................ 18,000 Refreshment expenses......................... 11,500
Interest on loan.................... 17,500 Salesman commission.......................... 9,600
Depreciation......................... 16,000 Stationery.............................................. 15,000
Ans: Net loss Rs. 2,69,700
PP-11 Prepare a profit and loss account of Muna & Sons (Pvt.) Ltd. for the year
ended 30th Chaitra from the following particulars:
Gross profit.............................. Rs.1,20,000 Discount allowed.............................. Rs.4,500
Salaries and wages................. 34,000 Carriage outward.............................. 6,500
Office rent and rates............... 25,000 Bank charges...................................... 1,500
Bad debts................................. 6,000 Stationery expenses.......................... 2,500
Income from investment....... 12,000 Legal fees............................................ 1,750
Dividend received.................. 18,000 Rent from tenant................................ 4,850
Ans: Net profit Rs. 73,100
PP-12 Following ledger balances taken from Tara Trade Concern are provided
to you:
Gross loss............................................. Rs.80,000 Export duty.................................................. Rs.4,000
Rent received...................................... 24,000 Commission (Cr.)........................................ 3,500
Interest on fixed deposit.................... 6,000 General expenses......................................... 750
Repair and maintenance................... 4,000 Carriage on sales......................................... 1,500
Salesman commission....................... 8,500 Sale of scrap.................................................
1,700
Legal charges...................................... 500 Entertainment expenses.............................
600
Depreciation on furniture................. 1,250 Discount on sales.........................................
Staff salaries........................................ 20,000 1,200

Ans: Net loss Rs. 87,100
PP-13 Calculate the net profit or net loss from the following ledger balances of
Radha & Sons for the fiscal year ended 31st Ashadh, last year:
Salaries and wages...................... Rs.32,000 Sundry expense........................... Rs.750
Insurance premium..................... 6,000 Gross profit ................................. 85,000
Travelling expenses..................... 4,000 Legal charges............................... 4,000
Bad debts recovered .................. 3,200 Interest on overdraft................... 2,500
Postage and telegram................. 1,600 Loss on sale of furniture............. 1,800
Advertisement............................. 4,500 Transfer fees................................. 11,000
Freight outward........................... 1,850 Discount on purchase................. 650
Final Accounts 171

PP-14 The following ledger balances are extracted from the books of Himalayan
Enterprises as on 31st Chaitra 2074:
Particulars Debit Rs. Credit Rs.
Donation and charity............................................................................................................. 12,000 -
Delivery van expenses.......................................................................................................... 8,500 -
Interest on loan...................................................................................................................... 6,000 -
Gross profit............................................................................................................................ - 75,500
Rent from tenant.................................................................................................................... - 14,000
Bad debts recovered............................................................................................................. - 2,000
Interest earned...................................................................................................................... - 7,000
Discount................................................................................................................................. 6,400 4,300
Fine and penalties................................................................................................................. 1,500 -
Commission received............................................................................................................ - 7,500
Gain on sale of plant.............................................................................................................. - 6,400
Printing and stationeries........................................................................................................ 16,000 -
Rent paid............................................................................................................................... 24,000 -

Trading and profit & loss acouunt
PP-15 The following i nformation is extracted from the books of Danphe Trading
Concern for the year ended 31st December 2017 :
Purchases..................................... Rs.2,70,000 Opening stock............................. Rs.50,000
Wages .......................................... 1,40,000 Sales.............................................. 7,03,000
Carriage inward......................... 20,000 Office expenses........................... 37,000
Sales return.................................. 3,000 Salary........................................... 80,000
Closing stock............................... 27,000 Printing and stationery.............. 14,000
Selling expenses.......................... 29,000 Audit fees.................................... 12,000
Bad debts..................................... 5,000 Commission received................ 13,000
Required: Trading and profit and loss account
Ans: Gross profit Rs. 2,47,000. Net profit Rs. 83,000
PP-16 The following particulars are extracted from the books of a trader for the
year ended 31st March, 2017:
Sales . .......................................... Rs.9,00,000 Purchases.................................... Rs.3,10,000

Purchase return......................... 10,000 Advertisement........................... 13,000
Carriage outward...................... 30,000 Interest expenses....................... 10,000
Office rent................................... 40,000 Closing stock.............................. 70,000
General expenses....................... 36,000 Direct wages............................... 1,70,000
Salaries........................................ 37,000 Production expenses................. 50,000
Discount received...................... 17,000 Discount allowed...................... 14,000
Ans: Gross profit Rs. 4,50,000, Net profit Rs. 2,87,000

PP-17 The following particulars are available from the books of a trader as on
Chaitra 30, 2074:
Stock (1-1-2074)................................ Rs.70,000 Sales..................................... Rs.6,23,000

Productive wages............................ 1,35,000 Purchases............................. 1,90,000
Carriage on purchase . ................... 60,000 Carriage on sales................ 25,000
Return inward.................................. 13,000 Insurance............................. 10,000
Production expenses....................... 63,000 Bad debt.............................. 6,000
Fuel, gas and water......................... 15,000 Commission (Dr.)............... 12,000
Interest on bank loan...................... 18,000 Office expenses................... 40,000
Ans: Gross profit Rs. 77,000, Net loss Rs. 34,000
PP-18 The following information of a trader are given to you:
Wages and salaries............................... Rs.36,000 Import duty......................................... Rs.13,000
Sundry expenses................................... 10,000 Repair................................................... 18,000

Rent......................................................
Trade expenses....................................... 4,000 28,000
Depreciation........................................
Bad debt recovered............................... 7,000 Selling expenses................................. 18,000
Interest on investment.......................... 9,000 Travelling expenses............................ 23,000

Purchase..............................................
Postage and telegram........................... 3,000 18,000
Heating and lighting.........................
Beginning inventory............................. 50,000 2,30,000
Sales......................................................... 3,00,000 19,000
Ans: Gross loss Rs. 48,000, Net Loss Rs. 1,54,000

PP-19 You are provided the following information of a company for the fiscal
year ended 31st Ashadh, 2074:
Power and fuel.................................... Rs.21,000 Stock (31-3-2074)..................................... Rs.40,000
Manufacturing wages......................... 81,000 Traveller’s commission.......................... 22,000
Export duty.......................................... 41,000 Dividend received................................... 18,000
Cartage.................................................. 10,000 Distribution expenses............................. 45,000
Depreciation of machinery................ 15,000 Commission (Cr.).................................... 9,000
Salary and wages................................ 46,000 Interest (Dr.)............................................. 13,000
Purchases.............................................. 2,50,000 Sales........................................................... 4,00,000
Royalty.................................................. 60,000 Miscellaneous income............................ 12,000
Ans: Gross profit Rs. 18,000, Net loss Rs. 1,25,000
Final Accounts 173

Balance sheet
PP-20 Prepare a balance sheet of a company for the year ended 31st Dec, 2017
from the following transactions:
Machinery......................................... Rs.2,50,000 Land and building................................. Rs.4,06,000
Net profit........................................... 1,40,000 General reserve....................................... 16,000
Capital . ............................................. 4,60,000 Furniture and fixtures............................ 55,000
Debtors............................................... 1,50,000 Creditors.................................................. 1,32,000
Loan from bank................................ 2,85,000 Closing stock........................................... 90,000
Cash in hand..................................... 25,000 Cash at bank............................................ 57,000

PP-21 Prepare a balance sheet of a company from the following particulars as on
31st Ashadh, 2074 :
Capital.............................................. Rs.13,90,000 Sundry creditors.................................... Rs.1,95,000
Drawing............................................ 10,000 Cash in hand.......................................... 25,000
Net profit.......................................... 1,17,000 Reserve fund ......................................... 80,000
Building............................................ 7,50,000 Cash at bank........................................... 1,17,000
Plant and machinery....................... 2,50,000 Computer and equipment................... 2,25,000
Sundry debtors................................ 2,10,000 Closing stock.......................................... 1,95,000
PP-22 From the following particulars, prepare a balance sheet as on 31st Dec,
2016:
Vehicles.................................................. Rs.5,10,000 Bills payable.......................................... Rs.1,80,000
Loan from friends................................. 1,40,000 Creditors................................................ 2,00,000
Computer and equipment.................. 2,95,000 Capital .................................................. 8,70,000
Cash at bank.......................................... 97,500 Net profit .............................................. 1,85,000
Debtors................................................... 2,10,000 Closing stock......................................... 1,05,000
Bills receivable ..................................... 1,50,000 Prepaid expenses.................................. 25,000
Drawings .............................................. 20,000 Investment............................................ 1,62,500

PP-23 From the following information of a company, prepare a balance sheet as on
Chaitra 31, 2074:
Land and building............................ Rs.12,90,000 Accounts payable................................ Rs.2,96,000
Capital . .............................................. 25,00,000 Vehicles................................................. 13,00,000
Accounts receivable ........................ 3,13,000 Furniture and fittings......................... 2,15,000
Bills receivable................................... 2,00,000 Bills payable......................................... 3,50,000
Outstanding expenses...................... 30,000 Drawing................................................ 40,000
Loan..................................................... 2,00,000 Prepaid expenses................................. 15,000
Net profit............................................ 2,18,000 Investment............................................ 2,21,000

Cash at bank...................................... Rs.56,850 Capital . ........................................... Rs.6,00,000
Net loss............................................... 53,970 Prepaid expenses............................ 3,000
Goodwill............................................. 2,00,000 Accounts receivable....................... 1,09,000
Outstanding expenses...................... 15,000 Investment ..................................... 67,000
Drawing.............................................. 13,900 Computer and equipment............ 78,000
Accounts payable ............................. 95,000 Motor car......................................... 2,98,280
Reserve fund...................................... 67,000 Bank overdraft................................ 1,03,000

PP-25 From the following particulars of Mayur Traders, prepare a balance sheet
as on 31st Ashadh, 2074:
Goodwill.............................................. Rs.1,75,000 Net loss................................................... Rs.40,000
Book debts........................................... 2,17,000 Copy right.............................................. 2,00,000
Bank overdraft................................... 1,89,000 Loan to Udit........................................... 70,000
Business premises............................. 10,47,000 Advance income.................................... 35,000
Cash in hand...................................... 21,000 Creditors................................................. 2,98,000
Closing stock...................................... 1,48,000 Furniture................................................. 1,45,000
Capital................................................. 16,40,000 Cash at bank......................................... 99,000
Ans: Total Rs. 2,1,22,000

PP-26 From the following ledger balances of Himal Company, prepare a balance
sheet as on 31st March, 2017:
Cash in hand............................................ Rs.50,000 Net profit............................................. Rs.1,07,300
Advance income...................................... 38,000 Loan to Dibya..................................... 95,000
Business premises................................... 10,37,300 Accrued income.................................. 27,000
Patent right............................................... 1,00,000 Accounts payable............................... 1,69,000
Loose tools................................................ 50,000 Book debts........................................... 2,00,000
Capital....................................................... 15,10,000 copy right............................................ 1,50,000
Closing stock............................................ 1,00,000 repaid rent........................................... 15,000
PP-27 From the following particulars of Everest Company, prepare a balance

sheet for the year ended 31st Dec, 2017:
Accrued income....................................... Rs.23,000 Reserve.................................................... Rs.45,000
Capital....................................................... 9,00,000 Livestock................................................ 1,10,000
Trade mark............................................... 2,00,000 Plant and machinery............................. 6,39,000
Advance rent............................................ 16,000 Outstanding salary............................... 20,000
Bank balance............................................ 1,71,000 Accounts receivable.............................. 1,82,000
Loan from NB Bank................................ 2,00,000 Unearned income.................................. 7,000
Account payable...................................... 1,72,000 Net loss................................................... 3,000
Final Accounts 175

PP-28 From the following information, prepare a balance sheet of Sujan Traders
Ltd. as on 31st March, 2017:
Net loss ................................................ Rs.1,27,000 Accrued income..................................... Rs.10,000
Reserve.................................................. 76,000 Plant and machinery.............................. 9,03,000
Loose tools............................................ 45,000 Sundry debtors....................................... 1,93,000
Long term loan.................................... 2,00,000 Drawing................................................... 6,000
Advance income............................... 26,000 Bank overdraft........................................ 1,00,000
Capital................................................... 8,96,000 Sundry creditors..................................... 1,67,000
Salary payable...................................... 17,000 Closing stock........................................... 1,98,000
Ans: Total Rs. 13, 49,000
Profit and loss account and balance sheet

PP-29 Following information is extracted from the books of Dugad Company as
on 31st Dec., 2017:
Furniture............................................... Rs.1,00,000 Sundry debtors................................... Rs.1,99,000
Plant and machinery........................... 2,70,000 Discount received............................... 10,000
Commission paid...............................
Salary.................................................... 80,000 15,000
Bank balance.......................................
Gross profit........................................... 2,57,000 Closing stock....................................... 43,000
Reserve fund........................................ 57,000 Capital.................................................. 1,25,000
Sundry creditors.................................. 1,56,000 Investment.......................................... 6,70,000
Selling expenses.................................
Office expenses.................................... 50,000 1,80,000
Advertisement..................................... 25,000 63,000
Required: a) Profit and loss account b ) Balance sheet
Ans: a) Net profit Rs. 34,000 b) Total Rs. 9,17,00

PP-30 You are provided the following information of Palpa Trading Company
for the year ended 31st March, 2017:
Drawing.................................................. Rs.30,000 Capital................................................ Rs.7,30,000
Discount allowed.................................. 15,000 Accounts receivable ....................... 2,98,000
Computer and equipment................... 4,06,000 Prepaid expenses.............................. 10,000
Goodwill................................................. 2 ,00,000 Gross profit....................................... 2,01,000
Accounts payable................................. 2,17,000 Travelling expenses.......................... 51,000
Rent and rates........................................ 75,000 Bank loan........................................... 2,15,000
Interest expenses................................... 27,000 Distribution expenses...................... 23,000
Printing and stationery......................... 41,000 Interest received............................... 17,000
Bank charges.......................................... 15,000 Bank balance..................................... 1,89,000
Required: a) Profit and loss account b) Balance sheet

Ans: a) Net loss Rs. 29,000 b) Total Rs. 11,03,000

PP-31 You are given the following information for the year ending Ashadh 31,
2074:
Rent (Cr.)................................................ Rs.10,000 Capital................................................. Rs.7,50,000
Stationery .............................................. 12,000 Bank loan............................................ 1,00,000
Commission (Cr.).................................. 12,500 Creditors............................................. 70,000
Depreciation........................................... 30,000 Book debts.......................................... 91,000
Interest on loan...................................... 18,000 Land and building............................ 6,45,500
General reserve...................................... 40,000 Loan to Ramu.................................... 70,000
Rent......................................................... 20,000 Gross loss............................................ 89,000
Bills payable........................................... 80,000 Bills receivable................................... 95,000
Outstanding expenses.......................... 30,000 Cash in hand...................................... 22,000
Required:
a) Profit and loss account b) Balance sheet
Ans: a) Net loss Rs. 1,46,500 b) Total Rs. 9,23,500
PP-32 The following trial balance relates to Himal Trade Company as on 31st
December, 2017:
Particulars Rs. Particulars Rs.
Copy right......................................................... 1,00,000 Capital.......................................................... 4,86,000
Furniture .......................................................... 95,000 Gross profit................................................... 2,88,000
Plant and machinery......................................... 4,10,000 Creditors....................................................... 1,50,000
Office expenses................................................ 53,000 Bills payable................................................. 61,000
Selling expenses.............................................. 46,000 Outstanding expenses.................................. 22,000
Stationery......................................................... 40,000 Loan from Himalayan Bank.......................... 1,00,000
Salaries............................................................. 65,000 Commission received................................... 15,000
Debtors............................................................. 1,47,000
Cash in hand ................................................... 20,000
Investment........................................................ 1,46,000
11,22,000 11,22,000
Required:
a) Profit and loss account b) Balance sheet
Ans: a) Net profit Rs. 99,000 b) Total Rs. 9,18,000
PP-33 The following trial balance of a trading concern on Chaitra 31, 2074 is
given to you:

1. Gross profit ......................................................................................... 1,02,000
2. Capital ................................................................................................ 11,36,000
3. Land and building................................................................................ 6,00,000
4. Computer and equipment.................................................................... 2,10,000
5. Bank balance....................................................................................... 1,10,000
6. Printing and stationery ....................................................................... 17,000
Final Accounts 177

7. General expenses .............................................................................. 28,000
8. Legal charges ..................................................................................... 8,000
9. Bad debts ........................................................................................... 7,000
10. Bank charges ...................................................................................... 5,000
11. Accounts receivable ........................................................................... 1,80,000
12. Accounts payable................................................................................ 1,60,000
13. Distribution expenses.......................................................................... 87,000
14. Bad debt recovered ............................................................................ 3,000
15. Closing stock ...................................................................................... 1,30,000
16. Prepaid expenses ............................................................................... 19,000
Total 14,01,000 14,01,000
Required:
a) Profit and loss account
b) Balance sheet
Ans: a) Net loss Rs. 47,000, b) Total Rs. 12,49,000
Trading, profit and loss account and balance sheet
PP-34 You are given the following trial balance of Manakamana Trading
Company as on 31st Dec, 2017:
Opening stock................................................. 10,000 Sales............................................................. 6,00,000
Purchases ...................................................... 3,00,000 Capital.......................................................... 2,00,000
Drawing.......................................................... 10,000 Loan ............................................................ 50,000
Carriage inward.............................................. 20,000 Creditors....................................................... 60,000
Wages............................................................ 60,000 Reserve fund................................................ 25,000
Salaries........................................................... 50,000
Stationery....................................................... 6,000
Rent and rates................................................ 55,000
Other office expenses..................................... 40,000
Printing........................................................... 10,000
General expenses.......................................... 2,000
Furniture......................................................... 70,000
Cash............................................................... 2,000
Bank............................................................... 56,000
Debtors........................................................... 70,000
Plant and machinery....................................... 1,74,000
9,35,000 9,35,000
Required: a) Trading and profit and loss account

b) Balance sheet
Ans: A) Gross profit Rs. 2,10,000, Net profit Rs. 47,000, b) Total Rs. 3,72,000

PP-35 You are given the following information of Trigun Traders Company for
the year ending Chaitra 30, 2074:
Capital................................................. Rs.4,00,000 Plant and machinery.................... Rs.3,70,000
Computer and equipment............... 85,000 Drawing......................................... 10,000
Sundry debtors.................................. 1,40,000 Sundry creditors........................... 1,56,000
Wages.................................................. 1,00,000 Purchases . .................................... 2,70,000
Sales..................................................... 6,18,000 Opening stock............................... 86,000
Bank loan............................................ 50,000 Bank balance ................................ 61,000
Salary.................................................. 28,000 Rent and rates............................... 20,000
Advertisement................................... 14,000 Selling expenses............................ 15,000
Discount allowed.............................. 5,000 Commission received.................. 15,000
Printing and stationery..................... 9,000 Carriage inward........................... 26,000
Required: a) Trading and profit and loss account
b) Balance sheet
Ans: a) Gross profit Rs. 1,36,000, Net profit Rs. 60,000 b) Total Rs. 6,56,000
PP-36 You are given the following trial balance of a company as on 31st March,
2013:
Opening stock................................................. 1,00,000 Capital.................................................... 5,20,000
Purchases ...................................................... 9,00,000 Purchase return...................................... 20,000
Sales return.................................................... 16,000 Bank loan ............................................... 2,00,000
Drawing.......................................................... 20,000 Reserve fund.......................................... 1,00,000
Salaries........................................................... 80,000 Sundry creditors..................................... 80,000
Sundry expenses............................................ 20,000 Sales....................................................... 15,00,000
Interest on loan............................................... 30,000 Bills payable........................................... 70,000
Carriage outward............................................ 10,000
Wages............................................................ 1,20,000
Factory expenses........................................... 50,000
Bank charges.................................................. 15,000
Depreciation................................................... 16,000
Selling expenses............................................ 35,000
Bad debts....................................................... 11,000
Insurance........................................................ 4,000
Land and building........................................... 6,12,000
Closing stock.................................................. 1,30,000
Sundry debtors............................................... 1,17,000
Bills receivable................................................ 90,000
Cash at bank.................................................. 1,14,000
24,90,000 24,90,000
Final Accounts 179

Required:
b) Balance sheet
Ans: a) Gross profit Rs. 3,34,000, Net profit Rs.1,13,000 b) Total Rs. 10,63,000
PP-37 You are given the following balances of Gorkha Trade Concern for the
year ended Ashadh 31, 2074:
Wages.................................................... Rs.2,00,000 Depreciation................................... Rs.30,000

Capital................................................... 5,00,000 Selling expenses............................. 6,000
Drawing................................................ 40,000 Accounts payable.......................... 1,60,000
General expenses................................. 30,000 Distribution expenses................... 10,000
Building................................................ 4,00,000 Bank overdraft............................... 1,15,000
Goodwill............................................... 1,00,000 Cash at bank................................... 35,000
Closing inventory................................ 50,000 Purchases . ..................................... 5,00,000
Rent....................................................... 70,000 Accounts receivable...................... 1,54,000
Printing................................................. 10,000 Sales................................................. 10,00,000
Investment............................................ 60,000 Sundry income............................... 10,000
Carriage inward.................................. 55,000 Import duty.................................... 35,000
Required:
b) Balance sheet
Ans: a) Gross profit Rs. 2,10,000, Net profit Rs. 64,000 b) Total Rs. 7,99,000
PP-38 The trial balance of Bira Industry as on 31st Chaitra 2074 is given below:

1. Drawing and capital............................................................................................ 15,000 6,70,000
2. Wages and salaries............................................................................................ 1,20,000
3. Purchase and sales............................................................................................ 3,85,000 5,25,000
4. Power expenses ................................................................................................ 51,000
5. Return................................................................................................................. 20,000 5,000
6. General reserve.................................................................................................. 27,000
7. Salesman salaries.............................................................................................. 19,000
8. Loose tools ........................................................................................................ 16,000
9. Cash in hand ..................................................................................................... 21,000
10. Stationery .......................................................................................................... 17,000
11. Loan to Ramu..................................................................................................... 1,00,000
12. Bad debts........................................................................................................... 2,000
13. Postage expenses.............................................................................................. 1,000

14. Creditors ............................................................................................................ 1,04,000
15. Book debt .......................................................................................................... 1,15,000
16. Sundry expenses ............................................................................................... 23,000
17. Furniture and fixtures.......................................................................................... 80,000
18. Bad debt recovered............................................................................................ 8,000
19. Trade expenses ................................................................................................. 13,000
20. Advance income ................................................................................................ 25,000
21. 1,66,000
Closing stock......................................................................................................
22. 2,00,000
Copy right...........................................................................................................
Total.............................................................................................................. 13,64,000 13,64,000
Required:
b) Balance sheet
Ans: a) Gross loss Rs. 46,000, Net loss Rs. 1,13,000 b) Total Rs. 6,98,000
Final accounts with adjustments

PP-39 The following is a trial balance of Mega Company as on 31st Chaitra, 2074:
Opening stock............................................. 10,000 Capital.......................................................... 2,50,000
Purchase.................................................... 90,000 Sales............................................................. 2,90,000
Wages........................................................ 25,000 Sundry creditors........................................... 25,000
Salary......................................................... 20,000 Commission received................................... 6,000
Land and building....................................... 2,00,000 Interest on investment.................................. 5,000
Rent............................................................ 30,000 Bank loan...................................................... 40,000
Insurance.................................................... 12,000
Cash at bank.............................................. 19,000
Sundry debtors........................................... 35,000
Discount...................................................... 5,000
Investment.................................................. 40,000
Plant and machinery................................... 1,30,000
6,16,000 6,16,000
Adjustments:
a) Closing stock was valued at Rs. 20,000.
b) Outstanding wages amounted to Rs. 4,000.
c) Prepaid insurance Rs. 2,000.
d) Depreciate plant and machinery by Rs. 26,000.
Required:
b) Balance sheet
Ans: a) Gross profit Rs. 1,81,000, Net profit Rs. 1,01,000 b) Total Rs. 4,20,000
Final Accounts 181

PP-40 The following trial balance and adjustments of Arox Company on 31st
December, 2017 were given to you:

Purchase..................................................... 1,00,000 Sales........................................................ 3,50,000
Sales return................................................. 10,000 Purchase return....................................... 5,000
Freight inward.............................................. 20,000 Capital..................................................... 1,60,000
Furniture and fixtures................................... 1,50,000 Interest on investment............................. 15,000
Opening inventory....................................... 5,000 Creditors.................................................. 45,000
Discount....................................................... 15,000 Loan from friends..................................... 40,000
Investment................................................... 1,00,000 Miscellaneous income............................. 1,000
Debtors........................................................ 40,000
Salary and wages........................................ 35,000
Rent and rates............................................. 30,000
Audit fees..................................................... 10,000
Advertisement.............................................. 25,000
Cash and bank balance............................... 76,000
6,16,000 6,16,000
Adjustments:
a) Stock in hand on 31st December 2017 was Rs. 20,000.
b) Outstanding salary Rs. 5,000.
c) Prepaid rent Rs. 10,000.
d) Depreciate furniture by Rs. 30,000.
Required:
b) Balance sheet
Ans: a) Gross profit Rs. 2,40,000, Net profit Rs. 1,16,000 b) Total Rs. 3,66,000


7 GOVERNMENT
Chapter
ACCOUNTING
Learning Objectives
be able to :
 define government accounting and
explain its features,
 differentiate between government
accounting and business accounting,
 introduce new accounting system and
describe its objectives and features,
 differentiate between central level and
operating level accounting,
 write the functions of the Office of the
Auditor General, the Office of the
Finance Comptroller General and the
Treasury and Comptroller Office,
 write the meaning of audit and explain
the types of audit and their impatance,
 describe the development of auditing in
Nepal,
 differentiate between internal audit and
final audit.
Introduction
Like business organizations, government offices also perform a number of financial transactions daily.
Such transactions are related to revenue and expenditures of the government. In order to keep the
record of revenue and expenditures, the government practiced different accounting systems in different
period of time. After the introduction of new accounting system in Nepal since 2019/20 B.S, it brought
uniformity in accounting. Since then, the government also emphasized on systematic recording as well
as auditing of the books of account. As a result, the Office of the Auditor General was established in
2016 B.S. Under new accounting system, the government offices have been classified into central level
and operating level offices. It has the provision of internal audit and final audit for all the government
offices including corporations. There are different legal bodies incorporated for maintaining effective
control over budget and implementing the accounting policies of the government. The Office of the
Auditor General is responsible for final audit of government offices and corporations having investment
of the government. Similarly, the Office of the Treasury and Comptroller is involved in releasing the
approved budget to operating level offices. Another department level office i.e the Office of Finance
Comptroller General performs the functions such as internal audit, budget operation and control, funds
management, amendment and reforms in accounting system, training and development of accounting
staffs, financial administration etc. Thus, government accounting system has maintained effectiveness
and reliability in keeping the record of revenue and expenditures.
Government Accounting 183

Government is the responsible body of the nation. It has to perform a number of
administrative and developmental activities for the people. The government also
has to perform a large number of financial transactions relating to such activities.
The systematic recording of every financial transaction is equally important. Thus,
in order to keep a systematic recording of financial transactions taking place daily,
the government follows a proper accounting system which is known as government
accounting. It is the part of accounting that maintains the record of governmental
revenue and expenditures. Government accounting is the systematic process of
collecting, recording, classifying, summarizing, interpreting and communicating
the financial transactions of the government offices. It provides the information
about the collection of revenue from different heads and their utilization in various
administrative and development activities. It discloses the position of the government
providing the information about receipts and utilization of public fund.
Following is the definition of government accounting.
“Government accounting is the process of recording, analyzing, classifying, summarizing,
communication and interpreting financial information about government in aggregate and in details,
reflecting all transactions involving the receipts, transfer and disposition of government fund and
property.” Oshisami and Dean
The accounting system followed by the government offices to keep the

systematic record of revenue and expenditures of the government is known as
government accounting.

 Government accounting is the process of collecting, recording classifying, summarizing, interpreting and
communicating the financial transaction of the government offices.
 It is followed by all the government offices including ministries, departments and other central and operating
level government offices.
Differences between government accounting and

business accounting
Besides government accounting, there is another accounting i.e. business accounting
which is maintained by the business organizations. Both accounting systems are
concerned with recording classifying, summarizing and interpreting the financial
transactions in a systematic manner. Both the systems are based on double entry
concept. However, there are some differences as given below:

Basis of difference Government accounting Business accounting
1. Meaning It is the accounting system It is the accounting
used by government offices system used by business
to keep the record of revenue organizations to keep
and expenditures. the record of financial
transactions.
2. Purpose Its main purpose is to depict Its main purpose is to
the position of government ascertain the profit or loss
funds. and financial condition of the
business firm.
3. Basis It is maintained on cash basis. It is maintained on cash as
well as accrual basis.
4. Level of It has the provision of central It does not have any

accounting and operating level of classification of level of
accounting. accounting.
5. Budget It strictly follows the It does not follow the
budgeting system of government budgeting
government. system.
6. Information It provides information about It provides information

the receipts, transfer and about operating results and
disposition of public funds. financial position of business.
7. Rules and It strictly follows the financial It follows the rules and
provisions rules and provisions of the principles of Generally
government. Accepted Accounting
Principles (GAAP).
8. Responsibility It is responsible towards the It is responsible towards
general public. owners or shareholders of the
firm.
9. Forms and It uses the accounting forms It uses the forms and format
format and formats prescribed by the as per its requirement and
Office of the Auditor General. prescribed by company act or
other regulations.
10. Audting Its books of account are Its book of account are
audited by the constitutional audited by the professional
body i.e the Office of the auditor having licence.
Auditor General.

NEW ACCOUNTING SYSTEM

Traditionally, the different accounting systems were introduced and brought into use
for recording, classifying and analysing the financial transactions of the government
offices. However, such system could not maintain the systematic recording of
voluminous transactions of government offices. After the dawn of democracy in 2007
B.S., the government became more responsible towards the public. It felt the necessity
of systematic and scientific accounting system for proper collection and utilisation of
public fund. When the previous two accounting systems i.e. Syaha Sresta Pranali and
Faram Sresta Pranali became unsuitable to fulfil the requirement, another accounting
system i.e. Bhuktani Sresta Pranali was introduced in 2017 B.S. But, this system also
became insufficient to meet the real need of the government.
Due to ineffectiveness of previous accounting systems, the government decided to study
about the previous accounting system and introduce the systematic and scientific one.
Thus, for the purpose of studying and providing suggestions and recommendations,
the government formed a four members committee on Magh 20, 2017 B.S. After the
detailed study of 288 days, the committee presented a draft to the Finance Secretary
on Kartik 18, 2018 B.S. It included the suggestions and recommendations for the
scientification, modernization, improvement and decentralization of accounting
system in Nepal. This draft was approved by the Auditor General on Magh 20, 2018
B.S. Finally, it was approved by the then king Mahendra on Chaitra 2, 2018 B.S. After
the approval, the government implemented that accounting system since the fiscal
year 2019/20 B.S. which was named as new accounting system.
It was called new accounting system at that time because it was quite new at the time of
its introduction and implementation. It is still in practice in all the government offices
of Nepal. It is considered as the most scientific, systematic, modern and progressive
type of accounting system for recording, classifying and analysing the governmental
revenue and expenditures. It is fully based on the double entry concept of accounting.
New accounting is the present accounting system of the government of Nepal

which was introduced as per the suggestions and recommendations of account
committee 2017 to maintain the systematic and scientific recording of all the
governmental revenues and expenditures under double entry concept.

 New accounting system was implemented in Nepal since 2019/20 B.S in phase wise basis.
 Firstly, it was implemented in the government offices of Kathmandu valley since the fiscal year 2019/20 B.S.
 Secondly, it was implemented in the offices of Narayani Zone and rest of the Bagmati Zone since the fiscal
year 2020/21 B.S.
 Similarly, in third phase, it was implemented in the offices of Janakpur and Gandaki Zone since the fiscal year

Objectives of new accounting system
The main objectives of new accounting system are
as follows: Memory Tips
 To keep systematic record of financial
a. To keep systematic record of financial transactions
transactions  To determine the limitation of budget
The main objective of present new accounting  To supply financial data and information
 To provide information about public
system is to keep proper and systematic record funds
of every financial transaction performed in  To facilitate the preparation of
government offices. The financial transactions financial statements and reports
 To safeguard the physical properties
may be related to cash and store items. The  To facilitate the job of auditing
systematic recording of such transactions  To facilitate in planning and decision
facilitate for controlling misuse of government making
fund and supply of financial information.
b. To determine the limitation of budget
Every year the government allocates certain amount into different heads of
expenditure which is called budget. According to the objective of new accounting
system, each government offices need to make expenditure within limitation of
budget. In order to maintain the record and reporting the same, a budget sheet is
prepared in all the operating level government offices.
c. To supply financial data and information
In order to prepare the budget, it requires the financial data and information
relating to the revenue and expenditures. Such financial data and information
are supplied by various financial statements and reports prepared under new
accounting system.
d. To provide information about public funds

The government requires to get information about the receipt and utilization of
public fund. In order to allocate the funds over administrative and developmental
works properly, the various information regarding the public funds are required.
Thus, the new accounting system aims to supply the updated information about
public funds.
e. To facilitate the preparation of financial statements and reports

The government needs to prepare various periodical statements and reports
on regular basis. Some of the reports are prepared on monthly basis whereas
others are prepared on yearly basis. The new accounting system provides the
detailed information and facilitates the preparation of such financial reports and
statements.

f. To safeguard the physical properties
The government offices use various types of physical properties such as furniture,
plant and machinery, vehicles, land and building etc in order to perform the
regular jobs and provide welfare services. The new accounting system maintains
the systematic recording of such public properties. It designs various forms and
formats for their proper recording. It also assigns such jobs to certain staffs and
makes them accountable for acquiring, utilising, safeguarding and reporting on
such public properties.
g. To facilitate the job of auditing

Under new accounting system, all the offices of government use same forms and
formats for recording the revenue and expenditures. Such forms and formats are
designed and prescribed by the Office of Auditor General. This system has made
the provision of compulsory auditing of all the government offices. In order to
audit the books of account in simple and economical way, the new accounting
system provides the required financial data and information. Thus, it facilitates
the job of auditing
h. To facilitate in planning and decision making

The government needs to formulate different plans and policies. It also requires
to make various decisions for proper implementation of such plans and policies.
The government is equally responsible for making various financial decisions.
The new accounting system provides reliable financial data and information to
support in planning, implementing and decision making.
Features of new accounting system

The new accounting system is different from other previous accounting systems
practiced in Nepal due to its notable features. Such features are explained below.
a. Based on double entry concept

The new accounting system is based on
the principle of double entry system of Memory Tips
accounting. Like in business accounting, the  Based on double entry concept
financial transactions of government offices  Simplicity and uniformity
 Emphasis on banking transactions
are also recorded by showing double effect i.e.  Based on budget heads
debit and credit. Thus, it follows the principle  Classification of government offices
that debit must be equal to credit.  Use of prescribed forms
 Provision of auditing
b. Simplicity and uniformity  Changeability
 Based on cash transactions
Before introduction of new accounting system,  Transparency

the different accounting systems were practised in government offices of Nepal.
At present the new accounting system is used in all the government offices through
out the country. It follows same forms, formats and procedures for recording,
analysing and reporting the financial transactions. Due to this, uniformity has
been maintained in accounting. On the other hand, new accounting system is
very simple to understand and easy to apply in government offices.
c. Emphasis on banking transactions
Under new accounting system, all the financial transactions of government
offices are performed through bank. It means every government offices should
immediately deposit all the revenues into bank and all the payments should
also be made through cheque except petty cash expenses. It helps to prevent the
misuse of cash in government offices.
d. Based on budget heads
Under new accounting system, all the transactions are recorded according to
their budget heads. The budget heads and their head numbers are mentioned on
the budget. The accounting staffs are also made responsible to keep the record of
expenditure only on the heads allocated like 21111 for salary, 29311 for furniture
etc. Thus, the expenditures should be made within the limitation of budget
approved on different budget heads.
e. Classification of government offices
Under new accounting system, the government offices have been classified into
central level and operating level. Central level offices are responsible towards
the Office of the Comptroller General under Ministry of Finance. The operating
level offices are responsible towards the central level offices. Central level offices
maintain central level accounting whereas operating level offices maintain
operating level accounting. Generally, the ministries and departments fall under
central level and the offices established under them fall under operating level.
f. Use of prescribed forms
Under new accounting system, the different forms are used. Such forms are
designed and prescribed by the Office of the Auditor General and implemented
by all the government offices. Thus, only the accounting maintained under
prescribed forms is considered as legally valid. Some of the forms used under
new accounting system are journal voucher (AGF No. 10), bank cash book (AGF
No. 5), budget sheet (AGF No. 8) statement of expenditure (AGF No. 13), bank
reconciliation statement (AGF No. 15) etc.
g. Provision of auditing
The act of examining the books of account to ensure proper recording and correct
application of accounting rules is known as auditing. Under new accounting
system, there is the provision of internal and final audit. The internal audit is
done by the Office of the Treasury and Comptroller and the final audit is done by
the Office of the Auditor General.
h. Changeability
The new accounting system has the feature of changeability. It accepts the
change in accounting as per the time, situation and necessity of the government.
The required changes can be made by the Office of the Auditor General with
the help of suggestions and opinions provided by the Office of the Finance
Comptroller General. It helps to make the accounting system more systematic,
scientific and reliable.
i. Based on cash transactions

The new accounting system performs the transactions only on cash basis not
on accrual basis. It does not keep the record of credit transactions. It records
the transactions at the time of receiving and paying cash but not at the time of
receiving or providing goods or services. Due to this, the amount of advance
given is also recorded by assuming expenditure until its clearance.
j. Transparency
Under new accounting system, there is the provision of maintaining the record
of annual appropriation, budget release and budget expenditures made by the
government offices in prescribed format. Every office or individual maintaining
record is liable to present the accounting periodically to the concerned authority
or office. The financial details of revenue and expenditures should be presented
to the concerned ministry, department, commission and auditor clearly. It ensures
the transparency of expenditures made through public fund.
Level of government accounting

The present accounting system of government of Nepal has been classified into two
levels. Those are central level accounting and operating level accounting as explained
below:
Central level accounting

The accounting system maintained by central level offices is known as central
level accounting. Central level offices are those offices which receive budget from
the Ministry of Finance and release it to the operating level offices. The ministries,
departments and constitutional bodies fall under this category. These offices
coordinate, direct and control the operating level offices through out the country. The
accounting of central level offices is concerned with the recording of budget received
from the Ministry of Finance and release made to operating level offices. Such offices

need to prepare and submit the financial statements to the Ministry of Finance and
Office of the Finance Comptroller. Following are some of the major documents used
by central level offices:
 Journal voucher
 Subsidiary books
 Ledger
 Bank statement
 Statement of advance given
 Budget summary and expenditure control account
Operating level accounting

The accounting system maintained by the operating level offices is known as operating
level accounting. Operating level offices are those offices which receive budget from
the central level offices and spend on different budget heads. All the provincial,district
and local level government offices fall under this category. Operating level offices are
fully responsible towards the central level offices. These office should prepare and
submit the periodical reports to the concerned central level offices.
Following are some of the major accounting documents used by operating level offices:
 Journal voucher  Bank cash book
 Budget sheet  Statement of expenditure
 Statement of outstanding advance  Bank reconciliation statement
 Subsidiary ledger
Differences between central level accounting and

operating level accounting
Following are the main differences between central level and operating level
accounting:
Basis of
Central level accounting Operating level accounting
difference
1. Meaning The accounting system The accounting system
maintained by central level maintained by operating level
offices is called central level offices is called operating level
accounting. accounting.
2. Function It maintains the record of budget It receives the budget, makes
received from the Ministry of expenditure and prepares the
Finance and release made to record of such expenditure on
operating level offices. different budget heads.

3. Purpose The main purpose is to The main purpose is to execute
maintain effective control the budget within budgetary
over budget. limit.
4. Responsibility The offices maintaining The offices maintaining
central level accounting are operating level accounting
responsible towards the are responsible towards the
Ministry of Finance. central level offices.
5. Number of It uses only a few number of It uses a large number of forms
forms forms. in comparison to central level
accounting.
6. Support It supports the Office of It supports the Office of
the Finanace Comptroller the Finanace Comptroller
General for preparation of General for preparation of
central accounts directly. central accounts indirectly.
Office of the Auditor General

Office of the Auditor General is an independent constitutional body which is
responsible for making the final audit of all the government offices, constitutional
bodies and other corporations. The head of this office is the auditor general who is
appointed by the President on the recommendation of the constitutional council. He/
she is appointed for six years. The Office of the Auditor General is responsible for
checking the books of account of all the government offices, constitutional bodies,
government owned corporations and the corporations having more than 50% shares
owned by the government. The Auditor General being head of this office is responsible
for preparing and submitting the audited financial report to the President for its final
approval after completion of every fiscal year.
Office of the Auditor General is an independent constitutional body which

is responsible for performing the final audit of all the government offices,
constitutional organs and corporations having full or partial ownership of the
government.
Functions, rights and duties of the Office of the Auditor

General
According to the provision made in constitution of Nepal 2072, section 22, the
functions, rights and duties of the Office of the Auditor General are as follows:
 To perform the final audit of all government offices, constitutional organs and
offices of army, police and court considering the provision of law.

 To consult while appointing the auditor in enterprises having more than 50%
share of the government.
 To design and prescribe the forms and format for accounting purpose to
ensure simplicity, uniformity and effectiveness in job.
 To examine the books of account by the subordinates at any time for the purpose
of auditing. All the government offices are liable to provide documents and
information to them without stating any terms and condition for this purpose.
 To be liable to audit the books of account of any government office or institution
by making rules.
 To prepare and submit the annual report to the government for final approval.
Office of the Finance Comptroller General

An office which remains as a department of the Ministry of Finance and keeps the
record of all the government revenue and expenditures is known as the Office of the
Finance Comptroller General. It was converted into this name from the Office of the
Account General in 2032 B.S. which was established on 2008 B.S. This office prepares
the central level accounts of all the revenue and expenditures by collecting the
necessary financial data and information from various ministries and constitutional
organs. The head of this office is called the Comptroller General. The Office of the
Finance Comptroller General operates and controls the consolidated fund and
financial administration of the country. It gives direction to the concerned district
level Treasury and Comptroller Offices for doing internal audit of all the district level
government offices.
Office of the Finance Comptroller General is a department level government

office established under the Ministry of Finance which maintains the central
level account relating to the government revenues and expenditures.
Functions, rights and duties of the Office of the Finance

Comptroller General
Following are the functions, rights and duties of the Office of the Finance Comptroller
General as per the provision made in Financial Administration Act 2056:
 Implementing various accounting forms for keeping record of financial
transactions of government offices prescribed by the Office of the Auditor General.
 Preparing central accounts for government revenue and expenditures.
 Inspecting whether the government offices have followed the financial rules
and regulations properly or not.
 Preparing central account of government relating to appropriation of budget,
revenue and expenditure and auditing them from the Office of the Auditor
General.
 Maintaining proper record of consolidated fund, emergency fund and other
government funds.
 Providing direction to the concerned treasury and comptroller office for doing
internal audit of all district level government offices.
 Solving any misunderstanding and disputes related to financial administration
and informing the concerned offices.
 Keeping central level record of financial irregularities on the basis of annual
statements related to irregularities submitted by ministries and constitutional
bodies.
 Performing other functions and duties given by the Ministry of Finance.
Office of the Treasury and Comptroller

The district level offices which are established under the Office of the Finance Comptroller
General are known as Offices of the Treasury and Comptroller. Such offices are established
in all the districts since fiscal year 2038/039 B.S. and functioning till today. These offices
are responsible for releasing the amount of budget approved for district level government
offices and doing internal audit of revenue, budget expenditures, tax and security deposit.
Treasury and Comptroller Offices are the district level offices established under
the Office of the Finance Comptroller General for providing budget release and
performing internal audit of all the government offices relating to revenue and
expenditures.
Functions, rights and duties of the Office of the Treasury

and Comptroller
The main functions, rights and duties of the Office of the Treasury and Comptroller
are as follows:
 Releasing the initial imprest fund equal to one sixth of last year total budget
expenditure on the account of government offices at the beginning of fiscal year.
 Releasing budget equal to the amount of expenditure made on previous month
according to the statement of expenditure.
 Monitoring, supervising, advising and directing the offices of concerned
district on financial issue as per prevailing rules, regulations, plans and
policies of the Office of the Finance Comptroller General.
 Collecting the statement of monthly revenues from the concerned offices, preparing
integrated reports of revenue and submitting to the concerned authority.
 Peforming internal audit of the books of account maintained by all district level
government offices.
 Performing inspection whether offices have deposited surplus amount of
budget in consolidated fund at the end of fiscal year or not. If not, instructing
them to do so.

 Preparing and submitting the annual financial report related to the amount of
budget release to the Office of the Finance Comptroller General and concerned
department at the end of fiscal year.
 Informing the government offices regarding stoppage of bank account, if they
have not updated the books of account, found irregularities, not presenting
the financial report on time and violating the rules and regulation of financial
administration.
 Performing other functions as specified by the Office of the Finance Comptroller
General.
AUDITING

The word ‘audit’ is derived from the latin word ‘audire’ which means to listen. In
ancient period, whenever the owners of a business suspected frauds and errors in
accounting records, a person was appointed to examine the records. The person who
used to listen the speech about records was called auditor and the work done by such
auditor was named as auditing. In earlier days, the concept of auditing was limited to
the checking of arithmetical accuracy and detecting errors and frauds in the account.
But at present, it not only ascertains the accuracy of the records but also measures
their reliability and dependability.
In simple sense, auditing refers to the act of examining the books of account by an
independent person for the purpose of obtaining true and fair result of operation
presented by financial statements. It is the intelligent and critical test of correctness,
sufficiency and reliability of accounting data and statements. Its main objective is to
detect and prevent the errors and frauds in the books of account. In case of government
audit, it is the act of checking governmental financial transactions to know whether
they are performed and recorded as per the provision of law or not.
Following are the main definitions of auditing :
“Auditing is an examination of the accounting records under taken with a view of establishing whether
they correctly and completely reflect the transactions to which they purpose to relate.” L.R. Dicksee
“An audit is an examination of such records to establish their reliability and the reliability of statements
drawn from them.” A.W. Hanson
“Auditing is a systematic examination of the books and records of business or other organization in
order to ascertain or verify and to report upon the facts regarding its financial operations and the results
thereof.” Montgomery
Auditing is the systematic and professional act of examining, verifying and

reviewing the books of accounts of an institution by an independent person
to disclose the true results of operation presented by financial statements
considering their accuracy, reliability and dependability.

Historical Development of auditing in Nepal
The function of auditing in Nepal is found to be performed since ancient time.
However, the evidence shows that historical development of audit began only since
Baisakh 6, 1828 B.S. after the establishment of “Kumari Chowk Adda” by the then
king Prithvi Narayan Shah. He had introduced the system of assigning the duty of
examining the central account of revenue and expenditures. After the establishment
of democracy in 2007 B.S., a scientific method of auditing was used in the field of
maintaining the records and verifying them. The constitution of Nepal 2015 had also
made the provision of the Office of the Auditor General as constitutional body for the
audit of government accounting. As a result in 2016/03/15 B.S. (29 June 1959 AD), the
Office of the Auditor General was established as constitutional body for the audit of
government offices.
Since the fiscal year 2031/ 032, some new forms were brought into use on the
recommendation of the Auditor General. After the historical revolution of 2046 B.S,
the constitution of Nepal 2047 had also continued the provision of the Auditor General
as the constitutional body. An enactment of Auditing Act 2048 has also brought
changes in the field of government audit. The Company Act 2063 has also made
the compulsory provision of audit in business sector and companies. The present
constitution of Nepal 2072 has also the provision of Auditor General in section 22. All
these activities show that the development of auditing in Nepal is gradually being
systematic and scientific.
Types of audit
Following are the main types of audit :
Internal audit
Internal audit means the examination of the books of account by an employee of the
same organization. It is an independent appraisal and verification of the transactions
and accounting procedures with a view to serve the management. The main purpose
of internal audit is to ensure proper result from the financial transactions and to correct
the errors and misuse in time. In case of government offices, the act of examining the
books of account conducted by the staff of the District Treasury and Comptroller
Office under Office of the Finance Comptroller General is known as internal audit.
The government of Nepal has established the Treasury and Comptroller Office in all
the 75 districts giving the responsibility of internal audit of government offices. The
final audit is conducted only after the completion of internal audit from such offices.
Following are the main objectives of internal audit:
 To detect the errors and frauds and prevent them.
 To verify the books of account and statements regularly.

 To assist the management in accounting and financial matter of the organization.
 To ensure the reliability in way of keeping accounting records.
 To prepare basis for the final audit of books of account.
Internal audit is the act of examining the books of account by an internal staff of
an office with a view to ensure proper result from the financial transactions and
to detect and rectify the errors on time.
Final audit
Final audit is the act of checking the books of account and financial statements by
an independent auditor as per the provision of law. It is generally conducted after
the completion of fiscal year. Final audit is done by an independent and professional
auditor. In this type of audit, the related act describes about the qualifications, rights,
duties and responsibilities of auditor. The auditor has to examine, verify and review
all the financial documents and books of account in order, to ascertain their reliability
and dependability.
In Nepal, an office called the Office of the Auditor General is established as a
constitutional body for the final audit of the books of account of government offices,
constitutional bodies and corporations. The Office of the Auditor General and its
employees have full authority to make enquiry for the accounting records for auditing
purpose. In case of private organization, the audit of books of account is done from
the registered auditor as per the provision of related act.
Following are the main objectives of final audit:
 To fulfil the legal requirement.
 To examine whether the transactions are recorded as per prevailing financial
rules and regulations or not.
 To reflect the true and fair financial position of the firm.
 To detect and prevent the errors and frauds if found committed in books of
account.
 To evaluate the effectiveness, efficiency, economy and authenticity of the
financial transactions.
 To encourage the firm to maintain public accountability and transparency.
Final audit is the act of examining the books of account by an independent

auditor as per the provision of law after completion of fiscal year to disclose
the true financial position and ensure the correct application of accounting
principles.

Differences between internal audit and final audit
Following are the major differences between internal audit and final audit:
Basis of difference Internal audit Final audit

1. Purpose Its main purpose is to Its main purpose is to depict
detect and prevent errors the true and fair result of
and frauds at an early operation and financial
stage of performance. position.
2. Auditor It is done by the It is done by the independent
internal employee of the professional auditor.
organization.
3. Nature It is continuous in nature It is periodical in nature and
and conducted throughout conducted at the end of fiscal
the year. year.
4. Appointment of The auditor is appointed The auditor is appointed by
auditor by the management or the annual general assembly
Treasury and Comptroller or the Office of the Auditor
Office. General.
5. Requirement It fulfils the internal It fulfils the legal requirement
requirement of the of the office.
management.
6. Qulification Internal auditor does Final auditor requires
not require specific professional qualification
qualification and license. and audit license.
Importance and advantages of audit

Auditing has become a compulsory task in both business and government offices. All
types of organizations have to get their books of account audited as per the prevailing
act, financial rules and provision of law. It ensures reliability in account keeping and
creates confidence among the concerned parties. The importance and advantages of
auditing can be explained as under:
a. Detection and prevention of errors and frauds
The main objective of audit is to detect and
prevent the errors and frauds by examining
the books of account and financial statements. Memory Tips
It helps to prevent such errors and frauds in the  Detection and prevention of errors and
days to come. It helps to make the accounting frauds
staffs more accountable in keeping the records.  Determination of true financial position
 Determination of tax
It also facilitates in designing internal control  Basis of credibility
system for detection and prevention of frauds  Help in planning and decision making
and errors.  Fulfilment of legal requirement

b. Determination of true financial position
The auditor critically examines the books of account and financial statements
maintained by the business and government organization. He checks, verifies and
reviews all the transactions including the transactions relating to various assets
and properties. Thus, it helps to ascertain the true and fair financial position of
the firm.
c. Determination of tax
The auditor examines all the books of account of the business organizations. He
calculates the taxable income of the firm on the basis of supportive documents
relating to revenue and expenditures. The tax authorities also determine
the amount of tax on the basis of audited income statement. Thus, it helps to
determine the actual amount of tax payable to the government.
d. Basis of credibility
Auditing provides reliability to the books of account and financial statements
maintained by the organizations. The concerned person or parties associated
with the organization like shareholders, creditors, employees, government and
general people believe on the statements certified by the auditor. Thus, it is
considered as a basis of reliability.
e. Help in planning and decision making
The audited books of account and financial statements provide various data and
information to the management. Such data and information are accurate, reliable
and dependable for taking various decisions on financial matters. On the basis of
such data and information, the management makes plan, formulates budget and
takes the decision considering the future. Thus, auditing also helps in planning and
decision making of the firm.
f. Fulfilment of legal requirement
All the business and government organizations have to present the financial
reports and statements to the concerned authority. Such financial reports and
statements have to be audited from professional auditor or Office of Auditor
General. Thus, all types of organizations get their books of account audited from
auditor and submit to the concerned authorities. Thus, it helps to fulfil the legal
requirement.
Classification and explanation of budget expenditure

heads
All the government offices should follow the heads of budget expenditure classification
while preparing the vouchers and other records maintained by them. Classification of
budget heads of expenditure in revised form are as follows:

 Under new concept of budget heads classification, they are allocated under budget expenditure head
number 20000. They are categorized as base heads, main heads, heads and sub heads.
Base head 21000 consists of salary and benefits. It has the main head 21100 which
include the following:
21100 salary and benefits
21110 Salary and benefits paid in cash
21111 Salary: It includes the following:

- Remuneration paid to staffs such as salary, additional
provident fund, additional pension, grade, insurance, other
rewards and incentives paid to the employees.
- Wages and remuneration paid to temporary staffs of
government offices and projects.
- Amount paid to government employee for annual leave, sick
leave, festival allowance like Dashain etc.
Local allowance: It includes the allowance paid for working

21112
at remote area.
Dearness allowance: It includes the allowances declared by

21113
the government of Nepal for the employee to bear inflation.
Field allowance: It includes the allowances declared by the

21114
government to the employees for field visit and field work.
21119 Other allowance: It includes the other allowance declared by

the government like:
- meeting allowance - foreign allowance
- festival allowance - overtime allowance
- maternity allowance
21120 Salary and benefits paid other than cash
Uniform: It includes the expenditure of dress and uniform

21121
like clothes, shoes, boots, caps, etc. provided to government
employees like postman, policemen, military, medical staffs
and other government staffs.
Food: It includes the cost of food to be paid for the supply of

21122
food materials to the government employees like police, army
and other staffs.

21123 Medical treatment expenses: It includes the expenditure
provided to the government employees for their medical
treatment, health insurance etc.
Base head 22000 consists of amount paid for the use of materials and services. It has
main heads 22100, 22200, 22300, 22400, 22500, 22600, 22700 and 22900 which include
the following:
22100 Services and rental charge
22110 Service charge
22111 Water and electricity: It includes the following:

- Water supply and electricity charge
- Installation charge for electricity and water
- Deposits for installation of water supply and electricity
- Other expenses incurred to avail these facilities
22112 Communication charge: It includes the following:
- Charge for use of telephone, telegram, trunk call, telex,
internet, website etc.
- Charge for use of computer, fax and other communication
devices
- Deposits for installation of communication services
- Other expenses required to avail those facilities
22120 Rental charge
House rent: It includes rent of land, building and godown
22121
22122 Other rent: It includes rent for the use of other assets like
vehicle, plant and machinery and other capital assets. But
rent for public construction is added on concerned capital
expenditure heads.
22200 Circulation and maintenance of capital assets
22210 Circulation and maintenance of capital assets
Fuel: It includes the cost of fuel or lubricants for vehicle like
22211
gas, kerosene, petrol, diesel, coal, firewood, batteries etc.
But fuel used for construction work should be charged on
concerned expenditure head.
22212 Repair and maintenance: It includes the expenses paid for the
regular maintenance of capital assets like building, machinery,
vehicle, furniture, equipment, road, bridge, irrigation, cannel,
warehouse etc. which are regular used for official purpose.
But the repair and maintenance of capital assets are treated as
capital expenditures and included in respective budget head.
22213 Insurance: It includes the insurance of public properties like
road, bridge, canals, building, machinery equipment, vehicle,
hydropower house and third party insurance. But insurance
of assets under construction are included on concerned
budget head.
22300 Office material and services
22310 Office material and services
22311 Office related expenses: It includes the following:

- Expenses for letter, parcel, postage stamp, registration, return
receipt and courier charge
- Cost of materials required for daily official use like papers,
envelops, forms, record file, stapler, punching machine and
related materials
- Stationery materials for day to day operation of office like
pen, ink, pencil and papers etc.
- Expenses incurred for office printing, news paper, magazines
and books for official use
- Publication expenses relating to government notification,
auction, sale, tenders, bidding etc.
- Durable office materials and equipment costing less than
Rs 2,000
- Bank charge, compensation and other services charge
- Transportation charge for transporting official goods from
one place to another
22312 Feeding materials: It includes the expenses made for feeding

materials for birds and animals.
22313 Books and materials: It includes the cost of books, sports and
educational materials freely distributed by the public schools
and the cost of books purchased by the public libraries.
22314 Fuel for other purpose: It includes the cost of fuel for other
administrative purpose like gas, kerosene, petrol, diesel, coal,
firewood battery etc. But fuel and battery for vehicle is included
in the head 22212.
22320 Maintenance cost of public properties
22321 Maintenance cost of public properties: It includes repairs

and maintenance of public properties like road, bridge, canals,
building, hydropower house etc. and their insurance.

22400 Consultancy and service charge
22410 Consultancy and other service charge: It includes the following heads.
22411 Consultancy and service charge: It includes the expenditure
related to study report and adviser, software renewable and service
charge.
22412 Other service charge: It includes the following :
- Service charge paid to sweepers for cleaning office building,
maintenance of garden. Service charge paid to contractor
for maintenance of office machinery and equipments like
computer, photocopy machine telephone, fax etc.
- Service charge paid for carrying parcel, running vehicle
service, primary health service etc.
22500 Program expenditure
22510 Training and seminar
22511 Employee training: It includes the expenses incurred for
conducting training, seminar and workshop for the career
development and enchancing the efficiency of government
employees.
22512 Skill development and public awareness training and
seminar expenses: It includes the following:
- Cost incurred for conducting public seminar, training
including allowance to the participants in public training for
increasing efficiency, self employment income generation
empowerment and building sense.
- Allowance to resource person for providing service to the
targeted group.
- TADA (Travelling and Daily Allowance) to trainee and
trainer as per the government norms.
22520 Production materials and service
22521 Production materials and service: It includes the following:
- Cost of raw materials, labour and production expenses
incurred on material for converting into finished goods.
- Production of goods like postal stamp, post card, domestic
goods, insecticides, fishery, animal husbandry and other
agriculture products.
22522 Other program expenses: It includes the program expenditure
not included in other heads like ritual functions, workshop,
religious program etc.
22530 Medicine
22531 Medicine: It includes the medicines provided by government
hospital, health post Ayurbed, Ausadhalaya and medicine used
for treatment to the patient including transportation charge.
22600 Investigation evaluation and travelling expenses
22610 Investigation evaluation and travelling expenses
22611 Investigation evaluation expenses: It includes the expenses
incurred on Investigation and evaluation and preparation of
report relating to it.
22612 Travelling expenses: It includes the following:
- Amount paid to employees for travelling and daily expenses
while transferring from one office to another office including
their family members as per the government rule.
- Expenses paid to employees for on foot allowance, fare
charge with government tax, daily expenses for lodging and
fooding etc. for government program.
22613 Travelling program expenses of high level personalities
and council of representative: It includes transportation, tax,
insurance, daily allowance, accommodation, uniform and other
expenses related to the travelling of high level personalities
and council of representative.
22614 Other travelling expenses: It includes the travelling expenses
for the person who stand as witness from government’s side in
law or legal cases.
22700 Miscellaneous expenses
22710 Miscellaneous expenses
22711 Miscellaneous expenses: It includes the following:
- Expenses for entertainment, exhibition, display, refreshments
and parties.
- Expenses for maintaining peace and security.
- Expenses relating to festivals and workshops.
- Expenses for hospitality and other expenses not included in
other heads.
22900 Contingencies expenses
22910 Contingencies expenses
22911 Contingencies expenses (Regular): It includes the budget
which is not mentioned in any other budget head for operation
of government work.
Base head 24000 consists of interest service charge and bank commission. It has main
heads 24100 and 24200 that include the following:
24100 Interest on foreign loan

24110 Interest on foreign loan
24111 Interest on foreign loan: It includes interest and service charge

paid for external loan.
24200 Interest, service charge and bank charge on internal loan
24210 Interest, service charge and bank charge on internal loan.
24211 Interest on internal loan: It includes interest paid on internal loan.
24212 Service charge and commission: It includes the service charge

and bank commission paid to take internal loan.
Base head 25000 consists of current subsidies paid to public enterprises and other
institution. It has the main heads 25100 and 25200 that include the following:
25100 Subsidies to public enterprises
25110 Subsides to non financial corporation
25111 Subsidies to non financial corporation (current): It includes

current subsidies to government and semi government
corporations and other independent public corporations.
25112 Subsidies to non financial corporation (capital): It includes

the subsiding given to non financial public bodies for capital
expenditure like purchase of machinery, equipments, furniture,
vehicles, land, building etc.
25120 Subsidies to financial corporation
25121 Subsidies to financial corporation (current): It includes current

subsidies to government and semi government corporations
and other independent public corporations.
25122 Subsidies to financial corporation (capital): It includes

the subsiding given to financial public bodies for Capital
expenditure like purchase of machinery, equipments, furniture,
vehicles, land, building, etc.
25200 Subsidies to private institution

25210 Subsides to non financial private institution (current)
25211 Subsidies to non-private institution (current): It includes

current subsidies to non financial private business firms.

25212 Subsides to non-financial private institution (capital): It
includes the subsidies given to non financial private business
firm for purchase of machinery, equipment, furniture, vehicles,
land and building etc.
25220 Subsidies to financial private institution
25221 Subsidies to financial private institution (current): It includes

current subsidies to financial private business firm.
25222 Subsidies to financial private institution (capital): It includes

the subsidies given to financial private business firm for
purchase of machinery, equipment, furniture, vehicles, land
and building etc.
Base head 26000 consists of grant provided to other government institution or
international institution. It has main heads 26200, 26300 and 26400 that includes the
following:
26200 International membership and grant
26120 International membership and grant
26211 International membership and grant: It includes donation,

membership and renewable fee at international level
membership and renewable fee at international level.
26300 Grant to local bodies
26310 Grant to local bodies (current)
26311 Current grants to local bodies (without condition): It includes

the grant provided to local bodies of the government to bear
current expenditure and make programs in self decision.
26312 Current grant to local bodies (with condition): It includes

the grant provided to local bodies of government to bear the
expenditure of mentioned program.
26320 Grant to local bodies (capital)
26321 Capital grant to local bodies (without clause): It includes

the grant provided to local bodies for purchase of machinery,
furniture, vehicles, land and building, civil works, production
of goods or services etc without any condition.
26322 Capital grants to public bodies (with clause): It includes

the grant provided to public bodies to make expenditure for
mentioned program.
26400 Social service grant

26410 Current social service grant
26411 Current grant to public bodies, committee boards (without

clause): It includes the following:
- Grant paid to board, committee, educational institution,
hospital etc by the government without clause.
- Foods, clothes and other facilities provided to patient at
hospital or prisoner at jail etc without clause.
26412 Current grant to public bodies, committee, board (with

clause): It includes the following
- Grant provided to board, committee, educational institutions,
hospitals etc for the mentioned program with clause.
- Food, clothes and other facilities provided to patient at
hospital or prisoner at jail etc with clause.
26413 Current grant to other person or institution (with clause): It

includes the following.
- Compensation provided to the parties suffering due to
national disasters and other causes.
- Operational grant provided to social service organizations,
temples etc.
- Financial assistance, rewards and other grants provided by
the government.
26420 Capital social service grant.
26421 Capital grant to government bodies, committee, board
(without clause): It includes grant provided for capital assets
like furniture, vehicles, machinery, equipment, land, building
etc to government bodies, committee, board etc created by law
with clause.
26423 Capital grant to other social organizations (with clauses):

It includes capital grant to other social institutions like
educational institutions, hospital and social organizations with
clause.
Base head 27000 consists of social security. It has main heads 27100, 27200 and 27300
that includes the following.
27100 Social security
27110 Social security
27111 Social security (without clause): It includes the financial
assistance provided to disabled, old aged people, widows etc.

27112 Other social security grant (without clause): It includes
medical treatment expenditure and financial compensation
paid to ordinary person or national figure.
27200 Scholarship
27210 Scholarship
27211 Scholarship: It includes the scholarship provided in cash,
goods and other benefits to the students as scholarship at
school, college and university level
27300 Gratuities
27310 Gratuities
27311 Retirement benefits: It includes gravity and allowance to
the retired employee and allowance given to retired unable
employee.
27312 Gratuity: It includes the gratuity provided to the retired
employee.
27313 Accumulated leave to retired: It includes amount paid to
retired employee as accumulated leave.
27314 Medical allowances to retired: It includes amount paid to

retired employee as medical treatment.
27315 Support and benefits to the deceased employee: It includes
the following:
- Amount paid to the dependents of deceased employee as
financial support including provident fund.
- Additional amount paid to the dependents of deceased
employee by the government.
Base head 28000 consists of other expenditure. It has main heads 28100 and 28200 that
includes the following:
28100 Assets related expenditure
28110 Rent for land
28111 Rent for land: It includes the rent paid for the use of land and
compensation for the loss of crops.
28200 Refund expenditure
28210 Refund expenditure
28211 Revenue refunds: It includes return of import duties, sales tax,
land tax, penalties and other refund expenses.
28212 Legal refunds: It includes the amount refunded by the

government as per judicial decision.
28213 Other refund: It includes the other refunds of government
excepts revenue refund and judicial refund.
Base head 29000 consists of capital expenditure. It has main heads 29100, 29200, 29300,
29400, 29500, 29700 and 29800 that includes the following:
29100 Purchase of land
29110 Purchase of land
29111 Purchase of land: It includes expenditure for purchase of

land, compensation on acquisition of land with tax and other
acquisition expenses.
29200 Building
29210 Purchase of building
29210 Purchase of building: It includes expenditure for purchase

of constructed buildings with its premises, compensation
and tax paid for acquiring building.
29220 Building construction
29221 Building construction: It includes the cost of construction of

building, shed and compound wale, cost of their expansion
like addition of rooms, stores etc.
29230 Capital maintenance expenses (building): It includes the expenses

made for the renovation of present building that add the life. But only
maintenance of capital asset is included in 29221.
29300 Furniture and fixtures
29311 Furniture and fixtures: It includes the expenditure made for

purchase of furniture including transportation insurance VAT
etc.
29400 Vehicles
29410 Vehicles
29411 Vehicles: It includes the following:

- Cost of purchasing all types of means of transport like
airplane, helicopter, jet, jeep, motor, car, bus, truck,
motorcycle, cycle, horse, bull etc.
- Cost relating to import of vehicles and vehicles engine,
insurance, tax and duties etc.
29500 Machinery and equipment

29510 Machinery equipment: It includes the following:

29511 Machinery and equipment
- Cost of purchasing machineries like agricultural tools and
various equipments, generators, transformers
- Cost of office machines and equipments like typewriter,
computer, printer, photocopy machine, telephone set, TV,
heater, fax machine, security equipments etc.
- Cost of transportation, import duty, insurance and other for
importing machine and equipments.
- Office equipment used in office costing more than
Rs. 2000 but office equipment costing less than Rs. 2000 are
included in 22311
29600 Public construction
29611 Public constructions: It includes the following:

- Cost of construction of highway, roads, bridges and
expansion of highway, road, bridge, airport, powerhouse,
ropeway, air drove etc.
- Construction of structure for public used like forest mining etc.
29621 Public constructions (capital): It includes the maintenance

cost on building and other capital assets for extending the
quality and life of the assets. But it does not include the cost of
expansion and addition to the existing capital assets.
29700 Capital research and consultancy
29710 Capital research and consultancy
29711 Capital research and consultancy cost: It includes the cost

of feasibility study, drafting cost of surgery, design, technical
consultancy service, supervision cost, cost of research etc.
29712 Software development and purchase expenditure: It includes

the cost incurred for the development of software incurred for
upgrade of software.
29800 Capital contingencies

29810 Capital contingencies
29811 Capital contingencies expenditure: It includes the capital

nature contingencies expenses which are not mentioned at the
time of budget appropriation.

Summary of budget heads and code number
Code No. Budget head Code No. Budget head
21111 Salary 22614 Other travelling expenses
21112 Local allowance 22711 Miscellaneous expenses
21113 Dearness allowance 22911 Contingencies expenses
21114 Field allowance (Regular)
21119 Other allowance 24111 Interests on foreign loan
21121 Uniform 24211 Interest on internal loan
21122 Food 24212 Service charge and
commission
21123 Medical treatment expenses
25111 Subsidies to non financial
22111 Water and electricity
corporation (current)
22112 Communication charge
25112 Subsidies to non financial
22121 House rent corporation (capital)
22122 Other rent 25121 Subsidies to financial
22211 Fuel corporation (current)
22212 Repair and maintenance 25122 Subsidies to financial
22213 Insurance corporation (capital)
22311 Office related expenses 25211 Subsidies to non private
22312 Feeding materials institution (current)
22313 Books and materials 25212 Subsides to non financial
22314 Fuel for other purpose private institution (capital)
22321 Maintenance cost of public properties 25221 Subsidies to financial private
22411 Consultancy and service charge institution (current)
22412 Other service charge 25222 Subsidies to financial private
22511 Employee training institution (capital)
22512 Skill development and public 26211 International membership and

awareness training and grant
seminar expenses 26311 Current grants to local bodies
22521 Production materials and (without condition)
service 26312 Current grant to local bodies
22522 Other program expenses (with condition)
22531 Medicine 26321 Capital grant to local bodies
22611 Investigation evaluation (without clause)
expenses 26322 Capital grants to public bodies
22612 Travelling expenses (with clause)
22613 Travelling program expenses 26411 Current grant to public bodies,
of high level personalities and committee boards (without
council of representative clause)

26412 Current grant to public bodies, 28111 Rent for land
committee, board (with clause) 28211 Revenue refunds
26413 Current grant to other person
28212 Legal refunds
or institution (with clause)
26421 Capital grant to government 28213 Other refund
bodies, committee, board 29111 Purchase of land
(without clause) 29221 Building construction
26423 Capital grant to other social
organizations (with clauses)
29411 Vehicles
27111 Social security (without clause)
27112 Other social security grant 29511 Machinery and equipment
(without clause) 29611 Public constructions
27211 Scholarship 29621 Public constructions (capital)
27311 Retirement benefits 29711 Capital research and
27312 Gratuity consultancy cost
27313 Accumulated leave to retired 29712 Software development and
27314 Medical allowances to retired purchase expenditure
27315 Support and benefits to the 29811 Capital contingencies
deceased employee expenditure
Key
Terms
Auditing – act of examining the books of account to ensure the correct

application of accounting principles.
Awarje – a ledger book of a government office maintained under Syaha
Sresta Pranali.
Budget – estimation of revenue and expenditure for forth coming year.
Budget heads – heads for making expenditure under government accounting like
salary, furniture, vehicles etc.
Business accounting – accounting system used by the business organizations to keep the
record of financial transactions.
Consolidated fund – a fund of government of Nepal of depositing surplus money,
unspent budget or other revenues.
Decentralized – authority delegated to the local bodies.
Government accounting – accounting system used by the government offices to keep the
record of revenues and expenditures.
Syaha – primary recording of financial transactions named under Syaha
Sresta Pranali.
Uniformity – similarity.

1. What is government accounting?
2. When was budget system originated in Nepal?
3. When was payment accounting system implemented in Nepal?
4. When was account committee formed in Nepal to suggest a suitable
accounting system?
5. When did the Auditor General approve the draft presented by an
account committee 2017?
6. When was the Office of the Auditor General established in Nepal?
7. Which institution maintains the central level account of revenue and
expenditures of government offices?
8. When did the government establish the Treasury and Comptroller
offices in all the 75 districts?
9. Which office performs the internal audit of district level government
offices?
10. Which institution does the final audit of government offices?
11. Who does the final audit of a company?
12. Write the full form of DTCO.
13. Under which ministry does the Office of the Finance Comptroller
General remain?
14. When was Kumari Chowk Adda established ?
15. When were new accounting forms brought into use under the
recommendation of the Auditor General?
16. Write the budget head number of salary and furniture.
17. Write the budget head of vehicles and medicine.
18. Write the budget head of office related expenses.
19. Which institution keeps the record of consolidated fund and other
governmental funds?
20. Who appoints the Auditor General?

1. Define government accounting and differentiate between government
accounting and business accounting.
2. Mention any five differences between central level accounting and operating
level accounting.
3. What is the Office of the Auditor General? Mention the functions and duties
of the Auditor General.
4. Introduce the Office of the Comptroller General and write its major functions.
5. What is auditing? Explain the development process of audit in Nepal.
6. Describe the importance and advantages of auditing.
7. Differentiate between internal and final audit.

1. What is new accounting system? Explain its major objectives.
2. Describe the features of new accounting system in brief.
3. What is meant by the Treasury and Comptroller Office? Write the major
functions of the Treasury and Comptroller Office.
4. Describe the types of audit with their major objectives.


8 JOURNAL VOUCHER
Chapter
Learning Objectives
be able to :
 define journal voucher and state its
importance and advantages.
 draw the specimen of journal voucher
under AGF No. 10.
 prepare journal voucher for general,
advance and miscellaneous transactions
under the prescribed format.
Introduction
The financial transactions of government offices are recorded under double entry
concept of accounting. They should be recorded first in a primary document journal
voucher and then they are posted into respective ledger accounts. Thus, journal is
the book of original entry in government offices. The journal voucher is prepared
under the prescribed format of AGF No 10. There are different types of transactions
in government offices such as general or budgeted transactions, advance transactions
and miscellaneous transactions. All the financial transactions should be recorded in
journal voucher under the double entry concept by applying the rules of debit and
credit. It facilitates for preparation of various ledger accounts.
Journal Voucher 215

Under new accounting system of government of Nepal, every operating level office
should keep the record of financial transactions in systematic and scientific manner.
All the financial transactions are primarily recorded under the format prescribed by
the Office of the Auditor General which is called journal voucher. It is the primary
recording of operating level government offices. In government offices, every financial
transactions are recorded first in journal voucher and then posted into respective
ledger accounts. Journal vouchers are prepared both in operating level offices and
central level offices. It is prepared under the principle of double entry system of
accounting. Journal voucher is prepared using the forms prescribed by the Office of
the Auditor General called AGF No. 10.
Journal voucher is the primary document of government offices which is used

to keep the record of financial transactions in systematic manner as per financial
rules and provisions under the prescribed format of A.G.F. no 10.

 Journal voucher is also called goswara voucher.
 It is prepared under the principle of double entry system of accounting.
 It shows the accounts debited and credited along with the amounts.
 Separate journal voucher should be prepared for each financial transaction of government office.
 It is supported with a brief explanation of transaction which is known as narration.
 It is prepared on the basis of bill, receipt, decision and order of payments etc.
 The full form of AGF No. is Auditor General Form Number.
Specimen of journal voucher

The specimen of journal voucher as prescribed by the Office of the Auditor General
is as follows:
Government of Nepal AGF No.10

(a)…………..Office / Department / Ministry J.V. No…….(b)
Journal Voucher Date:……….(c)
Code No. Particulars L.F. B.H. No. Debit Rs. Credit Rs.
(d) (e) (f) (g) (h) (i)

Receipt No……………………… Cheque No…………....…
Amount received…………….… (j) Amount of cheque ……... (k)
Submitted by…………………… Approved by………….....

Designation…………………….. (l) Designation…………...… (m)
Date…………………………....... Date…………………....…
The above specimen of journal voucher contains the following information:

a) Name of office, department or ministry which prepares the journal voucher is
written.
b) The serial number of journal voucher from the beginning of current fiscal year
is mentioned.
c) Date of preparing the journal voucher is recorded.
d) The code number or reference number is written which may be bill
number, order number, circular number etc.
e) Name of the accounts debited and credited along with short narration is
mentioned.
f) Page number of ledger account in which the transaction posted is mentioned.
g) The budget expenditure head number of the transaction is written.
h) Debit amount of a transaction is recorded.
i) Credit amount of a transaction is recorded.
j) The receipt number of the amount received along with the amount in words
is written.
k) Cheque number and the amount of cheque is mentioned while making the
payment through cheque.
l) Signature and designation of person preparing the journal voucher and date
of submission is mentioned.
m) Signature and designation of person approving the journal voucher and date
of approval is written.
Importance or advantages of journal voucher

The importance or advantages of journal voucher can be mentioned on the following
points:
 It keeps the systematic and chronological recording of financial transactions of
government offices.
 It provides the information about debited and credited accounts along with the
amounts.
 It acts as a basis for preparation of various accounts, statements and reports.
 It serves as a proof of every financial transaction for auditing and reporting
the financial information.
Journal Voucher 217
 It makes the accounting personnel more responsible and accountable for keeping
record.
 It facilitates the smooth functioning of financial administration as it provides
systematic, complete and chronological record of every financial transaction
of government offices.
 It helps to detect and rectify the errors which are committed in recording and
posting.
Rules of debit and credit

The new accounting system of government of Nepal is based upon the principle
of double entry accounting system. Thus, the journal voucher is also prepared
considering the dual aspect of each financial transaction. The rules of debit and credit
under different bases are as follows:
On the basis of types of account

Debit the receiver
Personal account
Credit the giver
Debit what comes in

Real account
Credit what goes out
Debit all losses and expenses

Nominal account
Debit all losses and expenses
On the basis of nature of transactions

Increase in assets, losses and expenses Debit
Decrease in assets, losses and expenses Credit
Increase in capital, liabilities, gains and incomes Credit
Decrease in capital, liabilities, gains and incomes Debit
Types of journal voucher

Journal voucher should be prepared for different types of financial transactions which
take place in government offices. On the basis of nature of transactions, the journal
voucher to be prepared by operating level government offices can be classified into
following three types:
a. General journal voucher
b. Advance journal voucher
c. Miscellaneous journal voucher

General journal voucher
The journal voucher which is prepared for the budget expenditure of government
office is called general journal voucher. While purchasing goods or making payment
on any budget head, operating level government offices prepare this type of voucher.
The examples of budget head are salary, furniture, rent etc. While preparing general
journal voucher, the word B.E. should be mentioned before the item of expenditure
like B.E. Salary, B.E. Rent, B.E. Furniture etc. The rule for preparing general journal
voucher is as under:
Journal Voucher Date: ………………..
Date Particulars L.F. B.H.No. Debit Rs. Credit Rs.
Dr. B.E. (Name of the budget head) ×××
Cr. Nepal Rastra Bank/Cash ×××
(Being payment made for…………..)

 All the payments of governments offices are assumed to be made through Nepal Rastra Bank and thus
Nepal Rastra Bank is to be credited.
 If the government office has opened account in any other bank, same bank should be credited instead of
Nepal Rastra Bank.
 If cash paid in any budget head instead of issuing cheque, cash account should be credited instead of bank.
 The word B.E. must be mentioned in general journal voucher as it is related to budget expenditure.
Ill-1 2074-04-07 District Education Office, Tanahun purchased office stationery

and materials for Rs. 10,000 and paid through cheque No. 13590.
Required: Journal voucher
Solution:
District Education Office, Tanahun J.V. No 1
Journal Voucher Date: 2074-04-07
Code
Particulars L.F. B.H.No. Debit Rs. Credit Rs.
No.
Dr. B.E. Office related expenses 22311 10,000
Cr. Nepal Rastra Bank 10,000
(Being office materials purchased and
paid through cheque)
10,000 10,000
Receipt no……………………… Cheque no.: 13590
Amount received……………… Amount of cheque: Rupees Ten thousand
Submitted by: Muna Approved by: Sony
Post: Accountant Post: Office Chief
Date: 2074-04-07 Date: 2074-04-07
Journal Voucher 219

Ill-2 Prepare journal vouchers for the following transactions:
a) 2074-05-03 Krishna Furniture Industry was paid Rs. 25,000 for furniture
purchase through cheque No. 05981.
b) 2074-05-30 Telephone charge Rs. 4,000 was paid to Nepal Telecom by
cheque No. 05989.
c) 2074-06-04 Issued a cheque for Rs. 12,000 for purchase of uniform to
military.
d) 2074-06-10 Purchased machinery for Rs. 50,000 and paid by cheque.
Solution:
a) Journal Voucher Date:2074-05-03
Code No. Particulars L.F. B.H.No. Debit Rs. Credit Rs.
Dr. B.E. Furniture 29311 25,000
(Being cheque issued to Krishna Furniture Industry
for purchase of furniture)
b) Journal Voucher Date:2074-05-30

Dr. B.E. Communication charge 22112 4,000
(Being telephone charges paid by cheque)
c) Journal Voucher Date:2074-06-04

Dr. B.E. Uniform 21121 12,000
(Being cheque issued for purchase of uniform to military)
d) Journal Voucher Date:2074-06-10

Dr. B.E. Machinery and equipment 29511 50,000
(Being cheque issued for purchase of machinery)
Advance journal voucher

Advance is an amount paid or given to any person or organization before receiving
goods or service. The payment made as advance in any budget head is not an actual
expenditure until its clearance. However, it should be recorded properly in the books
of account. The journal voucher relating to advance should be prepared twice as
follows:

 At the time of giving advance
 At the time of clearing advance
Journal voucher at the time of giving advance

When an advance amount is provided to any staff or organization for making
expenditure on any budget head, the person or party receiving advance amount
with related budget head should be debited and Nepal Rastra Bank/cash should be
credited. The rule of preparing such journal voucher is as follows:
Journal Voucher Date:……............……
Dr. Post, Name………….advance ×××
Cr. Nepal Rastra Bank ×××
(Being advance given to……. for…………)

 Since the advance payment is not an actual expenditure until its clearance, the word B.E. must not be used
in journal voucher.
Ill-3 2074-04-19 District Health Office, Jumla issued a cheque numbered

13457 to the Section Officer Mr. Shishir Ojha for Rs. 15,000 as an advance
for purchase of machinery.

Solution:
District Health Office, Jumla J.V. No.1
Journal Voucher Date:2074-04-19
Debit
Code No. Particulars L.F. B.H.No. Credit Rs.
Rs.
Dr. Section Officer Mr. Shishir Ojha
Machinery and equipment advance 29511 15,000
(Being cheque issued to Section Officer Mr. Shishir
Ojha as an advance for purchase of machinery)
15,000 15,000
Receipt no……………………… Cheque no:13457
Amount received……………… Cheque amount: Fifteen thousand rupees
Submitted by: Anjana Bogati Approved by: Supriya Basnet
Post: Accountant Post: Office Chief
Date: 2074-04-19 Date : 2074-04-19
Journal Voucher 221

a) 2074-05-07 Through cheque No. 57891 Rs. 10,000 was paid in advance to
Nayab Subba Miss Rojina Gautam for purchase of furniture
b) 2074-05-17 Rs. 50,000 was paid in advance to Storekeeper Mr. Ram Bahadur
Thapa for purchase of computer and printer.
c) 2074-06-13 Issued a cheque for Rs. 16,000 to Account Officer Mr. Rajan
Dangal as an advance for purchase of fooding materials.
Solution:
Dr. Nayab Subba Miss Rojina Gautam
Furniture advance 29311 10,000
(Being cheque issued to Miss Rojina as an advance

Dr. Storekeeper Mr. Ram Bahadur Thapa
(Being advance given to Mr. Thapa for purchase of
computer and printer)

Dr. Account Officer Mr. Rajan Dangal
Food advance 21122 16,000
(Being cheque issued to Mr. Rajan Dangal as an
advance for purchase of food materials)
Journal voucher at the time of clearing advance

An amount given to any person or organization should be cleared after completion of
job or fulfillment of certain purpose. It is cleared under different conditions. Generally,
the following conditions may take place for clearance of advance amount:
 If the expenditure is equal to advance amount
 If the expenditure is less than advance amount
 If the expenditure is more than advance amount
 If the whole amount of advance is returned
 If the advance is cleared partially
a. If the expenditure is equal to advance amount
If the whole amount of advance is spent on particular budget head and the bill is
submitted, it is called the condition of being expenditure and advance amount equal.
In this condition, after the submission of expenditure bill and voucher, the journal
voucher is prepared in the following way:
Journal Voucher Date:...........................

Dr. B.E. Budget head ×××
Cr. Post, Name, clearance of ..........
advance ×××
(Being advance cleared for……….)
a) 2074-06-04 Issued a cheque for Rs. 20,000 to Section Officer, Mr. Jivan Adhikari
as an advance for the purchase of machinery.
b) 2074-06-13 Mr. Jivan Adhikari presented the bill of Rs. 20,000 after purchasing
the machinery and his advance cleared.
Solution:
Dr. Section Officer Mr. Jivan Adhikari
(Being cheque issued to Mr. Jivan Adhikari as an
advance for purchase of machinery)
Dr. B.E. Machinery and equipment 29511 20,000
Cr. Section Officer Mr. Jivan Adhikari
Machinery and equipment advance 20,000
clearance
(Being Mr. Jivan Adhikari’s machinery advance
cleared)
b. If the expenditure is less than the advance amount

Sometimes, the whole amount of advance taken may not be spent on the particular
budget head. In this condition, the person or party submits the bill for actual
expenditure and refunds the surplus amount in cash or through bank voucher. The
rule for preparing such journal voucher is as follows:
Journal Voucher 223

Journal Voucher Date:.............................
Dr. Cash/ Nepal Rastra Bank ×××
Cr. Post, Name, advance clearance for….. ×××
(Being advance clearance for…………….)
a) 2074-07-02 An advance for Rs. 1,90,000 is given to Mr. Khanal, Section Officer
through cheque for purchase of motorcycle.
b) 2074-07-10 Mr. Khanal presented a bill of Rs. 1,85,000 and bank voucher of Rs.
5,000 and his advance was cleared.
Solution:
Dr. Section Officer Mr. Khanal
Vehicle advance 29411 1,90,000
Cr. Nepal Rastra Bank 1,90,000
(Being advance given to Mr. Khanal for
purchase of motorcycle)
Dr. B.E. Vehicles 29411 1,85,000
Dr. Nepal Rastra Bank 5,000
Cr. Section Officer Mr. Khanal
Vehicle advance clearance 1,90,000
(Being cleared Motorcycle purchase advance of Mr.
Khanal by submitting bill and bank voucher )
c. If the expenditure is more than advance amount

If the person or party receiving advance has spent more than the advance amount, he
submits the bill of expenditure to the office. On the basis of expenditure bill, an office
should make the clearance by paying excess expenditure through cheque or in cash.
In this condition, the journal voucher is prepared in the following way:
Journal Voucher Date:.............................

Cr. Post, Name, advance clearance for…….. ×××
(Being advance of…….for…….cleared…..…)

a) 2074-06-19 An advance for Rs. 19,000 is given to Account Officer Mr. Sohan,
through cheque for purchase of furniture.
b) 2074-06-25 Mr. Sohan presented a bill of Rs. 20,000 and his advance cleared by
issuing cheque for the insufficient amount.

Dr. Account Officer Mr. Sohan
(Being advance given to Account Officer
Mr. Sohan for purchase of furniture)

Cr. Account Officer Mr. Sohan
Furniture advance clearance 19,000
(Being Mr. Sohan’s advance cleared and reimbursement
made to him for excess expenditure)
d. If the whole amount of advance is returned
Sometimes, the person or party receiving advance may fail to make the expenditure.
In this condition, he/she should make the advance cleared by refunding such amount
in cash or depositing it into the bank. In this case, the journal voucher is prepared in
the following way:
Journal Voucher Date:...................
Dr. Cash/Nepal Rastra Bank ×××
Cr. Post, Name, clearance of .......... advance
(Being advance cleared for……….) ×××
a) 2074-05-10 Issued a cheque for Rs. 9,000 to Section Officer, Mrs. Manju Baniya
as an advance for travelling expenses.
b) 2074-05-13 Section Officer, Mrs. Manju Baniya returned advance through bank
voucher due to postponement of her travelling programme and
her advance cleared.
Journal Voucher 225

Dr. Section Officer Mrs. Manju Baniya
travelling expenses advance 22612 9,000
(Being travelling expenses advance given to
Section Officer Mrs. Manju Baniya)

Cr. Section Officer Mrs. Manju Baniya
travelling expenses advance clearance 9,000
(Being Section Officer Mrs. Manju Baniya’s travelling
expenses advance cleared)
e. If the advance is cleared partially

If the amount of advance taken by staff is cleared on different installments due to
specific reason, it is called partial clearance of advance. It is the most common in all
government offices. In this condition, the amount for which the request is made for
clearance is debited with the related head and head of advance with the person or
party’s name is credited. It is shown below:
Journal Voucher Date:.....................

Cr. Post, Name, partial clearance of…… advance
(Being partial advance cleared for………..) ×××
a) 2074-07-10 Issued a cheque for Rs. 20,000 to Mr. Rohit Sharma, an Accountant
as an advance for purchase of office furniture.
b) 2074-07-21 Mr. Rohit presented a bill of Rs. 5,000 and his advance cleared partially.
Solution:
Dr. Accountant Mr. Rohit Sharma
(Being cheque issued to Mr. Sharma as an advance
for purchase of office furniture)

Cr. Accountant Mr. Rohit Sharma
Furniture advance clearance` 5,000
(Being Mr. Sharma’s advance cleared partially on the
basis of statement submitted by him)
Miscellaneous journal voucher

There are various transactions other than general and advance transactions. Such
transactions are called miscellaneous transactions. The journal vouchers prepared
for such transactions are called miscellaneous journal vouchers. Following are some
miscellaneous transactions:
a. Initial imprest fund b. Budget release
c. Petty cash fund d. Salary distribution
e. Loan f. Transfer of budget
g. Security deposit h. Rectification of error
Initial imprest fund

The fund which is provided to the government offices at the beginning of fiscal
year to meet the expenditure of shrawan is called initial imprest fund. Generally,
the government provides this fund equal to one sixth of last year’s total budget
expenditure. It is also called revolving fund or preliminary fund or current fund.
Since the budget for operating level offices would not have been allocated at the
beginning of fiscal year, it becomes difficult to run the administrative activities of
government offices. This requirement is fulfilled by creating imprest fund. After
allocation of annual budget, it is adjusted accordingly with the next budget release of
the concerned office. The rule for preparing journal voucher for initial imprest fund
is given below:
Journal Voucher Date:…………
Dr. Nepal Rastra Bank ×××
Cr. Initial imprest fund ×××
(Being initial imprest fund received through bank transfer)
Ill-10
2074-04-01 District Education Office Palpa received an initial imprest fund equal to
one sixth of total budget expenditure of last fiscal year Rs. 18,00,000.
Journal Voucher 227

Solution:
Dr. Nepal Rastra Bank 3,00,000
Cr. Initial imprest fund 3,00,000
(Being bank order received for initial imprest fund release)
Budget release
Under the present system of government, all operating level offices receive the budget
on monthly basis on the basis of expenditure of last month which is called budget
release. In order to get the budget released, it needs to submit the required documents
to the District Treasury and Comptroller Office. Following are the rules for preparing
journal voucher for budget release under different conditions:
a. If the amount of budget release order and bank order is equal

Cr. Budget release
(Being budget release order and bank order received ×××
for the actual expenditure of last month)
Ill-11
2074-05-02 Received bank order and budget release order for Rs. 2,60,000 for the
actual expenditure of last month.
Solution:
Cr. Budget release 2,60,000
(Being bank order and budget release order
received for actual expenditure of last month)
b. If the amount of bank order is more than the amount of budget release order
Cr. Budget release ×××
Cr. Revolving fund ×××
(Being budget release order and bank order received for
the actual expenditure of last month)

Ill-12
2074-07-02 Bank order of Rs. 6,00,000 received for the reimbursement of revolving
fund of Rs. 1,50,000 and budget release order of Rs. 4,50,000.
Solution:
Cr. Revolving fund 1,50,000
received for actual expenditure of last month)
c. If the amount of bank order is less than the amount of budget release order

Dr. Revolving fund ×××
Cr. Budger release ×××
(Being budget release order and bank order received
for the actual expenditure of last month)
IlI-13
2074-06-01 Received a bank order for Rs. 3,00,000 and budget release order for Rs. 3,50,000
for expenditure of Bhadra.
Solution:
Dr. Revolving fund 50,000
received)
Petty cash fund

Under new accounting system of government of Nepal, all the transactions should
be performed through bank. However, it becomes difficult and impracticable to issue
cheque for small payment such as refreshment, newspaper, taxi fare etc. Thus to
facilitate such payment, a fund of certain amount is created which is called petty cash
Journal Voucher 229
fund. It is created at the beginning of fiscal year and the expenditure made from this
fund. The journal vouchers relating to petty cash fund are prepared twice i.e. at the
time of establishment of petty cash fund and at the time of reimbursement of petty
cash fund. The rules for preparing journal voucher in both cases are given below:
a. When petty cash fund is established
Dr. Petty cash fund ×××
Cr. Nepal Rastra Bank
(Being petty cash fund established)
×××
Ill-14
2074-04-07 Issued a cheque of Rs. 2,000 for establishment of petty cash fund in favour
of Junior Accountant, Mr. Bipin Sharma.
Solution:
Dr. Petty cash fund 2,000
(Being petty cash fund established in favour
of Junior Accountant Mr. Bipin Sharma)
b. When reimbursement is made for the petty cash expenses

Dr. B.E. (Budget head) ×××
Dr. B.E. (Budget head) ×××
(Being reimbursement of petty cash expenses made)
Ill-15
2074-05-03 A cheque was issued for reimbursement of the following expenditures

made out of petty cash fund.
Wages Rs. 260
Repair and maintenance Rs. 310
Taxi fare Rs. 250
Water supply charges Rs. 260

Solution:
Dr. B.E. Salary 21111 260
Dr. B.E. Repair and maintenance 22212 310
Dr. B.E. Office expenses 22311 250
Dr. B.E. Water supply and electricity charges 22111 260
(Being petty cash expenses reimbursed through
cheque)
Salary distribution
In government offices salary of the staffs is distributed after necessary deductions like
provident fund, income tax, citizen investment fund, provident fund loan etc. Later,
the deducted amounts are deposited into concerned office. Any uncleared amount
of advance of any employee may also be adjusted on the request. An introduction to
each type of deduction and treatment in journal voucher is explained below:
Employee provident fund
Employee provided fund is an amount deducted from the monthly salary of the
government permanent employees. While distributing salary, 10% of their salary is
deducted as provident fund and same amount is contributed by the government.
Then the total sums are deposited into provident fund offices and refunded to the
employee after their retirement.
Income tax
Income tax is the amount of tax deducted at source by the government from the
taxable income of an employee. The income tax act has given certain exemption limit
of income for tax purpose. Later, the deducted amount of tax should be deposited into
tax office by issuing cheque.
Citizen investment fund
Citizen investment fund is a recently introduced voluntary deduction to be made from
salary of staffs. If it is applied, the government office deducts certain sum voluntarily from
employee’s monthly salary and deposits into a fund. It can be withdrawn after certain
period or whenever required.
Provident fund loan
It is the facility provided to the government employees to take loan from their
provident fund deposit amount. Such loan can be repaid in installment basis by
making deduction from monthly salary of an employee.
The journal voucher to be prepared at the time of distributing salary and depositing
the deducted amounts are given below:
Journal Voucher 231
a. While distributing salary

Dr. B.E. Salary ×××
Dr. B.E. ................... Allowance (If any) ×××
Cr. Provident fund ×××
Cr. Income tax ×××
Cr. Citizen investment fund ×××
Cr. Provident fund loan ×××
Cr. Tejarath sapati / Personnel loan ×××
Cr. Clearance of …….advance (If any) ×××
(Being salary distributed after deducting………….)
b. While depositing the deducted amounts
Dr. Provident fund ×××
Dr. Citizen investment fund ×××
Dr. Income tax ×××
Dr. Provident fund loan ×××
Dr. Tejarath sapati/Personnel loan ×××
(Being deposited the deducted items into account of
concerned office)
Alternatively,
Dr. Provident fund ×××
(Being deposited the provident fund into concerned
office)

Dr. Income tax ×××
(Being deposited the income tax into concerned office)

Dr. Provident fund loan ×××
(Being deposited the provident fund loan into
concerned office)

Dr. Citizen investment fund ×××
(Being citizen investment fund deposited in concerned
office)
Dr. Tejarath sapati ×××
(Being deposited the tejarath sapati into concerned office)

 The amount of salary to be written in B.E. includes basic salary and employee’s contribution to
provident fund.
 Provident fund is not deducted from the amount of any allowance.
 The deductions made for clearance of advance in any budget head is not deposited into the account.
 Practically, if the different cheques are issued for deposit, the journal vouchersl should be perased
separately as shown above.
Ill-16
2074-04-30 Out of total salary Rs. 55,000, distributed after deducting employee
provident fund Rs. 10,000, provident fund loan Rs. 13,000, citizen
investment fund Rs. 9,000 and income tax Rs. 1,000. The deducted
amounts were deposited into concerned offices by cheque on the
following day.
Required: Journal vouchers
Solution:
Dr. B.E. Salary 21111 55,000
Cr. Provident fund 10,000
Cr. Provident fund loan 13,000
Cr. Citizen investment fund 9,000
Cr. Income tax 1,000
(Being cheque issued for distribution of salary)
Dr. Provident fund 10,000
Dr. Provident fund loan 13,000
Dr. Citizen investment fund 9,000
Dr. Income tax 1,000
(Being deducted amount deposited into concerned
offices by cheque)
Journal Voucher 233

Alternatively,
(Being deposited the deduction of provident fund
into concerned office by cheque)

(Being deposited the deduction of provident fund
loan into concerned office by cheque)

Dr. Citizen investment fund 9,000
(Being deposited the deduction of citizen investment
fund into concerned office by cheque)

(Being deposited the deduction of income tax into
concerned office by cheque)
Loan
If the budget release received remains insufficient or becomes delay in getting
budget release, the government offices may take loan from another office. Likewise,
an office may provide loan to another office. Such transactions should be done with
the approval of the Treasury and Comptroller’s Office. The journal vouchers for
receiving and paying loan amount are as follows:
a. While receiving loan

Cr. Loan account of………..office ×××
(Being loan received from ………….office)

b. While repaying loan
Dr. Loan account of……..............…office ×××
(Being loan repaid to…................…office)
Ill-17 Following transactions are given to you:
a) 2074-04-01 District Health Office, Mugu received the loan of

Rs. 1,00,000 from District Education Office through bank.
b) 2074-04-15 District Health Office, Mugu repaid the loan amount

Rs. 1,00,000 to District Education Office through cheque.
Solution:
Cr. District Education Office loan account 1,00,000
(Being loan received from District Education Office)

Dr. District Education Office loan account 1,00,000
(Being loan repaid to District Education Office
through cheque)
Transfer of budget
Sometimes, there may be insufficient budget in one budget head and surplus amount
in another head. In such case, the surplus budget from one head can be transferred
to the another budget head in which there is shortage, which is known as transfer
of budget. It should be done with the approval of the Ministry of Finance. Budget
transfer can be made in the following two ways:
aaaa. Inter-head transfer of budget
It is the way of transferring budget of one head to another head within same
office. It is also known as intra-office budget transfer. For example, the transfer of
budget from budget head salary to the head dearness allowance. The following
journal voucher is prepared for inter-head transfer of budget.
Journal Voucher 235

Dr. B.H……..(Budget head from which the budget has
been transferred) ×××
Cr. B.H………..(Budget head to which the
budget has been transferred) ×××
(Being budget transferred from budget head…….. to
budget head………)
Ill-18
2074-06-29 District Health Office, Tanahun transferred Rs. 20,000 from the
budget head machinery to salary.
Solution:
Dr. B.A. Machinery and equipment 29511 20,000
Cr. B.A. Salary 21111 20,000
(Being transferred the budget amount from the
budget head machinery to salary)
b. Inter-office transfer of budget

b.b
It is the way of transferring budget of particular head from one office to another
office. Such transfer is made after the approval of the central level office. The
following journal vouchers are prepared in relation to inter-office transfer of
budget.
 While receiving the budget transfer

Journal Voucher Date:…….....……
Cr. Budget release ×××
(Being budget transfer received from………… )
 While providing the budget transfer

Journal Voucher Date:…...........……
Dr. Budget release ×××
(Being budget transfer provided to……. )

Ill-19 Following transactions are given to you:
a) 2074-05-02 District Education Office, Kathmandu received the budget transfer
of Rs.75,000 from District Agriculture Office, Kathmandu with the
approval of concerned authority.
b) 2074-05-10 District Irrigation Office, Kathmandu provided the budget transfer
of Rs.1,00,000 to District Land Revenue Office, Kathmandu
through cheque no.238976
Solution:
Dr. Nepal Rastra Bank 75000
Cr. Budget release 75000
(Being transfer of budget received from District
Agriculture office)

Dr. Budget release 1,00,000
(Being transfer of budget provided to District Land
Revenue Office through cheque)
Security deposit
Security deposit is the amount to be deposited by the contractor as per rule in
developmental and constructional work. It also refers to the amount deposited by
the supplier for supplying goods or services. The certain percentage of total value
of contract amount or work should be deposited as security deposit. Such deposit
should be refunded to the concerned person after completion of the particular job.
The journal vouchers to be prepared for security deposit are as follows:
a. While receiving the security deposit and contract tax
Journal Voucher Date:…........……
Cr. Security deposit a/c of......(Name of contractor) ×××
(Being security deposit received from.....)
Journal Voucher 237

b. While paying the amount of bill after deducting security deposit
Journal Voucher Date:….......……
Cr. Security deposit ×××
Cr. Contract tax (if any) ×××
Cr. NEPAl Rastra Bank ×××
(Being payment made to ............ after deducting
security deposit and contract tax)
c. While refunding the security deposit

Journal Voucher Date:….....……
Code No. Particulars L.F. B.H. No. Debit Rs. Credit Rs.
Dr. Security deposit a/c of..... (Name of contractor) ×××
Cr. NEPal Rastra Bank ×××
(Being security deposit amount refunded to contractor)
Ill-20
Prepare journal vouchers from the following transactions:
a) 2074-04-03 District Health Office, Rasuwa received security deposit
amount for construction of office building Rs. 50,000 and Rs.
60,000 through bank from the contractors Lama Construction
Company and Himal Construction Company respectively.
b) 2074-11-30 Issued a cheque of Rs. 2,70,000 in favour of Lama Construction
Company for payment of building construction after deducting
10% security deposit.
c) 2074-12-10 On completion of construction of office building, security
deposit amount of Rs. 80,000 refunded to Lama Construction
Company through cheque.
Solution:
Cr. Security deposit a/c of Lama Construction
Company 50,000
Cr. Security deposit a/c of Himal
Construction Company 60,000
(Being security deposit amount received from Lama
Construction Company and Himal Construction
Company)

Dr. B.E. Building construction 29221 3,00,000
Cr. Security deposit 30,000
(Being cheque issued to the contractor Lama
Construction Company for construction of office
building)

Dr. Security deposit a/c of Lama Construction
Company 80,000
(Being security deposit amount refunded to Lama
Construction Company)
Rectification of errors
Errors are the mistakes committed in the books of account knowingly or
unknowingly. After identification of errors, they must be rectified through journal
voucher. For rectification of wrong entry in government accounting, the journal
vouchers are prepared in the following way:
Journal Voucher Date:……
(The head which has to be debited)
Cr. B.E. Budget head ×××
(The head which has wrongly been debited)
Ill-21
2074-03-19 Rs. 5,000 paid for repair expense was wrongly debited to salary account and
now rectified.
Solution: Journal Voucher Date:2074-03-19

Dr. B.E. Repair and maintenance 22212 5,000
Cr. B.E. Salary 21111 5,000
(Being expenses paid for repair was wrongly
debited to salary account now rectified)
Journal Voucher 239

Ill-22
Prepare journal vouchers from the following transactions:
a) 2074-06-05 Issued a cheque of Rs. 50,000 for purchase of machinery.
b) 2074-06-10 Issued a cheque of Rs. 10,000 for purchase of furniture.
c) 2074-06-13 Issued a cheque of Rs. 4,000 for purchase of dress.
d) 2074-06-25 Payment made by cheque Rs. 20,000 for house rent.
e) 2074-06-27 Payment made by cheque Rs. 1,800 for water supply and
electricity charges.
f) 2074-06-30 Purchased a motor car for Rs. 10,00,000 and paid by cheque.
Solution:
a) Dr. B.E. Machinery and equipment 29511 50,000
(Being a cheque issued for purchase of machinery)

b) Dr. B.E. Furniture 29311 10,000
(Being furniture purchased and payment made by
cheque)
c) Dr. B.E. Uniform 21121 4,000
(Being cheque issued for purchase of dress
materials)

d) Dr. B.E. House rent 22121 20,000
(Being rent paid by cheque)

e) Dr. B.E. Water supply and electricity charges 22111 1,800
(Being water supply and electricity charges paid by
cheque)

f) Dr. B.E. Vehicles 29411 10,00,000
(Being cheque issued for purchase of motor car)
Ill-23 Prepare journal vouchers from the following transactions:

a) 2074-04-03 Issued a cheque for Rs. 40,000 to Kharidar Mr. Krishna
Karki as an advance for purchase of furniture.
b) 2074-04-09 Issued a cheque in favour of Account Officer Miss Kajal of Rs.
20,000 as an advance for uniform.
c) 2074-04-20 Issued a cheque in favour of the house owner Mrs. Sarita for
coming month Rs. 14,000.
d) 2074-05-22 Opened L/C of Rs. 12,00,000 in the name of Toyota Company
Japan for purchase of car for office use.
Solution:
a) Dr. Kharidar Krishna Karki
(Being cheque issued to Kharidar Krishna Karki as
an advance for purchase of furniture)
b) Dr. Account Officer Miss Kajal
Uniform advance 21121 20,000
(Being uniform purchase advance given to Account
Officer Miss Kajal)
c) Dr. House owner Mrs. Sarita
House rent advance 22121 14,000
(Being cheque issued to house owner Mrs. Sarita for
rent advance)
d) Dr. Toyota Company Japan
Vehicles advance 29411 12,00,000
(Being letter of credit opened in the name of Toyota
Company Japan for purchase of car)
Journal Voucher 241

a) 2074-07-10 Cleared the furniture purchase advance of Kharidar, Kumar
Shrestha of Rs. 15,000 on the basis of expenditure report.
b) 2074-07-21 Miss Durga submitted the bill for Rs. 20,000 after purchasing
computer and her advance of Rs. 25,000 is cleared after
submitting the bank voucher for the surplus amount.
c) 2074-08-07 Subba Mr. Harikrishna presented the dress material purchase
bill Rs. 35,000 against the advance of Rs. 30,000. His advance
cleared by issuing cheque for insufficient amount.
d) 2074-08-24 Production material advance Rs. 16,000 of Mr. Ajaya was
cleared against the bill for the purchase of material Rs. 14,000
and Travelling program expenses bill Rs. of Rs. 2,000.
e) 2074-08-30 Miss Priya presented the machinery purchase bill of
Rs. 10,000 and her advance was cleared partially.
Solution:
a) Dr. B.E. Furniture 29311 15,000
Cr. Kharidar Kumar Shrestha
(Being furniture advance of Kharidar Kumar Shrestha
cleared on the basis of expenditure bill )

b) Dr. B.E. Machinery and equipment 29511 20,000
Cr. Miss Durga machinery advance clearance 25,000
(Being computer purchase advance Miss Durga’s cleared on
the basis of expenditure bill and bank voucher)

c) Dr. B.E. Uniform 21121 35,000
Cr. Subba Mr. Hari Krishna
Uniform advance clearance 30,000
(Being dress material advance cleared by paying for
excess expenditure)
d) Dr. B.E. Production material and service 22521 14,000
Dr. B.E. Travelling programme expenses 22613 2,000
Cr. Mr. Ajaya advance clearance 16,000
(Being advance Mr. Ajaya’s of production material
advance cleared)

e) Dr. B.E. Machinery and equipment 29511 10,000
Cr. Miss Priya machinery advance clearance 10,000
(Being Miss Priya’s machinery purchase advance
cleared partially)
Ill-25 From the following transactions, prepare journal vouchers:

a) 2074-04-01 District Health Office, Palpa received an initial imprest
fund equal to one sixth of total budget expenditure of last
fiscal year Rs. 24,00,000.
b) 2074-04-02 Received bank order of Rs. 3,00,000 for initial revolving fund as
1 of the actual expenditure of last fiscal year.
12
c) 2074-04-17 Received a cheque for additional revolving fund of the
amount to make equal to one sixth of the fiscal year
budget Rs. 18,00,000 after deducting initial revolving fund
Rs. 2,10,000.
d) 2074-05-03 Received budget release order and bank order for Rs. 2,00,000
equal to the expenditure of last month.
e) 2074-06-01 Received a bank order for Rs. 4,00,000 and budget release order
for the actual expenditure of Rs. 5,00,000 of previous month .
f) 2074-07-03 Received bank order for Rs.3,00,000 and budget release order
for actual expenditure of the previous month of Rs. 2,50,000 .
Solution:
a) Dr. Nepal Rastra Bank 4,00,000
Cr. Revolving fund release 4,00,000
(Being amount received for revolving fund release)

b) Dr. Nepal Rastra Bank 3,00,000
(Being bank order received for initial revolving fund
release)

c) Dr. Nepal Rastra Bank 90,000
Cr. Revolving fund release 90,000
(Being bank order received for additional revolving
fund release)
Journal Voucher 243

d) Dr. Nepal Rastra Bank 2,00,000
(Being bank order and budget release order received)

e) Dr. Nepal Rastra Bank 4,00,000
Dr. Revolving fund release 1,00,000

f) Dr. Nepal Rastra Bank 3,00,000
Cr. Revolving fund release 50,000

a) 2074-05-29 Salary distributed after deducting Rs. 12,000 for provident fund,
Rs. 10,000 for provident fund loan and Rs. 1,300 for income tax out
of total salary Rs. 66,000. The deducted amounts were deposited
into the concerned offices on the following day.
b) 2074-06-28 Out of total salary Rs. 88,000 and dearness allowance Rs. 20,000,
distributed by cheque after deducting Rs.16,000 for provident fund,
Rs. 12,000 for provident fund loan and Rs. 2,000 for income tax.
c) 2074-07-25 Issued a cheque of Rs. 35,000 for distribution of salary for the
month after deducting Rs. 10,000 for provident fund, Rs. 9,000 for
Tejatath Sapati and Rs. 1,000 for income tax.
d) 2074-08-29 Salary for the month Rs. 77,000 (including government contribution)
and dearness allowance Rs. 25,000 were distributed after deducting
provident fund Rs. 14,000 and income tax Rs. 3,000.
e) 2074-10-28 Salary for the month Rs. 40,000 (excluding government
contribution) was distributed after deducting provident fund as
per rules including government contribution.
f) 2074-07-20 Salary for the month Rs. 30,000 (excluding government
contribution) and Dashain allowance Rs. 20,000 were distributed
after deducting provident fund as per rules and income tax Rs.
900. The deducted amounts were deposited into concerned offices
through cheque.
Solution:
a) Dr. B.E. Salary 21111 66,000
(Being distribution of salary through cheque)

(Being provident fund, provident fund loan and
income tax deduction were deposited into concerned
offices)

b) Dr. B.E. Salary 21111 88,000
Dr. B.E. Dearness allowance 21113 20,000
(Being distribution of salary for the month)

c) Dr. B.E. Salary 21111 55,000
Cr. Tejarath sapati 9,000
(Being distribution for salary the month)

d) Dr. B.E. Salary 21111 77,000
Dr. B.E. Dearness allowance 21113 25,000
(Being distribution of salary and allowance through cheque)
Journal Voucher 245

e) Dr. B.E. Salary 21111 44,000
(Being salary distributed after deducting provident
fund)

f) Dr. B.E. Salary 21111 33,000
Dr. B.E. Other allowance 21119 20,000 6,000
Cr. Provident fund 900
Cr. Nepal Rastra Bank
(Being distribution of salary for the month)

g) Dr. Provident fund 6,000
Dr. Income tax 900
(Being provident fund deduction and income tax
deposited into concerned office through cheque)
Ill-27 From the following transactions, prepare journal vouchers:
a) Received loan Rs. 1,00,000 from District Education Office.

b) Repaid loan Rs. 25,000 to District Health Office by cheque.
c) The budget of Rs. 20,000 was transferred from machinery to furniture.
d) Issued a cheque of Rs. 1,000 for establishment of petty cash fund in favour of
Accountant Miss Rojina.
e) Issued a cheque of Rs. 800 for the reimbursement of the following petty
expenses made by petty cash fund:
Refreshment Rs. 120 Stationery Rs. 140
Taxi fare Rs. 270 Repair and maintenance Rs. 270
f) Amount Rs. 8,000 paid for repair and maintenance was wrongly debited to
salary account and now rectified.
Solution:
Journal Voucher
Cr. District Education Office loan a/c 1,00,000
(Being loan received from District Education Office)

Journal Voucher
b) Dr. District Health Office loan a/c 25,000
(Being loan repaid to District Health Office)
Journal Voucher
c) Dr. B.A. Machinery and equipment 29511 20,000
Cr. B.A. Furniture 29311 20,000
(Being budget transferred from machinery to
furniture)
Journal Voucher
d) Dr. Petty cash fund 1,000
(Being a cheque issued for establishment of petty
cash fund in favour of Accountant Miss Rojina)
Journal Voucher
e) Dr. B.E. Miscellaneous expenses 22711 120
Dr. B.E. Office related expenses 22311 410
Dr. B.E. Repair and maintenance 22212 270
Cr. Nepal Rastra Bank 800
(Being reimbursement of petty cash fund)
Journal Voucher
f) Dr. B.E. Repair and maintenance 22212 8,000
Cr. B.E. Salary 21111 8,000
(Being paid for repair and maintenance was wrongly
debited to salary account, now rectified)
Ill-28 Prepare journal vouchers of District Education Office, Nuwakot from

the following transactions:
a) 2074-04-01 Received bank order letter of Rs. 2,00,000 for initial revolving fund
release.
b) 2074-04-06 Issued a cheque for Rs. 10,000 in favour of house owner Miss
Rohini as advance rent for next two months.
c) 2074-04-07 Issued a cheque of Rs. 5,000 for establishment of petty cash fund in
favour of Accountant Mr. Gopal.
d) 2074-04-15 Issued a cheque against the purchase of following materials:
Computer and printer Rs. 58,500 Computer table Rs. 4,000 Sports
material Rs. 1,500
Journal Voucher 247

e) 2074-04-29 Paid salary Rs. 90,000 for the month after deducting provident
fund Rs. 15,000 and income tax Rs. 2,500. The deducted amounts
were deposited into concerned office on same day.
f) 2074-05-02 Bank order letter of Rs. 3,00,000 received including budget release
order for expenses of last month Rs. 1,75,000 and additional
revolving fund Rs. 1,25,000.
g) 2074-05-04 A cheque issued for reimbursement of petty cash fund for the
following expenses:
Wages Rs. 400 Tea and coke Rs. 300 Electricity charges Rs. 210
h) 2074-06-03 Budget Rs. 7,000 transferred from production material to local
allowance.
Solution:
Cr. Initial revolving fund release 2,00,000
(Being bank order received for initial revolving fund
release)

b) Dr. House owner Miss Rohini
House rent advance 22121 10,000
(Being cheque issued to house owner Miss Rohini as
advance rent for next two months)

c) Dr. Petty cash fund 5,000
(Being establishment of petty cash fund in favour of
Accountant Mr. Gopal)

d) Dr. B.E. Machinery and equipment 29511 58,500
Dr. B.E. Books and material 22313 1,500
(Being cheque issued for purchase of computer,
printer, computer table and sport materials)

e) Dr. B.E. Salary 21111 90,000
(Being distribution of salary)

e) Dr. Provident fund 15,000
(Being provident fund and income tax deposited into
concerned offices)

f) Dr. Nepal Rastra Bank 3,00,000

g) Dr. B.E. Salary 21111 400
Dr. B.E. Miscellaneous expenditure 22711 300
Dr. B.E. Water supply and electricity charges 22111 210
Cr. Nepal Rastra Bank 910
(Being reimbursement of petty cash fund)

h) Dr. B.A. Production material 22521 7,000
Cr. B.A. Local allowance 21112 7,000
(Being budget transferred from production material
to local allowance)
Key
Terms
Annual closing – process of closing the accounts at the end of fiscal year.
Budget expenditure – expenditure made under different budget needs.
Budget release – amount received from concerned central level office for
making expenditure.
Journal Voucher 249

Budget transfer – act of transferring amount from one budget need to another
taking approval of concerned authority.
Citizen investment fund – voluntary investment made by the interested employees
making deduction on monthly salary.
Fiscal year – period of twelve months over which the accounts and taxes of
a company or a person are calculated.
Income tax – amount to be paid to the government as tax on income beyond
the exemption limit.
Initial imprest fund – amount received by operating level offices at the beginning
of fiscal year to spend on different budget heads which is the
last year’s total budget expenditure.
Journal voucher – primary document used in government offices to keep the
record of day to day financial transactions.
Petty cash fund – fund of certain amount created by an office to pay the small
amount of expenditures in cash.
Provident fund – amount deducted from the basic monthly salary of permanent
employees and deposited into the concerned account along
with government contribution.

1. What is meant by AGF No.10?
2. Which accounts are debited and credited while giving advance through cheque?
3. How much is the minimum amount that can be maintained under petty cash
fund for central level offices?
4. Which accounts are debited and credited while receiving imprest fund through
bank transfer?
5. How much percentage of basic salary is deduced as provident fund in
government offices?
6. Write the budget head number of salary and furniture.
1. Define journal voucher and state its importance.
2. Mention the types of journal voucher and explain in brief about general
journal voucher with example.
3. What do you mean by advance transaction? How are the advance given
transactions recorded in journal voucher? Explain.
4. What do you mean by miscellaneous transactions? Mention the types of
miscellaneous transactions.
5. What is meant by transfer of budget? Explain its types with example.

1. Draw the specimen of journal voucher showing its different parts.
2. What is meant by advance clearance? What are the conditions of clearing
advance in government offices? Explain with example.
3. Write short notes on:
a) Imprest fund b) Security deposit
c) Budget release d) Petty cash fund
PP-1 Following transactions of District Administration Office, Kaski are given

to you:
a) 2074-04-03 Issued a cheque of Rs. 10,000 for purchase of furniture.

b) 2074-04-10 Issued a cheque of Rs. 50,000 for purchase of machinery.
c) 2074-04-13 A cheque of Rs. 6,00,000 was issued for purchase
of vehicle.
d) 2074-04-25 Payment made by cheque Rs. 4,000 for electricity charges.
e) 2074-05-10 Issued a cheque of Rs. 35,000 for purchasing a computer.
f) 2074-05-24 Purchased dress materials to staffs for Rs. 10,000 and
paid by cheque.
g) 2074-05-25 Payment made by cheque Rs. 3,000 for communication
charges and Rs. 1,000 for water supply charges.
Required: Journal vouchers (AGF No. 10)
PP-2 Following transactions relating to District Health Office, Palpa are given
to you:
a) 2074-05-10 Paid Rs. 25,000 for house rent by cheque No. 01349
b) 2074-05-15 Shankha Furniture Industry was paid Rs. 10,000 through
cheque No. 01550 for purchase of office table.
c) 2074-05-18 Water supply charges Rs.1,550 was paid to Nepal Khanepani
Sansthan by cheque No. 02345.
d) 2074-05-20 Paid salary Rs. 50,000 by cheque No. 01598.
e) 2074-06-25 Issued a cheque of Rs. 19,000 for purchase of production materials.
f) 2074-07-27 Purchased feeding materials for Rs. 7,000 and paid by cheque.
g) 2074- 08-30 Purchased office materials of Rs. 11,000 and sports materials of
Rs. 9,000 and paid by cheque.
Journal Voucher 251
PP-3 Following transactions of an operating level government office are given:
a) 2074-04-07 Issued a cheque of Rs. 10,000 to Accountant Miss Supriya Basnet as
an advance for purchase of furniture.
b) 2074 -04-27 Issued a cheque of Rs. 50,000 to Nayab Subba Mr. Ashish Thapa as
an advance for purchase of plant and equipment.
c) 2074-05-02 An advance of Rs. 14,000 is given to Section Officer for purchase of
office Mrs. Sarika Kafle, materials through cheque No. 05948
d) 2074-05-20 Issued a cheque of Rs. 15,000 to Mr. Bindukar as an advance to
purchase sports materials.
e) 2074-06-01 Issued a cheque of Rs. 9,000 to Account Officer, Miss Amita shrestha as
travelling expenses advance.
PP-4 Following are the transactions of an operating level government office

provided to you:
a) 2074-06-05 Issued a cheque of Rs. 10,500 to Section Officer, Mr. Binod Karki
as an advance for purchase of production materials.
b) 2074-06-17 Issued a cheque of Rs. 13,000 to Account Officer Miss, Manisha
Karki as an advance for purchasing dress materials.
c) 2074-06-30 An advance was given to Mr. Kamal Shrestha for purchasing
computer Rs. 50,000.
d) 2074-07-05 Issued a cheque of Rs. 10,000 in favour of house owner, Miss
Sumnima Oli as an advance for house rent.
e) 2074-07-10 A cheque of Rs. 18,000 was issued in favour of Kharidar
Mr. Manoj Khatri, as an advance for purchasing fooding
materials.
PP-5 The following transactions of District Education Office, Mugu are given:
a) 2074-08-01 Advance rent paid to house owner Mr. Pradhan through cheque
for coming three months @ Rs.5,000 per month.
b) 2074-08-05 Account Officer, Mrs. Prabha Karki was paid Rs. 14,000 in
advance through cheque No. 34980 for purchase of production
materials.
c) 2074-08-09 Through cheque No. 34899, Rs. 24,000 was paid in advance to
Storekeeper, Mr. Yonjan for purchase of food for military.
d) 2074-08-13 Opened L/C in the name of Maruti Company for purchase of
Maruti car of Rs. 9,00,000 for office use.
e) 2074-08-17 Paid cash Rs. 1,20,000 to Accountant, Mr. Saroj Adhikari as an
advance for buying motorcycle.

PP-6 Following transactions of District Health Office, Nuwakot are given:
a) 2074-06-03 Account Officer, Miss Anupama Tiwari returned travelling
expenses advance of Rs. 9,000 through bank due to postponement
of her travelling programme and her advance cleared.
b) 2074-06-09 Subba Krishna Man Tamrakar returned cash Rs. 15,000 to office
which was taken for purchasing machinery and requested for
advance clearance.
c) 2074-06-25 Kharidar Gopal Man Pradhan returned advance of Rs. 1,00,000
which was taken for purchasing vehicle and his advance cleared.
d) 2074-07-09 Accountant, Miss Rupa Adhikari returned cash
Rs. 20,000 to office which was taken for purchasing uniform and
cleared her advance.
PP-7 Following transactions of a government office are given:

a) 2074-04-13 Accountant, Miss Sujila Rai submitted the bill of Rs. 10,000
after purchasing the furniture and her advance was cleared.
b) 2074-04-28 Nayab Subba, Mr. Ashish Khadka presented the expenditure
bill of Rs. 50,000 after purchasing plant and equipment and his
advance was cleared.
c) 2074-05-21 Section Officer, Mrs. Rama Silwal submitted the expenditure
bill of Rs. 1,25,000 taken for buying vehicle and her advance
was cleared accordingly.
d) 2074-05-29 Mr. Rajan Basnet presented a bill of Rs. 30,000 after purchasing
computer and his advance was cleared.
e) 2074-06-03 Miss Smriti Baniya submitted the statement of expenditure
for other programme Rs. 13,000 and her advance was cleared
accordingly.
PP-8 Following transactions of a government office are given:
a) 2074-05-10 Section Officer, Mrs. Sarika Kafle presented the bill of Rs. 13,000
against the advance of Rs. 14,000 for purchase of office material
and cash for balance amount and her advance was cleared.
b) 2074-05-25 Kharidar, Shree Krishna Limbu submitted the bill of Rs. 45,000
and bank voucher of Rs. 5,000 after purchasing computer and
printer and his advance was cleared.
c) 2074-06-01 Mr. Ananda Dhakal submitted the bill of Rs. 20,000 after purchasing
food materials and his advance of Rs. 22,000 was cleared after
submitting the bank voucher for the surplus amount.
Journal Voucher 253

d) 2074-06-09 Skill development and public awareness training and seminar
expenses advance of Mr. Khanal Rs. 16,000 has been cleared
against the bill of Rs. 15,000 and bank voucher of Rs. 1000.
e) 2074-06-27 Mr. Anish Mahat submitted the bill of Rs. 1,15,000 for purchase
of motorcycle and his advance Rs. 1,20,000 cleared by submitting
the bank deposit slip of Rs. 5,000.
PP-9 Following transactions are given:

a) 2074-05-22 Mr. Bindukar presented the office material purchase bill of Rs.
17,000 against the advance of Rs. 15,000 and his advance was
cleared by issuing cheque for the excess expenditure.
b) 2074-05-29 Section Officer, Mr. Dilip Pandey presented the bill for purchase of
feeding materials Rs. 28,000 against the advance of Rs. 25,000 and
his advance cleared by issuing cheque for the insufficient amount.
c) 2074-06-13 Cleared the computing machine purchase advance of
Mr. Gopal Gupta of Rs. 18,000 on the basis of expenditure report
of Rs. 19,000.
d) 2074-07-09 Production material advance of Miss Januka Wagle of
Rs. 30,000 was cleared by issuing cheque of Rs. 2,000.
e) 2074-07-13 Office supplies advance of Ms. Benisha Hamal Rs. 10,000 cleared
on the basis of expenditure report of Rs. 11,500.
a) Kharidar Mr. Yogesh Kumal presented a bill of Rs. 7,000 after purchasing office
materials and his advance cleared.
b) Furniture purchase advance Rs. 20,000 of Mr. Mohan Mahat (Accountant) was
cleared against the bill for purchase of furniture Rs. 17,000.
c) Motorcycle purchase advance Rs. 1,20,000 of Mr. Himal Sharma has been
cleared against the bill of Rs. 1,16,000 and bank voucher Rs. 4,000.
d) Mr. Yogesh Rai submitted the repair expenses report of Rs. 4,000 and pay in
slip for the balance of Rs. 500 and his advance cleared accordingly.
e) Mr. Binod Shrestha submitted the bill of Rs. 8,000 after purchasing computer
table and his advance Rs. 6,000 cleared by issuing cheque for the insufficient
amount.

PP-11 Following transactions of a government office were given to you:
a) 2074-04-01 Received bank order of Rs. 1,00,000 for initial revolving fund as
one sixth of the actual expenditure of last fiscal year.
b) 2074-04-02 Received an initial imprest fund equal to one sixth of total budget
expenditure Rs. 24,00,000 of last fiscal year.
c) 2074-04-05 Received a bank order letter of Rs. 3,00,000 for initial imprest
fund.
d) 2074-05-07 Received bank order of Rs. 75,000 for additional revolving fund.
e) 2074-04-01 Received Rs. 1,50,000 as revolving fund through bank transfer.
f) 2074-04-01 Received Rs. 4,00,000 for revolving fund as bank transfer from
the Treasury and Comptroller Office, Mugu.
a) 2074-05-02 Received budget release order and bank order for Rs. 2,50,000 for
the actual expenditure of previous month.
b) 2074-06-01 Received budget release order and bank order of Rs. 5,00,000 on
the basis of monthly expenditure report.
c) 2074-07-04 Received a bank order for Rs. 3,10,000 and budget release order for
Rs. 2,50,000 for the expenditure of Aswin.
d) 2074-08-02 District Education Office, Nuwakot received a bank order for Rs.
4,00,000 and budget release order for Rs.3,00,000 for the actual
expenditure of Kartik.
e) 2074-09-01 Received a bank order for Rs. 4,50,000 and a budget release order
Rs. 5,00,000 for actual expenditure of the previous month.
f) 2074-10-01 District Health Office, Solukhumbu received a bank order for Rs.
2,00,000 and budget release order for Rs. 1,50,000 for the actual
expenditure of last month.
a) Department of Education received Rs. 4,00,000 as revolving fund through

Nepal Rastra Bank.
b) A budget release order has been received for the last month’s actual expenditure
of Rs. 3,00,000.
c) Received bank order of Rs. 1,00,000 as additional revolving fund.
Journal Voucher 255
d) Received a bank order for Rs. 5,00,000 and a budget release order
Rs. 6,00,000 for the actual expenditure of last month.
e) Received a bank order of Rs. 4,50,000 and budget release order for
Rs. 3,50,000 for the actual expenditure of last month.
PP-14 Following transactions of District Tax Office, Bhaktapur are given to you:
a) 2074-04-03 Established petty cash fund of Rs. 5,000 by issuing cheque No. 12594
in the responsibility of Junior Accountant, Miss Sujita Lamsal.
b) 2074-05-10 Issued a cheque of Rs. 2,000 in the name of Accountant
Mr. Sujan K.C. for establishment of petty cash fund.
c) 2074-07-01 Issued a cheque for establishment of petty cash fund amounting
Rs. 1,000.
d) 2074-09-02 Established the petty cash fund in favour of the Storekeeper, Miss
Ruja Chhetri amounting Rs. 5,000.
e) 2074-12-02 Issued a cheque of Rs. 3,000 for establishment of petty cash fund
and handed it over to the Petty Cashier Miss Juliya Magar.
a) 2074-05-03 Issued a cheque for reimbursement of following petty expenses
made from petty cash fund:
Taxi fare Rs. 195 Tea and coke Rs. 225
Telephone charges Rs. 200
Postal tickets Rs. 90
b) 2074-06-05
A cheque was issued for reimbursement of the following
expenditures made out of petty cash fund:
Refreshment Rs. 220 E-mail charges Rs. 120
Wages for repair Rs. 250 Tea and coffee Rs. 180
c) 2074-07-01
Issued a cheque of Rs. 700 for reimbursement of following petty
expenses made by the petty cashier:
Postal stamps Rs. 240 Bus fare Rs. 150
Newspaper Rs. 50 Electricity charges Rs. 260
d) 2074-08-09 The following expenses are submitted by the Petty Cashier for
reimbursement:
Water supply charges Rs. 200 Refreshment Rs. 260
Medical treatment Rs. 300 Repair expenses Rs. 190
The above petty expenses were reimbursed.

a) 2074-04-28 District Education Office, Mugu distributed salary through cheque
after deducting Rs. 12,000 for provident fund, Rs. 10,000 for
provident fund loan and Rs. 1,000 for income tax out of the total
salary Rs. 66,000.
b) 2074-05-27 Out of total salary Rs. 44,000 and dearness allowance Rs. 20,000,
distributed by cheque after deducting Rs. 8,000 for provident
fund and Rs. 1,800 for income tax. The deducted amounts were
deposited into the concerned offices on next day.
c) 2074-06-30 Salary for the month Rs. 77,000 (including government
contribution) and local allowance Rs. 30,000 were distributed after
deducting provident fund Rs. 14,000 and income tax Rs. 2,000. The
deducted amounts were deposited into the concerned office on the
same day.
d) 2074-07-29 Issued a cheque of Rs. 69,500 for distribution of salary for the
month after deducting Rs. 18,000 for provident fund, Rs. 10,000 for
Tejarath Sapati and Rs. 1,500 for income tax.
e) 2074-08-29 Salary for the month Rs. 50,000 (excluding government contribution)
was distributed after deducting provident fund as per rules including
government contribution and income tax Rs. 1,000.
PP-17 Following transactions of a government office were given to you:

a) 2074-04-29 Out of total salary Rs. 1,10,000 and field allowance Rs. 30,000,
distributed after deducting Rs. 20,000 for provident fund,
Rs. 13,000 for provident fund loan and Rs. 2,000 for income tax by
cheque. The deducted amounts were deposited into the concerned
office on the following day.
b) 2074-05-28 Issued a cheque of Rs. 71,500 for distribution of salary for
the month after deducting Rs. 16,000 for provident fund and
Rs. 500 for income tax. The deducted amounts were deposited in
to concerned office on the same day.
c) 2074-06-27 Salary for the month Rs. 1,65,000 (including government
contribution) has been distributed through cheque after
deducting provident fund Rs. 30,000 and Tejarath Sapati
Rs. 10,000.
d) 2074-07-28 Salary for the month Rs.1,40,000 (excluding government
contribution) has been distributed after deducting provident
fund as per rules including government contribution and
Rs. 2,000 for income tax.
Journal Voucher 257
e) 2074-07-29 Salary for the month Rs. 1,30,000 (excluding government
contribution), and festival allowance Rs. 1,00,000 were distributed
after deducting provident fund as per rules.
PP-18 The following transactions of a government office are given:
a) 2074d-04-01 Received loan Rs. 2,00,000 from District Health Office through
bank.
b) 2074-05-07 District Education Office received loan Rs. 1,00,000 from District
Agricultural Office through bank.
c) 2074-05-08 Loan Rs. 2,00,000 repaid to District Health Office through cheque.
d) 2074-06-01 District Education Office Palpa repaid loan amount Rs. 1,00,000 to
District Agriculture Office through bank.
e) 2074-07-02 District Irrigation Office, Rasuwa requested and received loan of
Rs. 75,000 from District Education Office through bank.
PP-19 The following transactions of a government office are given:
a) District Health Office, Nuwakot transferred Rs. 10,000 from the budget head
salary to furniture.
b) District Development Office, Chitwan transferred Rs. 25,000 from the budget
head books and materials to machinery and equipment.
c) District Education Office, Sarlahi transferred Rs. 20,000 from the budget head
furniture to vehicles.
d) District Agriculture Office, Tanahun transferred Rs. 50,000 to District
Administration Office through bank.
e) District Education Office, Rukum transferred Rs. 35,000 to District Health Office
through bank .
PP-20 The following transactions are given:
a) 2074-04-25 Received the security deposit amount for construction of building

from the contractor Mr.Ram Hari Dahal Rs. 20,000 and Mr.Hari
Gopal Shrestha Rs. 22,000.
b) 2074-07-30 Issued cheque of Rs. 1,90,000 in favour of contractor Ram Hari for
payment of building construction after deducting 5% for security
deposit.

c) 2074-08-10 On completion of building construction, the security deposit
amount of Rs. 30,000 refunded to contractor Mr. Ram Hari through
cheque.
d) 2074-09-01 Received the security deposit amount for construction of office
building from the contractors Mr.Suraj Nepal, Saroj Baidhya and
Nabin Thapa Rs. 15,000, Rs. 16,000 and Rs. 14,000 respectively.
e) 2074-10-04 Issued a cheque of Rs. 95,000 in favour of the contractor for road
pavement after deducting 5% for deposit.
f) 2074-10-05 The security deposit amount of Rs. 17,000 refunded to the contractor
Mr. Ashish Basnet through cheque.
PP-21 Prepare journal vouchers of District Education Office, Baitadi from the
following transactions.:
a) 2074-04-01 Received Rs. 2,00,000 as revolving fund through Nepal Rastra
Bank transfer.
b) 2074-04-05 Mamata Furniture Industry was paid Rs. 18,000 for furniture
purchase through cheque No. 094817.
c) 2074-04-09 Section Officer, Mr. Ramakanta Silwal was paid Rs. 30,000
in advance for the purchase of computer by cheque
No. 094818.
d) 2074-04-25 Telephone charges Rs. 1,800 was paid to Nepal Telecom by
cheque No. 094819.
e) 2074-04-26 Computer purchase advance of Section Officer
Mr. Ramakanta Silwal was cleared on the basis of bill of
Rs. 28,000 and bank voucher of Rs. 2,000.
f) 2074-04-30 Out of total salaries for the month Rs. 66,000, distributed by
cheque after deducting provident fund Rs. 12,000 and income
tax Rs. 1,600. The deducted amounts were deposited into
concerned office on the same day.
PP-22 Prepare journal vouchers of District Administrative Office, Solukhumbu
from the following transactions:
a) 2074-05-02 Received a bank order for Rs. 3,50,000 and budget release order Rs.
4,00,000 for the actual expenditure of last month.
b) 2074-05-07 Issued a cheque of Rs. 7,000 for purchase of office supplies.
c) 2074-05-09 Issued a cheque for Rs. 35,000 to Ms. Reshma Limbu, an Accountant
as an advance for purchase of furniture.
d) 2074-05-13 Miss Rajani Nepal submitted the bill for Rs. 15,000 after purchasing
production material and her advance of Rs. 13,000 cleared by
issuing a cheque for the insufficient amount.
e) 2074-05-15 Issued a cheque of Rs. 1,500 for establishment of petty cash fund.
f) 2074-05-30 Issued a cheque of Rs.69,000 for distribution of salary for the
Journal Voucher 259
month after deducting Rs.18,000 for provident fund, Rs. 10,000 for
Tejarath Sapati and Rs. 2,000 for income tax.
PP-23 Prepare general vouchers of District Education Office, Dhankuta from

the following transactions:
a) 2074-07-02 Received a bank order for Rs. 3,00,000 and a budget release
order for Rs. 2,75,000 for the actual expenditure of Aswin.
b) 2074-07-05 A cheque of Rs. 5,000 was issued for the payment of communication
charges.
c) 2074-07-06 Section officer, Mr. Dilip Humagain returned a bank voucher of
Rs. 10,000 to office which was taken for purchasing food materials
and cleared his advance accordingly.
d) 2074-07-10 Issued a cheque of Rs. 735 for reimbursement of following petty
expenses paid by petty cash fund.
Electricity charges Rs. 180 Tea and coffee Rs. 195
Taxi fare Rs. 210 Internet expenses Rs. 150
e) 2074-07-28 Out of the total salary Rs. 88,000 and allowance Rs. 40,000,
distributed after deducting Rs. 16,000 for provident fund and Rs.
1,900 for income tax.
f) 2074-07-30 The provident fund and income tax were deposited into concerned
offices by cheque.


Re
f.N
.
Pa
(2) rtic
ula
rs
9
(3) C
Ba ash
Dr lan
. ce
(4)
Cr
.
BANK CASH BOOK Ba
Chapter (5) Dr
. nk
(6) Cr Ba
. lan
(7) Ch ce
Learning Objectives .N
o
( 8) .will
After studying this chapter, the readers
Ba Ex Bud
be able to : l. pe ge
 define bank cash book and state its (9) B. nd t
H. itu
objectives.
( 10 N . re
 describe the importance of bank cash ) A mt
book.
( . Ad
 explain the accounts maintained under 11) Gi va
ve nc
bank cash book.
( n e
12
 mention the considerations for preparing ) Cl
bank cash book. ea
(13 red Mi
 post the various tranactions into bank
) A sc
cash book.
/c ell
No an
(14 . eo
) us
Dr
(15 .
) Cr
(16 .
)
(17
)
Introduction
Every operating level government offices deal with a number of financial transactions
daily. Such transactions are recorded first in journal voucher. According to the provision
made under new accounting system, cash receipt and cash payment should be done
through bank. However, there are more chances of misuse and misappropriation of
cash items and thus requires proper control. Considering this fact, a ledger book is
maintained in all government offices which is called bank cash book. It maintains
the record of cash receipt and cash payment which are done either in cash or
through cheque.
Bank Cash Book 261
Bank cash book is a subsidiary ledger which is maintained mainly with a view to
minimize the misuse and embezzlement of cash in government offices. It is also
called multi-columned ledger as it contains altogether seventeen columns under five
different accounts. The accounts maintained in bank cash book are cash account, bank
account, budget expenditure account, advance account and miscellaneous account. Bank
cash book is prepared on the basis of journal voucher. It is prepared under the format
prescribed by the Office of the Auditor General i.e. AGF No. 5.
Bank cash book is a multi-columned ledger prepared by the operating level

government offices to keep records of cash and banking transactions to minimize
the chances of misuse and manipulation of cash.
Specimen of bank cash book

The specimen of bank cash book is given below:
Government of Nepal A.G.F.No.5

……………Office/Department/Ministry
Bank Cash Book
Cash Budget
Remarks
Bank Balance Advance Miscellaneous
Date Ref.N. Particulars Balance Expenditure
Dr. Cr. Dr. Cr. Ch.No. Bal. B.H.N. Amt. Given Cleared A/c No. Dr. Cr.
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17)
Explanation of each columns contained in bank cash book is given below:

S.N. Column Information to be written
1. Date The date of financial transaction is written.
2. Reference number The serial number or code number of journal voucher is
recorded.
3. Particulars A brief narration of the transaction is mentioned.
4. Cash balance (Dr.) Cash or cheque received is recorded.
5. Cash balance (Cr.) Payment made in cash is recorded.
6. Bank balance (Dr.) Cash deposited into bank or when bank amount of bank
order received is recorded.
7. Bank balance (Cr.) Payment made through cheque is recorded.
8. Cheque number The number of cheque issued for payment is recorded.
9. Balance The current amount of bank balance after each deposit or
issue of cheque is shown.

10. Budget head no. The head or subhead number of budgeted transaction if
any is recorded.
11. Budget expenditure The amount of budget expenditure is mentioned including
(Amount) advance.
12. Advance given An amount of advance paid to any person or institution in

and head is recorded.
13. Advance cleared An amount of advance cleared from any person or
institution is mentioned.
14. Miscellaneous The code number used for any miscellaneous transaction
(Account no.) is recorded.
15. Miscellaneous (Dr.) The debit amount of miscellaneous account i.e. account
other than cash, bank, budget expenditure and advance
is recorded.
16. Miscellaneous (Cr.) The credit amount of miscellaneous account i.e. account
other than cash, bank, budget expenditure and advance
is recorded.
17. Remarks This column was originally used to mention the additional
information of transaction which was not mentioned in
other columns. Nowadays, in this column, the information
relating to advance clearance of last year is mentioned.
Objectives of bank cash book

Following are the main objectives of preparing bank cash book:
 To maintain the systematic record of cash and banking transactions.
 To maintain the effective control over cash and minimize the chances of misuse
and manipulation of it.
 To provide financial information for preparation of financial reports and
statements.
 To facilitate in estimation of cash requirement and disbursement.
 To disclose the position of cash and bank balance, budget expenditure, advance
and other miscellaneous transactions.
Importance of bank cash book

Bank cash book is a major subsidiary book to be prepared by the operating level
offices. Its importance for the office are described below:
a. Effective control over cash
Bank cash book maintains the systematic record of cash and banking transactions.
All the cash and banking transactions of government offices are recorded in this
Bank Cash Book 263
book. Thus, it helps to maintain the effective control over cash and minimizes the
chance of misuse and embezzlement of cash.
b. Estimation of cash requirement
Cash is a major factor for the operation of an
office. It is needed for day to day operation of Memory ips T
an office. Its shortage or excess holding both  Effective control over cash
are harmful for the office. Thus, it requires  Estimation of cash requirement
 Supply of financial information
to estimate the proper amount of cash  Detection and prevention of errors
requirement and disbursement. Bank cash  Support in transfer of responsibility
book helps to estimate the future requirement
of cash in order to meet the budget expenditure.
It also helps to estimate funds for future planning of an office.
c. Supply of financial information
Bank cash book provides various financial information to the concerned offices.
It discloses the information about cash and bank balance, budget expenditure,
advance payment and clearance etc. Thus, it facilitates for the preparation of
various financial statements and reports.
d. Detection and prevention of errors
Bank cash book is prepared under double entry concept of accounting. It assumes
the every transaction affects two sides i.e. debit and credit with equal amount. It
is generally totalled and closed at the end of each month. A trial balance can be
prepared to ascertain the arithmetical accuracy of the books of account. Hence, it
helps to detect and prevent the accounting errors.
e. Support in transfer of responsibility
The government employees are transferred from one place to another or
promoted to upper level. During the period of transfer or promotion, he/she
should handover the financial responsibility to others. Bank cash book provides
the details of all financial transactions. Thus, it makes easier in transferring
responsibility.
Types of account under bank cash book

The various accounts maintained under bank cash book are described below:
a. Cash account
Cash account is the first account maintained in bank cash book. It has two
columns i.e. debit and credit. The debit column is used to record cash receipts
and the credit column is used to record payments made in cash. However, all the
transactions of government offices are performed through cheque and it may not
require to post in cash account.
b. Bank account
Bank account contains four columns i.e. debit,
credit, cheque number and balance. All the
cash receipts through bank are recorded in
the debit column and all the payments made
Memory Tips
 Cash account
by issuing cheque are recorded in the credit  Bank account
column. The cheque number of the transaction  Budget expenditure account
is mentioned in cheque number column. After  Advance account
 Miscellaneous account
posting of each banking transaction i.e. either
on debit or credit, balance is determined and
shown on balance column.
c. Budget expenditure account
The expenditures made on different budget heads are recorded on budget
expenditure account. It has two columns i.e. budget head number column and
amount column. Budget head number of transactions is shown in budget head
number column and amount of related budget expenditure is shown in amount
column. The amount of advance given in any budget head is also recorded in this
account as it is also assumed as actual expenditure until its clearance. As it has a
single column to record amount, the credit amount relating to expenditure if any,
is shown in bracket.
d. Advance account
Advance account is the fourth account of bank cash book. It has two columns
i.e. advance given and cleared column. The advance given to any person on
particular head is recorded in advance given column and at the time of clearance,
it is recorded in advance cleared column.
e. Miscellaneous account
The transactions which are not related to cash, bank, budget expenditure and
advance account are recorded under miscellaneous account. It contains three
columns i.e. account number, debit and credit column. The account number is
recorded in account number column, the debit amount of transaction is recorded in
the debit column and the credit amount of transaction is recorded in credit column.
The transactions relating to imprest fund, budget release, petty cash fund, security
deposit, loan, provident fund, income tax etc. come under this heading.
Considerable points for preparation of bank cash book

Following are the important points to be considered while preparing a bank cash
book:
 Firstly the journal vouchers should be prepared for all the financial transactions.
 Before posting the transactions into bank cash book, the types of account
i.e. cash account, bank account, budget expenditure, advance account or
miscellaneous account should be identified.
 The transactions should be posted in chronological order.
Bank Cash Book 265

 The account debited in journal voucher should be posted in debit column of
concerned account in bank cash book and the account credited in journal
voucher should also be posted in credit column.
 The transaction relating to advance given should be posted in three accounts
i.e. budget expenditure, advance and bank account.
 While clearing advance, the actual expenditure should be shown in budget
expenditure account and the advance cleared amount should be kept in
bracket under same account.
 The transactions which are not related to cash, bank, budget expenditure and
advance should be posted under miscellaneous account.
 The transactions which do not affect the cash and bank balance like inter head
transfer of budget should not be posted into bank cash book.
 Every transactions should affect two accounts in bank cash book as it follows
the principle of double entry book keeping system.
 The trial balance should be prepared at the end of month to prove the
arithmetical accuracy of books of account.
Posting of transactions into bank cash book

After preparation of journal voucher for all the financial transactions, they are posted
into bank cash book. The types of journal voucher and their posting into bank cash
book is mentioned below:
a. Posting of general or budgeted transactions
b. Posting of advance transactions
c. Posting of miscellaneous transactions
Posting of general or budgeted transactions

The general or budgeted transactions include the payments made in different budget
heads like salary, rent, furniture, machinery and equipment etc. While preparing
journal voucher for general transaction, concerned budget head should be debited
and Nepal Rastra Bank should be credited. Thus, it affects the budget expenditure
account and bank account as follows:
Ill-1 Prepare journal voucher of the following transaction and post it into
bank cash book.
2074 - 04 -07 Issued a cheque of Rs. 5,000 for purchase of office supplies:
Solution:
a) Journal Voucher Date: 2074-04-07
Dr. B.E. Office related expenses 22311 5,000
(Being cheque issued for purchase of office supplies)

b)
Bank Cash Book
Cash Budget
Ref. Bank balance Advance Miscellaneous
Remarks
Date Particulars Bal. expenditure
A/c
N. Dr. Cr. Dr. Cr. Ch.N. Bal. B.H.N. Amt. Given Cleared Dr. Cr.
N.
2074- Issued cheque for purchase of office 5,000 22311 5,000
04-07 supplies
Posting of advance transactions

The transactions relating to advance should be recorded in journal voucher twice i.e.
at the time of giving advance and at the time of clearing advance. The transactions
should also be posted into bank cash book accordingly. It is discussed below:
While giving advance

At the time of giving advance to any official staff, name of the person receiving
advance with the concerned budget head is debited and Nepal Rastra Bank is credited
in journal voucher. Thus, it affects advance account, budget expenditure account and
bank account as follows:
Ill-2 Pass journal voucher for the following advance given transaction and
post into bank cash book:
2074-04-09 Issued a cheque No. 5937 of Rs. 10,000 in favour of Nayab Subba,
Mr. Raman Goyal as an advance for purchase of furniture.
Solution:
Dr. Subba, Mr. Raman Goyal 29311
Furniture advance 10,000
(Being cheque Issued to Subba Mr. Raman
Goyal as an advance for purchase of
furniture)
Bank Cash Book
Cash Budget
Bank balance Advance Miscellaneous
Bal. expenditure
Remarks
Ref.
Date Particulars
N. A/c
Dr. Cr. Dr. Cr. Ch.N. Bal. B.H.N. Amt. Given Cleared Dr. Cr.
N.
4-9 Issued cheque to Subba Mr.
Raman Goyal as an advance
for purchse of furniture 10,000 29311 10,000 10,000
Bank Cash Book 267

While clearing advance
The amount of advance given to staff may be cleared under different conditions. It
may be expenditure equal to advance, expenditure more than advance, expenditure
less than advance or return of whole advance amount. Such clearance of advance is
recorded in journal voucher and posted into bank cash book as follows:
Ill-3 Pass journal vouchers for the following transactions and post them into
bank cash book:
a)
If Subba Mr. Raman Goyal returned whole amount through bank voucher.
b)
If Subba Mr. Raman Goyal submitted the expenditure bill of Rs. 10,000.
c)
If Subba Mr. Raman Goyal submitted the furniture purchase bill of
Rs. 9,000 and pay in slip for the balance amount.
d) If Subba Mr. Raman Goyal submitted the statement of expenditure Rs. 12,000.
e) If Subba Mr. Raman Goyal submitted the statement of expenditure
Rs. 5,000 and his advance was cleared partially.
Solution:
a) Journal Voucher
Cr. Subba Mr. Raman Goyal
(Being furniture advance of Mr. Goyal cleared by returning
whole amount)
Bank Cash Book
Cash Budget
Remarks
Ref. Bal. expenditure
Date Particulars
N. A/c
N.
a) Mr. Goyal’s advance
cleared returning whole
amount 10,000 29311 (10,000) 10,000
b) Journal Voucher
(Being Mr. Goyal’s advance cleared on the basis
of expenditure bill)
Bank Cash Book

Cash Budget
Remarks

Date Particulars
N. A/c
N.
b) Mr. Goyal’s advance cleared
10,000
on the basis of expenditure 29311 (10,000) 10,000
bill

(c) Journal Voucher
(Being Mr. Goyal’s advance cleared on submission of
expenditure bill and pay in slip)
Bank Cash Book

Cash Budget
Remarks
Date Particulars
N. A/c
N.
c) Mr. Goyal’s advance
cleared on the basis of
expenditure bill and pay 9,000
1,000 29311
in slip (10,000) 10,000
(d) Journal Voucher

(Being Mr. Goyal’s advance cleared by issuing cheque for
insufficient amount)
Bank Cash Book

Cash Budget
Bal. expenditure
Remarks
Date Ref. N. Particulars
Ch. A/c
Dr. Cr. Dr. Cr. Bal. B.H.N. Amt. Given Cleared Dr. Cr.
N. N.
d) Mr. Goyal’s advance
cleared by issuing cheque
for insufficient amount 2,000 29311 12,000 10,000
(10,000)
(e) Journal Voucher

(Being Mr. Goyal’s advance cleared partially)
Bank Cash Book

Cash Budget
Remarks
Bal. expenditure
Date Ref. N. Particulars
A/c
N.
d) Mr. Goyal’s advance 29311 5,000 5,000
cleared partially (5,000)
Bank Cash Book 269

 Though the advance given amount is not an actual expenditure, it is assumed as expenditure until its
clearance and posted in budget expenditure account.
 Whatever the condition of advance clearance is, the actual expenditure is shown outside the bracket and
advance cleared amount is shown inside the bracket under budget expenditure account.
 The amount of advance cleared always should be equal to the amount of advance given except in partial
clearance.
Posting of miscellaneous transactions

The transactions other than cash, bank, budget expenditure and advance are called
miscellaneous transactions. It includes imprest fund, budget release, petty cash fund,
provident fund, income tax etc. While posting transactions related to miscellaneous
head, if it is debited in journal voucher it should be posted in debit column of
miscellaneous account and if it is credited in journal voucher, it should be posted
in credit column of miscellaneous account. The process of posting miscellaneous
transactions is made clear by the following illustrations:
Ill-4 Following are the transactions of District Education Office, Kailali:
a) Received a cheque for initial revolving fund equal to one sixth of the budget
expenditure of Rs. 24,00,000 during the last fiscal year.
b) Received bank order and budget release order for Rs. 2,00,000 for the
expenditure of last month.
c) The total salary Rs. 33,000 has been distributed after deducting provident fund
Rs. 6,000 and income tax Rs. 2,000.
d) The deducted amounts were deposited into concerned offices by cheque.
e) Established the petty cash fund in favour of the Junior Accountant, Miss Anita
Karki amounted Rs. 5,000.
Required:
a) Journal vouchers
b) Posting into bank cash book
Solution:
a) Journal Vouchers
Date Ref. N. Particulars L.F. B.H.No. Debit Rs. Credit Rs.
Cr. Initial revolving fund 4,00,000
(Being bank order received for release of revolving fund)
b) Dr. Nepal Rastra Bank 2,00,000
(Being budget release order and bank order received)
c) Dr. B.E. Salary 21111 33,000
(Being cheque issued for distribution of salary)

d) Dr. Provident fund 6,000
(Being deducted amounts were deposited into concerned
offices through cheque)
e) Dr. Petty cash fund 5,000
(Being establishment of petty cash fund in favour of Junior
Accountant, Miss Anita)
b) Bank Cash Book
Cash Budget
Remarks
Date Particulars
N. A/c
N.
a) Received bank order for
initial revolving fund 4,00,000 4,00,000 4,00,000
b) Received bank
order and budget
release order for the 2,00,000 6,00,000 2,00,000
expenditure of last
month
c) Issued cheque for
distribution of salary 25,000 5,75,000 21111 33,000 6,000
2,000
d) Deduction from
salary deposited into 6,000
concerned offices 8,000 5,67,000 2,000
e) Establishment of petty
cash fund in favour of
Junior Accountant Miss 5,000 5,62,000 5,000
Anita
Preparation of a trial balance

Bank cash book is prepared by applying the principles of double entry system. After
completion of posting all the journal vouchers into cash bank book, the trial balance
can be prepared at the end of month in order to check the arithmetical accuracy. Its
format is as follows:
Trial Balance
As on ……….
S.N. Accounts L.F. Debit Rs. Credit Rs.
1. Cash account ××× ×××
2. Bank account ××× ×××
3. Budget expenditure account ××× -
4. Advance account ××× ×××
5. Miscellaneous account............................................................................. ××× ×××
Total.......................................................................................................... ××× ×××

 If there is difference of amount between advance given column and cleared column, a trial balance will
not be equal and in such case, the difference of trial balance must be equal to the difference of advance
given and cleared column.
Bank Cash Book 271

Ill-5 The following are the financial transactions of District Education Office,
Morang:
a) Kartik 1 Bank balance Rs. 29,000.

b) Kartik 3 Received budget release order and bank order for the actual
expenditure of last month Rs. 2,30,000.
c) Kartik 7 Issued a cheque for Rs. 10,000 to Rojina Furniture Center for
purchasing furniture.
d) Kartik 14 Issued a cheque of Rs. 25,000 in favour of Section Officer,
Mr. Shrestha as an advance for purchase of machinery.
e) Kartik 28 Distributed salary of the month through cheque after deducting
Rs. 14,000 for provident fund and Rs. 2,000 for income tax, out of
total salary including government contribution to staff provident
fund of Rs. 77,000.
Required:
a) Journal vouchers
c) Trial balance
Solution:
a) Journal Voucher
Kartik 3 Dr. Nepal Rastra Bank 2,30,000
(Being budget release order and bank order received)
Kartik 7 Dr. B.E. Furniture 29311 10,000
(Being cheque issued to Rojina Furniture Centre for
purchasing furniture)
Kartik 14 Dr. Section Officer Mr. Shrestha
Machinery advance 29511 25,000
(Being cheque issued to Mr. Shrestha as advance for
purchasing machinery)
Kartik 28 Dr. B.E. Salary 21111 77,000
(Being distribution of salary after deducting provident fund
and income tax)

b) Bank Ca sh Book
Cash Budget
Ref. expenditure
Remarks
Bal.
Date Particulars
N. A/c
N.
7-1 a) Balance b/d 29,000
7-3 b) Budget release order and bank
order received
2,30,000 2,59,000 2,30,000
7-7 c) Furniture purchased and
payment made by cheque
10,000 2,49,000 29311 10,000
7-14 d) Issued cheque to Mr. shrestha
as an advance for purchase of
machinery
25,000 2,24,000 29511 25,000 25,000
7-28 e) Issued cheque for distribution of 14,000
salary
61,000 1,63,000 21111 77,000 2,000
Total 2,30,000 96,000 1,63,000 1,12,000 25,000 2,46,000
c) Trial Balance
S. N. Accounts L.F. Debit Rs. Credit Rs.
1. Cash in hand ......................................................................................... - -
2. Cash at bank ......................................................................................... 2,30,000 96,000
3. Budget expenditure ............................................................................... 1,12,000 -
4. Advance ................................................................................................ 25,000
5. Miscellaneous......................................................................................... - 2,46,000
3,67,000 3,42,000
Total........................................................................................................
Closing of bank cash book

All operating level offices have to close their bank cash book at the end of every month
as well as at the end of every fiscal year. Therefore, monthly closing and yearly closing
should be made by an office after preparing bank cash book. The short description
relating to both types of closing is given below: -
Monthly closing
After getting the budget in the form of revolving fund or on four monthly basis by
operating level office from central level offices, they have to submit a statement of bank
cash book to their respective offices. It has to be done regularly at the end of each month.
Bank cash book is such a book which provides detail information regarding revenue,
expenditure and balance of cash and bank at the end of month. In order to close the bank
cash book at the end of month, all the columns of bank cash book except bank balance
are totaled to find out the result of each account. There a trial balance can be prepared for
checking arithmetical accuracy. This procedure is known as monthly closing.
Bank Cash Book 273

Yearly closing
The fiscal year of all government offices starts from 1st Shrawn and ends at Ashadh
last. So, all the government offices after preparing statements have to close their books
of account at the end of fiscal year. As such, bank cash book is also closed at the end
of Ashadh by passing closing voucher which is known as yearly closing of bank cash
book. For this, first of all, it is necessary to close the petty cash fund depositing the
remaining cash balance at bank. After that, all accounts like imprest fund, budget
release, uncleared advance etc. are closed by preparing closing voucher. The closing is
done by making all the columns totaled to find out the position of each account. After
the bank cash book is closed, all operating level offices have to submit the bank cash
book as well as other reports and statements to the central level offices.

 Monthly closing is the process of closing bank cash book at the end of each month by making total of
amount columns under all the accounts in order to get the financial information in each account.
 Yearly closing is the process of closing bank cash book at the end of each fiscal year by closing all the
accounts and passing closing voucher.
Ill-6 The following are the financial transactions of District Education Office,
Janakpur for the month of Shrawan 207
:
a) Shrawan 1 Received a bank order for initial imprest fund equal to one sixth of
total budget expenditure Rs. 18,00,000 of last fiscal year.
b) Shrawan 3 Issued a cheque of Rs. 20,000 for purchase of office supplies.
c) Shrawan 7 Issued a cheque of Rs. 25,000 in favour of Section Officer, Mr. Rajan
Kumal for purchase of office furniture.
d) Shrawan 10 Issued a cheque of Rs.1,000 for establishment of petty cash fund in
favour of Accountant, Miss Devika.
e) Shrawan 18 Mr. Rajan Kumal presented a bill of Rs. 25,000 after purchasing
furniture and his advance was cleared.
f) Shrawan 24 Out of total salary of the month Rs. 1,32,000 including government
contribution to provident fund and dearness allowance of Rs.
40,000, distributed by cheque after deducting Rs. 24,000 for
provident fund, Rs. 15,000 for provident fund loan and Rs. 2,000
for income tax.
g) Shrawan 25 The deducted amounts were deposited into concerned offices
through cheque.
Required: Posting into bank cash book

Solution:
Government of Nepal AGF. No. 5
District Education Office, Janakpur
Bank Cash Book
For the month of Shrawan
Cash Budget
Remarks
Date Particulars
N. A/c
N.
4-1 Bank order received for revolving
fund release 3,00,000 3,00,000 3,00,000
4-3 Issued a cheque for purchase of
office supplies 20,000 2,80,000 29311 20,000
4-7 Furniture purchased advance given
to Section Officer, Mr. Rajan Kumal 25,000 2,55,000 29311 25,000 25,000
4-10 Issued a cheque for establishment
1,000
of petty cash fund 1,000 2,54,000
4-18 Mr. Rajan Kumal’s advance cleared 29311 25,000 25,000

(25,000)
4-24 Issued cheque for distribution of
salary and allowance 21111 1,32,000 24,000
1,31,000 1,23,000
21113 40,000 15,000
2,000
4-25 Deducted amounts were deposited 24,000
into concerned offices through 41,000 82,000 15,000
cheque 2,000
Total 3,00,000 2,18,000 82,000 2,17,000 25,000 25,000 42,000 3,42,000
Ill-7 The following are the financial transactions of District Health Office,
Mugu:
a) Ashwin 1 Received loan Rs. 40,000 from District Education Office, Humla.
b) Ashwin 3 Payment made by cheque Rs. 10,000 for dress materials.
c) Ashwin 4 Received a bank order for Rs. 14,00,000 and a budget release order
Rs. 13,50,000 for actual expenditure of last month.
d) Ashwin 6 Opened L/C in the name of Toyata Company Japan for purchase
of motor car of Rs. 10,00,000 for office use.
e) Ashwin 9 Paid Rs. 5,000 for house rent by cheque.
f) Ashwin 14 Section Officer, Mrs. Priya Rana presented the machinery purchase
bill of Rs. 30,000 against the advance of Rs. 28,000 and her advance
was cleared by issuing cheque for the excess expenditure.
g) Ashwin 20 Repaid loan Rs. 40,000 to District Education Office, Humla
h) Ashwin 25 Issued a cheque of Rs. 53,000 for distribution of salary for the
month after deducting Rs. 12,000 for provident fund and Rs. 1,000
for income tax.
Bank Cash Book 275

Solution:
District Health Office, Mugu
Bank Cash Book
For the month of Aswin
Cash Budget
Remarks
Date Particulars
N. A/c
N.
6-1 a) Loan received 40,000 40,000 40,000
6-3 b) Issued cheque for dress 10,000 30,000 21121 10,000
materials
6-4 c) Received bank order and 13,50,000
budget release order 14,00,000 14,30,000 50,000
6-6 d) Opened L/C in the name of
Toyata Company 10,00,000 4,30,000 29411 10,00,000 10,00,000
6-9 e) Paid rent by cheque 5,000 4,25,000 22121 5,000
6-14 f) Section officer Mrs. Priya 30,000
Rana’s advance cleared 2,000 4,23,000 29511 (28,000) 28,000
6-20 g) Loan repaid to District
Education Office 40,000 3,83,000 40,000
6-25 h) Issued cheque for distribution 21111 66,000 12,000
of salary 53,000 3,30,000 1,000
Total 14,40,000 11,10,000 3,30,000 10,83,000 10,00,000 28,000 40,000 14,53,000
Ill-8 Following transactions are given to you

a) Chaitra 1Bank balance Rs. 20,000.
b) Chaitra 3Received bank order for Rs. 2,50,000 and budget release order
for Rs. 3,00,000 for the expenditure of Falgun.
c) Chaitra 9 Mr. Janak returned travelling expenses advance of Rs. 5,000
through bank due to postponement of his travelling programme
and his advance cleared.
d) Chaitra 14 Issued a cheque for the reimbursement of following petty expenses;
Communication charges Rs. 90
Tea and coke Rs. 200
Wages Rs. 300
Taxi fare Rs. 210
e) Chaitra 24 Issued a cheque of Rs. 76,000 to the contractor for the construction
of road after deducting 5% contract tax.
f) Chaitra 25 Payment made by cheque Rs. 6,000 for water supply charges and
Rs. 3,000 for telephone charges.
g) Chaitra 29 Total salary of the month Rs. 99,000 (including government
contribution) and local allowance of Rs. 20,000 were distributed
through cheque after deducting Rs.18,000 for P.F. and Rs. 1,500 for
income tax.

Solution:
………… Office/Department
Bank Cash Book
For the month of Chaitra
Cash Budget
Remarks
Date Particulars
N. A/c
N.
12-1 a) Opening balance b/d 20,000
12-3 b) Received bank order and budget
release order 2,50,000 2,70,000 50,000 3,00,000
12-9 c) Mr. Janak’s advance cleared 5,000 2,75,000 22612 (5,000) 5,000
1 2 - d) Issued cheque for reimbursement 22112 90
14 of petty cash fund 22711 200
800 2,74,200 21111 300
22311 210
1 2 - e) Issued cheque to contractor for
24 construction of road 76,000 1,98,200 29611 80,000 4,000
1 2 - f) Issued cheque for water supply
25 charges and telephone charges 9,000 1,89,200 22111 6,000
22112 3,000
1 2 - g) Issued cheque for distribution of 99,500 89,700 21111 99,000 18,000
29 salary and allowance 21112 20,000 1,500
Total 2,55,000 1,85,300 89,700 2,03,800 5,000 50,000 3,23,500
Key
Terms
Advance account – account used to maintain the record of advance given
and cleared transactions.
Bank account – account use to record the banking transactions
Bank cask book – multi-columned ledger prepared by operating level
offices
Budget expenditure account – account used to maintain the record of
transactions relating to budget expenditure.
Cash account – account used to record the transactions relating to cash
receipt and cash payment.
Miscellaneous account – account used to keep the record of transactions other
than cash, bank, budget expenditure and advance.
Monthly closing – process of totalling all the amount columns of
all the accounts of the bank cash book.
Yearly closing – process of closing all the accounts at the end of
fiscal year by preparing closing voucher.
Bank Cash Book 277
1. What is bank cash book?
2. Write is the AGF No. of bank cash book.
3. How many accounts are there in bank cash book?
4. State the columns maintained under bank balance of bank cash book.
5. Why is bank cash book called multi columned ledger?
6. How many columns are there in a bank cash book?
7. Which accounts are affected in bank cash book while giving advance?
1. Define bank cash book and explain its importance for government offices.
2. Mention the considerable points for preparing bank cash book.
3. What do you mean by closing of bank cash book? Describe the way of closing it.
1. Define bank cash book and explain the various accounts maintained in it.
2. “Bank cash book is also called multi-columned ledger.” Justify this statement.
PP-1 Following information relating to Land Revenue Office, Saptari are given:
a) 2074-04-01 Received a bank order for Rs. 2,00,000 as initial revolving fund release.
b) 2074-04-03 Issued a cheque number 0954 of Rs. 10,000 for purchase of office
materials.
c) 2074-04-09 Issued a cheque of Rs. 16,000 to Subba, Mr. Saroj Thapa as an
advance for purchase of furniture.
d) 2074-04-16 Established the petty cash fund in favour of the Accountant , Miss
Sujata Thapa amounting Rs. 5,000 through cheque.
e) 2074-04-26 Out of total salary for the month Rs. 88,000, deducted provident
fund Rs.16,000 and income tax Rs.1,500 and balances were
distributed through cheque.
Required:
a) Journal vouchers
Ans: b) Bank balance Rs. 98,500
PP-2 Prepare journal vouchers from the following transactions and post them
into bank cash book of District Health Office, Kaski:
a) 2074-04-02 Received a bank order of Rs. 3,00,000 for initial imprest fund release.
b) 2074-04-04 Issued a cheque in favour of Kharidar, Mamata Kandel as an
advance Rs.35,000 for purchase of computer.

c) 2074-04-07 Purchased furniture for Rs. 5,000 and issued cheque for the same.
d) 2074-04-10 Created petty cash fund of Rs. 5,000 through cheque
No. 19456.
e) 2074-04-30 Out of total salary for the month Rs.1,10,000 distributed after
deducting provident fund Rs. 20,000 and income tax Rs.2,000
through cheque.
Ans: Bank balance Rs. 1,67,000
PP-3 Prepare journal vouchers from the following transactions and post them
into bank cash book of a government office:
Ashwin 1 Balance at bank Rs. 25,000.
Ashwin 3 Received budget release order and bank order for the actual
expenditure of last month Rs. 2,10,000.
Ashwin 17 Issued a cheque of Rs. 79,000 to Account Officer, Mrs. Purnima Lama
for purchase of production materials.
Ashwin 26 A cheque of Rs. 3,000 was issued for payment of electricity charges.
Ashwin 28 Issued a cheque of Rs. 78,000 for distribution of salary for the month after
deducting Rs. 18,000 for provident fund and Rs. 3,000 for income tax.
Ashwin 29 Account Officer, Mrs. Purnima Lama presented the bill of
Rs. 79,000 after purchasing the production materials and her advance
cleared.
Ans: Bank balance Rs. 75,000
PP-4 Post the following transactions into bank cash book of District Education
Office, Morang:
Marga 1 Balance at bank Rs. 20,000
Marga 4 Received budget release order and bank order for the actual expenditure
of last month Rs. 1,50,000.
Marga 10 Issued a cheque of Rs. 20,000 to Section Officer, Mr. Amit Phuyal for
purchase of photocopy machine.
Marga 21 Paid Rs. 7,000 for rent by cheque no. 3598
Marga 22 Section Officer, Mr. Amit Phuyal presented the bill of Rs. 20,000 after
purchasing photocopy machine and his advance cleared
Marga 29 Issued a cheque of Rs. 62,000 for distribution of salary for the month after
deducting Rs. 14,000 for provident fund and Rs. 1,000 for income tax.
PP-5 Prepare bank cash book from the following transactions of District
Health Office, Sunsari:
Kartik 1 Balance at bank Rs. 13,000.
Kartik 3 Received bank order for Rs. 2,50,000 and budget release order for
Rs. 3,25,000.
Bank Cash Book 279

Kartik 17 Issued a cheque of Rs. 17,000 as travelling program expenses advance
to Mr. Adhikari.
Kartik 19 Mr. Adhikari returned travelling expenses advance of Rs. 17,000
through bank due to postponement of his travelling program and his
advance is cleared.
Kartik 29 Total salary for the month Rs. 1,43,000 (including government
contribution) has been distributed through cheque after deducting
P.F.Rs. 26,000 and income tax Rs. 2,500.
Kartik 30 The deducted amounts were deposited into concerned offices through
cheque.
PP-6 From the following transactions of District Education Office, Bhaktapur
for the month of Poush 2074, prepare bank cash book::
Poush 1 Bank balance Rs. 40,000.
Poush 2 Received bank order for Rs. 1,90,000 and budget release order for Rs.
2,40,000.
Poush 11 Issued a cheque of Rs. 22,000 in favour of Mr. Anup Karki as an
Poush 13 Mr Anup Karki returned advance of Rs. 22,000 to office through pay-
in-slip and his advance cleared.
Poush 28 Out of total salary for the month Rs.1,15,500 (including government
contribution) distributed after deducting provident fund Rs. 21,000
and income tax Rs. 2,200.
Poush 29 The deducted amounts were deposited into concerned office through
cheque.
PP-7 The following transactions are given:
The following transactions are given:
Bhadra 1 Balance at bank Rs. 50,000
Bhadra 2 Received bank order for Rs. 1,50,000 and budget release order for
Rs. 1,25,000.
Bhadra 9 Issued a cheque of Rs. 1,25,000 to Nayab Subba, Miss Deepa as an
advance for purchase of motorcycle.
Bhadra 15 Issued a cheque of Rs. 12,000 for purchase of office materials.
Bhadra 19 Miss Deepa Lama presented the bill for purchase of motorcycle of
Rs. 1,30,000 against the advance of Rs. 1,25,000 and her advance
cleared by issuing a cheque for the insufficient amount.
Bhadra 23 The following expenses made out of petty cash fund were reimbursed by
issuing cheque:
Repair and maintenance wages Rs. 200 Postage Rs. 210

PP-8 Post the following transactions into bank cash book of District Education
Office, Nuwakot:
Falgun 1 Balance at bank Rs. 13,000
Falgun 4 Received a bank order for Rs. 1,25,000 and budget release order for
Rs.1,00,000
Falgun 13 Issued a cheque of Rs. 30,000 to Storekeeper, Miss Dristi Ranjit as an
advance for purchase of computer
Falgun 16 The following expenses made from petty cash fund were reimbursed
by issuing cheque:
Newspaper Rs. 310, Tea and coke Rs. 215
Falgun 24 Miss Dristi Ranjit presented the bill for purchase of computer of
Rs. 35,000 against the advance of Rs. 30,000 and his advance cleared
by issuing cheque for excess expenditure.
Falgun 27 Paid Rs. 5,000 through cheque no. 4896 for wages incurred for repair
and maintenance.
PP-10 Based on the following transactions, develop bank cash book (A.G.F.
No. 5) of District Administration Office, Palpa for the month of Jestha:
Jestha 2 Received a bank order of Rs. 2,00,000 equal to last month’s expenditure
Jestha 3 Provident fund Rs. 10,000 and income tax Rs. 2,000 were deposited
into concerned offices by cheque.
Jestha 10 Issued a cheque of Rs. 22,000 to Accountant, Mr. Kapil Khadka as an
advance for purchase of uniform.
Jestha 14 Issued a cheque of Rs. 80,000 in favour of the contractor for the
building construction.
Jestha 17 Accountant, Mr. Kapil Khadka submitted the bill of Rs. 20,000 and bank
voucher of Rs. 2,000 after purchasing uniform and his advance cleared.
Jestha 25 Machinery purchase advance of Mr. Rana Rs. 23,000 was cleared
against the bill for purchase of machinery Rs. 25,000.
PP-11 Based on the following transactions, develop a bank cash book of
District Education Office, Solukhumbu for the month of Baishakh:
Baishakh 1 Received a bank order of Rs. 2,40,000 equal to last month’s expenditure.
Baishakh 3 Purchased a motorcycle for Rs. 1,15,000 and issued a cheque for
the same.
Baishakh 7 Issued a cheque of Rs. 18,000 to Section Officer, Miss Sunita Basnet as
an advance for purchase of fooding materials.
Baishakh 16 Issued a cheque of Rs. 65,000 in favour of the Contractor, Mr. Hari for
the road construction.
Bank Cash Book 281
Baishakh 19 Section Officer, Miss Sunita Basnet submitted the bill of Rs. 17,000
and bank voucher Rs. 1,000 after purchasing feeding materials and
cleared her advance.
Baishakh 27 Mr. Hamal presented the furniture purchase bill of Rs. 4,000 and his
advance cleared partially.
PP-12 Post the following transactions into bank cash book of District
Education Office, Mugu for the month of Bhadra 2074:
Bhadra 1 Received loan Rs. 20,000 from District Health Office.

Bhadra 3 Issued a cheque of Rs. 5,000 for fuel for vehicles.
Bhadra 5 Received a bank order for Rs. 2,25,000 and budget release order
Rs. 2,00,000 for actual expenditure of last month.
Bhadra 10 Repaid the loan amount Rs. 20,000 to District Health Office by cheque.
Bhadra 19 Mr. Manoj Sharma presented the bill for the purchase of machinery of
Rs. 30,000 against the advance of Rs. 27,000 and his advance cleared
by issuing a cheque for the insufficient amount.
Bhadra 28 Out of total salary Rs. 85,000 and dearness allowance Rs. 20,000,
distributed after deducting Rs. 15,000 for provident fund and
Rs. 5,000 for tejarath sapati.


10 BUDGET SHEET
Chapter
Learning Objectives
be able to :
 define budget sheet and state its
importance for government office.
 describe the parts of budget sheet along
with their usefulness.
 post the transactions into budget sheet.
Introduction
Under the provision of new accounting system of government of Nepal, operating
level offices make expenditures on various budget heads. Such expenditures should
be made within the limitation of budget. The main objective of government is to
maintain effective control over budget. For this purpose, each operating level office
prepares a statement every month containing different heads of expenditure in
columnar form which is known as budget sheet. It is a budgetary ledger to be prepared
by government offices to show the annual appropriation, budget release and budget
expenditures. Budget sheet provides the information about annual budget, budget
release and budget expenditures in each budget head. It is considered as the effective
tool for recording, controlling and reporting purpose. It is prepared with the help of
journal vouchers and submitted to the concerned central level offices. It is prepared
under the prescribed format of AGF No. 8.
Budget Sheet 283
Budget sheet is a budgetary account of operating level government offices. It is a
statement of annual appropriation, budget release and budget expenditure maintained
under new accounting system. Budget sheet is a budgetary tool for all operating
level government offices to maintain control over budget. It release and expenditures
incurred under different budget heads and subheads. It is prepared with the help
of journal vouchers of each financial transactions. It is prepared and submitted to
the central level office at the end of each month. It is prepared under the prescribed
format of AGF No 8.
Budget sheet is a budgetary ledger to be prepared by operating level government

offices in order to maintain the effective control over budget by providing
information about annual budget, budget release and budget expenditures.

 Budget sheet is prepared after preparation of journal vouchers.
 While preparing budget sheet, all the columns may not be used at a time. The offices can use all or
required columns of budget head as per the requirement.
 It is a statement of annual appropriation, budget release and budget expenditure of operating level
government offices.
Importance of budget sheet

The importance of budget sheet are given below.
 It provides information about annual budget, budget release and budget
expenditure under different budget heads.
 It supplies the required information to the central level offices whether the
operating level offices have spent budget within limitation or not.
 It gives information about budget release, budget transfer and additional
budget release during the period.
 It serves as an important financial tool for controlling budget.
 It facilitates for the preparation of various financial statements and reports.
 It helps in preparation of budget and running financial administration.
Parts of budget sheet

A budget sheet contains the following three parts:
Annual appropriation part

Annual appropriation part is the first and upper part of budget sheet. It shows the
total amount of budget approved for a fiscal year and its allocation under different
budget heads and sub-heads. It determines the maximum limit of budget more than
which the amount cannot be spent by the concerned offices. This part is filled up with
the help of approval letter related to declaration of annual appropriation, sent by
concerned central level offices of government. It does not require to prepare journal
voucher to fill up in this part. It also maintains the record relating to supplementary
budget release, inter office and inter head transfer of budget.
Budget release part

Budget release part is the second and middle part of the budget sheet. The
information of total amount of budget release received out of the annual appropriation
from the concerned central level is shown in this part. It shows the amount of budget
release in each head and sub-heads till the date of its preparation. The information
relating to imprest fund, supplementary budget release, additional imprest fund and
inter head and inter office transfer of budget are also recorded in it.
It is necessary to prepare journal voucher for the budget release transactions before
posting them into budget sheet. While showing the amount of imprest fund, it is
shown only in total column as it is provided without mentioning the budget head.
It is closed at the end of each fiscal year by depositing the remaining amount in
consolidated fund. The surplus budget on each head is shown within bracket in the
concerned column.
Budget expenditure part

Budget expenditure part is the last and lower part of the budget sheet. All the
expenditures made on different budget heads and sub-heads are recorded in this
part. This part provides information about total amount of budget expenditures
made out of release received under different heads and sub-heads. It also records the
transactions relating to advance given and cleared. While giving advance, it keeps
the record assuming actual expenditure until its clearance. While clearing advance,
the actual expenditure is shown outside the bracket and amount of advance is shown
inside the bracket.
The petty cash expenses are recorded at the time of reimbursement. It does not record
the transactions which are not related to budget heads. Thus, the transactions like
establishment of petty cash fund, provident fund, income tax, citizen investment fund,
loan, security deposit etc. are not recorded in it. In this part also, journal vouchers are
required to be prepared for all the transactions. This part is closed at the end of each
month making the total of each budget head. The total of previous month is added
with the current month’s total to determine the grand total of each budget head till
the preparation date.
Budget Sheet 285
Rules for preparing budget sheet
Following are the rules or procedures to be followed for preparing budget sheet :
 Annual appropriation of budget should be recorded in annual appropriation
part without preparing journal voucher.
 Inter head transfer of budget and additional budget release should also be
shown in annual appropriation part.
 The amount of revolving fund and additional revolving fund should be
recorded in budget release part only in total column as it has no allocation
of budget.
 The transactions related to budget expenditure should be recorded in budget
expenditure part in order to date.
 Advance given transaction should also be recorded in budget expenditure
part assuming actual expenditure until and unless it is cleared.
 While clearing the advance, the amount of actual expenditure should be
shown outside the bracket and advance given amount should be kept inside
the bracket.
 The transactions relating to petty cash fund should be recorded only at the
time of reimbursement.
 Finally, the total of each column in budget release and budget expenditure
part for a month should be obtained and added with the total till the last
month to get the grand total till the period.
Ill-1 You are provided the following information of District Education Office,
Palpa:
B.H. No. Budget head/sub-heads Annual budget Rs. Expenses upto Ashwin Rs.
21111 Salary......................................................................... 4,29,000 95,000
21121 Uniform....................................................................... 1,40,000 30,000
22112 Communication........................................................... 96,000 24,000
29311 Furniture..................................................................... 2,00,000 75,000
29511 Machinery................................................................... 5,00,000 2,00,000
Total............................................................................ 13,65,000 4,24,000
Kartik 1 Received budget release order for the actual expenditure of Ashwin and bank
order for the same.
Kartik 4 Issued a cheque of Rs. 15,000 for purchase of uniform.
Kartik 9 Issued a cheque for Rs. 12,000 in favour of Nayab Subba , Mr. Shrestha as an advance
for purchase of furniture.
Kartik 18 Cleared Mr. Shrestha’s furniture purchase advance against the bill for purchase of
the same.
Kartik 29 Issued a cheque of Rs. 26,000 for distribution of salary for the month after deducting
Rs. 6,000 for provident fund and Rs. 1,000 for income tax.
Required:
a) Journal vouchers
b) Posting into budget sheet
Solution:
a) Journal Voucher Date: Kartik 4
Dr. B.E. Uniform 21121 15,000
Cr. N.R. Bank 15,000
(Being cheque issued for purchase of uniform)
Journal Voucher Date: Kartik 9
Dr. Nayab Subba Mr. Shrestha
(Being cheque issued to Mr. Shrestha as an advance

Cr. Nayab Subba Mr. Shrestha
(Being Mr. Shrestha’s furniture purchase advance
cleared)
Dr. B.E Salary 21111 33,000
(Being cheque issued for distribution of salary for the
month)
b) Government of Nepal AGF No.8
District Education Office, Palpa
Budget Sheet
Budget Head/Sub-heads
Salary Uniform Communication Furniture Machinery
B.H. No 21111 21121 22112 29311 29511
Appropriation for the year 13,65,000 4,29,000 1,40,000 96,000 2,00,000 5,00,000
Budget transfer
Release Date R.N. Particulars Total

7-1 Release upto Ashwin 4,25,000 95,000 30,000 24,000 75,000 2,00,000
7-4 Issued cheque for

purchase of dress 15,000 15,000
materials
7-9 Issued cheque to Mr.
Expenditure
Shrestha as an advance 12,000 12,000

for purchase of furniture
7-18 Mr. Shrestha’s advance 12,000 12,000
cleared (12,000) (12,000)
7-29 Issued cheque for 33,000 33,000
distribution of salary
Total expenditure of Kartik
60,000 33,000 15,000 12,000
Budget Sheet 287

Closing of budget sheet
Operating level government offices close their budget sheet at the end of each month
and finally at the end of the year after closing books of account. Thus, the budget
sheet is closed in the following way:
Monthly closing
The process of closing the budget sheet at the end of each month is known as monthly
closing. Monthly closing of budget sheet is done mainly with a view to determine the
total amount of budget release and total amount of budget expenditure on different
budget heads and sub-heads till the date. In order to close the budget release part, first
of all the budget release on different heads and sub-heads for the current month are
added. Then, the budget release under different budget heads and sub-heads up to
previous month are added with the total of current month so that the total amount of
budget release on different budget heads and sub-heads till the date are ascertained. In
budget expenditure part too, same procedure is followed to make the monthly closing.
Under this, the budget expenditures made on different budget heads and sub-heads
for the current month is obtained. The total expenditure upto the previous month is
added with the current month’s total to obtain the total amount of budget expenditure
till the date. For monthly closing, journal vouchers are not required.
Yearly closing
The process of closing budget sheet at the end of each fiscal year by making closing
voucher after closing all the books of account is called yearly closing of budget sheet.
While closing the budget sheet on yearly basis, the total amount of budget expenditure
is deducted from the total amount of budget released to find out the surplus if any.
The surplus budget if any, is either deposited into consolidated fund or transferred
to the next year. While making closing, total amount of budget release on different
budget heads and sub-heads are shown inside the bracket. Similarly, the total amount
of budget expenditure on different budget heads and sub heads are also shown inside
the bracket that makes the budget release and budget expenditures equal.

 The closing of annual appropriation part of budget sheet is not required.
 The yearly closing of budget sheet is made by preparing closing voucher.

Ill-2 The following information and transactions are given to you:
Expenditure
B.H. Annual budget Expenditure of
Budget head/sub-head upto Falgun
No. Rs. Chaitra Rs.
Rs.
21111 Salary.......................................................................... 3,00,000 2,00,000 22,000
21113 Dearness allowances.................................................. 1,00,000 70,000 8,000
22111 Water supply and electricity charges........................... 1,20,000 85,000 9,000
22311 Office related expenses............................................... 2,40,000 1,60,000 11,000
29511 Machinery.................................................................... 4,00,000 3,00,000 35,000
Total............................................................................. 11,60,000 8,15,000 85,000
Baishakh 1 Received a bank order and budget release order for the actual expenditure
of last month.
Baishakh 10 Issued a cheque of Rs. 20,000 to Mr. Sharma as an advance for purchase
of machinery.
Baishakh 15 Paid by cheque Rs. 5,000 for electricity charges.
Baishakh 18 Mr. Sharma submitted the bill for Rs. 18,000 and bank voucher of
Rs. 2,000 after purchasing machinery and cleared his advance.
Baishakh 25 Issued a cheque of Rs. 10,000 for purchase of office materials.
Baishakh 30 Out of total salary including government contribution to provident

fund Rs. 22,000 and dearness allowance of Rs. 8,000, distributed after
deducting provident fund Rs. 4,000 and income tax Rs. 800.
Required: Posting into budget sheet with monthly closing
Solution:
……………….. Office
Budget Sheet
Water supply
Dearness Office
Budget Head/Subhead Salary and electricity Machinery
allowance expenses
charges
B.H. No.
21111 21113 22111 22311 29511
Appropriation for the year 11,60,000 3,00,000 1,00,000 1,20,000 2,40,000 4,00,000
Budget transfer
Date R.N. Particulars Total
1-1 Release upto Chaitra 8,15,000 2,00,000 70,000 85,000 1,60,000 3,00,000
Release
Release of Baishakh 85,000 22,000 8,000 9,000 11,000 35,000

Release upto Baishakh 9,00,000 2,22,000 78,000 94,000 1,71,000 3,35,000
Budget Sheet 289

1-10 Issued cheque to Mr. Sharma 20,000 20,000
as an advance for purchase of
machinery
1-15 Paid electricity charges by cheque 5,000 5,000
1-18 Mr. Sharma’s advance cleared 18,000 18,000
Expenditure
(20,000) (20,000)
1-25 Purchased office material and 10,000 10,000
paid by cheque
1-30 Issued cheque for distribution of 30,000 22,000 8,000
salary and allowances
Total expenditure of Baishakh 63,000 22,000 8,000 5,000 10,000 18,000
Total expenditure upto Chaitra 9,00,000 2,22,000 78,000 94,000 1,71,000 3,35,000
Total expenditure up to Baishakh 9,63,000 2,44,000 86,000 99,000 1,81,000 3,53,000
Ill-3 Post the following information and transactions into budget sheet of
District Education Office, Rasuwa:
B.H. No. Budget head/sub-head Annual budget Rs.
21111 Salary.............................................................................................................................. 3,60,000
21112 Local allowance............................................................................................................... 1,00,000
22111 Water supply and electricity charges............................................................................... 2,00,000
22311 Office related expenses.................................................................................................. 1,50,000
22121 House rent ...................................................................................................................... 3,00,000
29311 Furniture.......................................................................................................................... 1,60,000

Total ................................................................................................................................ 12,70,000
Shrawan 2 Received a bank order Rs. 2,00,000 as initial revolving fund release
through bank transfer.
Shrawan 5 Issued a cheque of Rs. 13,000 for purchase of office materials.
Shrawan 9 Issued a cheque of Rs. 20,000 to Mr. Sohan Pant, Section Officer as an
Shrawan 26 Payment made by cheque Rs. 5,000 for water supply charges.
Shrawan 27 Issued a cheque of Rs. 5,000 for establishment of petty cash fund.
Shrawan 30 Out of total salary for the month of Rs. 66,000, distributed after deducting
provident fund Rs. 12,000 and income tax Rs. 2,000.

Solution:
District Education Office, Rasuwa
Budget Sheet
Budget head/Sub head Water
Local supply and Office House
Salary Furniture
Allowance electricity expenses Rent
charges
B.H. No. 21111 21112 22111 22311 22121 29311
Appropriation for the year 12,70,000 3,60,000 1,00,000 2,00,000 1,50,000 3,00,000 1,60,000
Budget transfer
Release
4-5 Issued cheque for

purchase of office 13,000 13,000
materials
4-9 Furniture purchase
advance given to Mr. 20,000 20,000
Expenditure
Sohan pant
water supply charges
distribution of salary
Total expenditure of 1,04,000 66,000 – 5,000 13,000 – 20,000
Shrawan
District Health Office, Bhaktapur:
Annual budget Expenditure upto Kartik
B.H. No. Budget head/sub-head
Rs. Rs.
21111 Salary............................................................................ 4,80,000 1,60,000
21121 Uniform ......................................................................... 50,000 10,000
22112 Communication charges................................................ 1,80,000 60,000
22521 Production material........................................................ 2,00,000 50,000
29411 Vehicles......................................................................... 6,00,000 1,00,000
29511 Machinery...................................................................... 2,50,000 1,50,000
Total............................................................................... 17,60,000 5,30,000
Marga 3 Received a bank order and budget release order for the actual expenditure
of last month.
Marga 4 Purchased dress materials for Rs. 30,000 and paid by cheque.
Marga 13 Kharidar, Mr. Binay Lamichhane returned production material purchase
advance of Rs. 10,000 through bank and his advance cleared.
Marga 19 Issued a cheque for reimbursement of following petty expenses
E-mail and Trunk charges Rs. 300, Wages Rs. 200.
Marga 23 Mr. Bikash Thapa presented the bill for the purchase of machinery of
Rs. 30,000 against the advance of Rs. 28,000 and his advance cleared by
issuing a cheque for the excess expenditure.
Budget Sheet 291

Solution:
District Health Office
Budget Sheet
Budget head/Sub head Production
Communication material
Salary Uniform Vehicles Machinery
charges services
B.H. No.
21111 21121 22112 22521 29411 29511
Appropriation for the year 17,60,000 4,80,000 50,000 1,80,000 2,00,000 6,00,000 2,50,000
Budget transfer
Release
8-3 Release upto Marga 5,30,000 1,60,000 10,000 60,000 50,000 1,00,000 1,50,000
8-4
Issued cheque for purchase
30,000 30,000
of office materials
8-13
Kharidar Binay Lamichhane’s (10,000) (10,000)
advance cleared
8-19 500 200 300

Expenditure
Reimbursement of petty cash

fund
8-23 30,000 30,000
Mr. Bikash’s advance cleared (28,000) (28,000)
22,500 200 30,000 300 (10,000) 2,000

Total expenditure of Marga
5,52,500 1,60,200 40,000 60,300 40,000 1,00,000 1,52,000

Total expenditure upto Marga
Department of Education:
Annual budget Expenditure upto Expenditure of
B.H. No. Budget head / sub-heads
Rs. Falgun Rs. Chaitra Rs.
21111 Salary....................................................... 2,40,000 1,50,000 20,000
22311 Office related expenses ........................... 96,000 60,000 7,000
22121 House rent................................................ 1,08,000 72,000 9,000
22212 Repair and maintenance.......................... 50,000 25,000 5,000
29511 Machinery................................................. 6,00,000 2,00,000 50,000
29611 Public construction................................... 5,00,000 3,00,000 50,000
Total.......................................................... 15,94,000 8,07,000 1,41,000
Baishakh 1 Received a bank order and budget release order of Rs. 1,41,000 for expenditure
of last month.
Baishakh 7 Issued a cheque of Rs. 38,000 in favour of the contractor for road pavement after
deducting 5% contract tax.
Baishakh 13 Section Officer, Mr. Shrestha submitted the bill for Rs. 5,000 after purchasing
office supplies and his advance of Rs. 6,000 is cleared after submitting the bank
voucher for the surplus amount.
Baishakh 24 The budget of Rs. 5,000 was transferred from the head rent to repair and
maintenance.
Baishakh 30 Issued a cheque of Rs. 45,000 for distribution of salary for the month after

deducting Rs. 10,000 for provident fund and Rs. 2,000 for income tax. The
deducted amounts were deposited into concerned office on the same day.
Baishakh 31 Opened L/C in the name of Korea Trading Company for purchase of printing
machine for Rs. 40,000.
Solution:
Government of Nepal AGF No. 8
Department of Education
Budget Sheet
Budget head/Sub head Public
Office House Repair and construction
Salary maintenance Machinery
expenses rent and capital
B.H. No improvement
21111 22311 22121 22212 29511 29611
Appropriation for the year 15,94,000 2,40,000 96,000 1,08,000 50,000 6,00,000 5,00,000
Budget transfer (5,000) 5,000
Release
1-1 Release up to Chaitra 8,07,000 1,50,000 60,000 72,000 25,000 2,00,000 3,00,000
Release of Baishakh 1,41,000 20,000 7,000 9,000 5,000 50,000 50,000
Release up to Baishakh 9,48,000 1,70,000 67,000 81,000 30,000 2,50,000 3,50,000
1-7 Issued cheque to contractor for
road pavemnet 40,000 40,000
1-13 Section Officer Mr. Shrestha 5,000 5,000
advance cleared (6,000) (6,000)
Expenditure
1-30 Salary distributed 57,000 57,000

1-31 Opened L/C in the name of
Korea Trading Company 40,000 40,000
Total expenditure of Baishakh 1,36,000 57,000 (1,000) 40,000 40,000

Total expenditure upto Baishakh 10,84,000 2,27,000 66,000 81,000 30,000 2,90,000 3,90,000
Key
Terms
Annual appropriation part – upper part of budget sheet used to show the total approved
amount of annual budget and its allocation on different
heads and sub-heads.
Annual closing – process of equalising total budget release with total budget
expenditures at the end of fiscal year by preparing closing
voucher.
Budget expenditure part – lower part of budget sheet used to show the record of
expenditure made under different heads and sub-heads
including advance.
Budget release part – middle part of budget sheet used to show the release of budget
made by central level office on the basis of last month expenditure.
Budget sheet – budgetary ledger prepared by operating level offices to
maintain effective control over budget.
Budget Sheet 293

1. What is budget sheet?
2. Write the AGF number of budget sheet.
3. State the parts of budget sheet.
4. What is annual appropriation of budget?
5. Why is budget sheet prepared?
1. What do you mean by budget sheet ? State any five advantages of preparing
budget sheet in government offices.
2. Define budget sheet and mention six procedures for preparing budget sheet.
3. How is budget sheet closed ? Explain its monthly closing and annual closing.
1. Why is budget sheet prepared in government office? Describe its parts along
with their usefulness.
2. Define budget sheet and write any six differences between bank cash book
and budget sheet.
PP-1 Post the following information and transactions into budget sheet of District
Health Office, Palpa:
Bhadra 1 The annual appropriation and expenditure upto Shrawan are shown below:
Annual budget Expenses upto
B.H. No. Budget head/sub heads
Rs. Shrawan Rs.
21111 Salary................................................................................. 2,40,000 20,000
22311 Office related expenses...................................................... 96,000 6,000
22121 House rent.......................................................................... 1,44,000 12,000
29311 Furniture............................................................................. 2,00,000 10,000
29511 Machinery........................................................................... 4,00,000 50,000
Total.................................................................................. 10,80,000 98,000
Bhadra 3 Received a bank order and budget release order of Rs. 98,000 for
expenditure of Shrawan.
Bhadra 5 Issued a cheque of Rs. 5,000 for purchase of office materials.
Bhadra 16 Issued a cheque of Rs. 20,000 in favour of Section Officer, Mr. Yogesh
Shrestha as an advance for purchase of machinery.
Bhadra 29 Out of total salary for the month of Rs. 19,800 distributed after deducting
provident fund Rs. 3,600 and income tax Rs. 500.
Bhadra 30 Section Officer, Mr. Yogesh Shrestha presented the bill of 20,000 after
purchasing machinery and his advance cleared.

PP-2 Post the following information and transactions into budget sheet:
Ashwin 1 Annual budget and expenditure upto Bhadra were given below:
Expenses
Annual
B.H. No. Budget head/sub-heads upto Bhadra
budget Rs.
Rs.
21111 Salary....................................................................................... 4,00,000 72,000
21121 Uniform..................................................................................... 1,08,000 15,000
22111 Water supply and electricity charges........................................ 1,32,000 22,000
22122 Other rent................................................................................. 2,40,000 40,000
29411 Vehicles.................................................................................... 5,00,000 1,00,000
Total.......................................................................................... 13,80,000 2,49,000
Ashwin 2 Received a bank order and budget release order for the expenditure of
last month.
Ashwin 7 Issued a cheque of Rs. 8,000 for purchase of dress materials.
Ashwin 10 Issued a cheque for Rs. 25,000 in favour of Mr. Gupta as an advance for
purchase of vehicle.
Ashwin 26 Mr. Gupta presented the bill of Rs. 22,000 after purchasing vehicle and
his advance cleared.
Ashwin 30 Out of total salary Rs. 33,000 (including government contribution)
distributed after deducting provident fund for Rs. 6,000 and income tax
Rs. 1,000.
Expenditure
B.H. Annual Expenditure
Budget head / sub-heads upto Ashwin
No. budget Rs. of Kartik Rs.
Rs.
21111 Salary............................................................................. 4,00,000 80,000 30,000
22112 Communication charge .................................................. 72,000 18,000 6,000
22212 Repair and maintenance................................................ 1,20,000 30,000 10,000
22521 Production materials and service................................... 2,00,000 50,000 10,000
29311 Furniture......................................................................... 3,00,000 2,00,000 50,000
Total............................................................................... 10,92,000 3,78,000 1,06,000
Marga 2 Received a bank order and budget release order for the expenditure of
last month.
Marga 5 Issued a cheque for Rs. 13,000 to Accountant, Miss Rojina Sharma as an
advance for the purchase of office furniture.
Marga 7 Issued a cheque of Rs. 6,000 for purchase of production materials.
Marga 13 Miss Rojina Sharma presented the bill of Rs. 7,000 and her advance was
cleared by issuing cheque for the excess expenditure.
Marga 29 Issued a cheque of Rs. 21,500 for distribution of salary for the month
after deducting Rs. 5,000 for provident fund and Rs. 1,000 for income
Budget Sheet 295

tax. The deducted amounts were deposited into concerned office on the
same day.
PP-4 Post the following transactions into budget sheet:
Expenditure upto Expenditure of

B.H. No. Budget head/sub-heads Annual budget Rs.
Magh Rs. Falgun Rs.
21111 Salary................................................. 5,00,000 2,00,000 40,000
22312 Feeding materials............................... 1,40,000 56,000 10,000
22311 Office related expenses...................... 1,80,000 75,000 15,000
22711 Miscellaneous expenses.................... 72,000 25,000 5,000
29411 Vehicles.............................................. 9,00,000 2,00,000 1,00,000
Total.................................................... 17,92,000 5,56,000 1,70,000
Chaitra 1 Received a bank order and budget release order for the expenditure of
last month.
Chaitra 5 An advance for Rs. 90,000 is given to Mr. Nepal, Section Officer for
purchase of motorcycle through cheque.
Chaitra 16 Issued a cheque Rs. 3,000 for purchase of feeding materials.
Chaitra 15 Section Officer, Mr. Nepal presented the bill of Rs. 95,000 after
purchasing motorcycle and his advance cleared by issuing cheque for
the excess amount.
Chaitra 29 Issued a cheque of Rs. 30,000 for distribution of salary for the month
after deducting Rs. 7,000 for provident fund and Rs. 1,500 for income
tax. The deducted amounts were deposited to concerned offices on the
following day.
B.H. Annual
Budget head/Sub-heads
No. budget Rs.
21111 Salary...................................................................................................................................... 6,50,000
22211 Fuel.......................................................................................................................................... 2,40,000
22531 Medicine.................................................................................................................................. 96,000
22313 Books and materials................................................................................................................ 1,24,000
29511 Machinery and equipment....................................................................................................... 15,00,000
Total......................................................................................................................................... 26,10,000
Shrawan 2 Received a bank order for Rs. 3,00,000 for initial revolving fund release.
Shrawan 5 Issued a cheque of Rs. 5,000 for establishment of petty cash fund in
favour of Junior Accountant, Miss Rubina Tamang.
Shrawan 13 An advance is given to the Section Officer, Mr. Bhaju Pradhan for
purchase of books and sport materials by cheque Rs. 9,000.

Shrawan 17 A cheque of Rs. 10,000 was issued for payment of purchase of medicine.
Shrawan 20 Section Officer, Mr. Bhaju Pradhan submitted the bill of Rs. 8,000 and
bank voucher of Rs. 1,000 after purchasing books and sport material
and cleared his advance.
Shrawan 31 A cheque issued for reimbursement of petty cash fund for the following
expenses:
Wages Rs. 290, Transportation charge for medicine purchase Rs. 310
B.H. No. Budget head/Sub- heads Annual budget Rs
21111 Salary................................................................................................................ 7,20,000
22112 Communication charge...................................................................................... 2,40,000
22311 Office related expenses..................................................................................... 1,50,000
22521 Production materials and service...................................................................... 3,00,000
29311 Furniture............................................................................................................ 1,00,000
Total................................................................................................................... 15,10,000
Shrawan 1 Received a bank order letter of Rs. 2,00,000 for initial imprest fund release.
Shrawan 4 Petty cash fund for Rs. 1,000 created in the responsibility of Assistant Accountant,
Miss Ramala Subba.
Shrawan 12 Issued a cheque for Rs. 12,000 to Storekeeper, Mr. Bhupal Rai as an advance for
purchase of production materials.
Shrawan 25 Payment made by cheque Rs. 7,000 for telephone charges.
Shrawan 27 Mr. Bhupal Rai submitted the bill of Rs. 10,000 and bank voucher for balance
amount after purchasing production materials and his advance cleared.
Shrawan 30 Following expenses made from petty cash fund were reimbursed by issuing a
cheque:
Postage Rs. 90 Pen and ink Rs. 260 E-mail charges Rs. 190.
PP-7 You are given the following information:

Ashwin 1 The annual appropriation and expenditure upto Bhadra are shown
below:
Budget head/Sub- heads Annual budget Rs. Expenditure upto Bhadra Rs.
Salary ............................................................................ 6,00,000 90,000
Office related expenses .................................................... 1,92,000 32,000
........
Production materials and service .................................. 2,00,000 20,000
Furniture........................................................................ 3,00,000 50,000
Public construction ....................................................... 12,00,000 4,00,000
Total ............................................................................. 24,92,000 5,92,000
Budget Sheet 297

Ashwin 2 Received a bank order and budget release order for the actual expenditure
of last month
Ashwin 7 Issued a cheque to Kharidar, Mr. Rupesh Hamal for Rs. 8,000 an advance
for purchase of production materials.
Ashwin 10 Received security deposit amount for construction of bridge from
the Contractor, Mr. Abuj Karki Rs. 25,000 and Mr. Manoj Tamang
Rs. 26,000.
Ashwin 20 Kharidar, Mr. Rupesh Hamal returned production material purchase
advance through bank voucher and his advance cleared.
Ashwin 30 Issued a cheque of Rs. 2,37,500 in favour of the contractor for construction
of bridge after deducting 5% contract tax.
Required: Posting into budget sheet.


11 MONTHLY
Chapter
STATEMENTS
Learning Objectives
be able to :
 define monthly statements and mention
their types.
 write the meaning and objectives of
statement of expenditure.
 prepare the statement of expenditure.
 state the meaning of statement of
outstanding advance.
 mention the objectives of bank
reconciliation statement.
 define the statement of government
revenue and statement of security
deposit.
Introduction
Under new accounting system of government of Nepal, each operating level offices
require to prepare a number of financial statements and reports periodically. Such
statements and reports should be submitted to the central level offices regularly in order
to report on financial matters. The statements which are prepared by operating level
offices on monthly basis are called monthly statements. Every operating level office
is supposed to prepare and submit such statements to respective central level offices
at the end of each month. These statements provide financial data and information
regarding budget release, budget expenditure, uncleared amount of advance, amount
of governmental revenue, amount of security deposit received etc. According to the
nature and types of monthly statement, they provide different financial information.
Monthly statements include statement of expenditure, statement of outstanding
advance, bank reconciliation statement, statement of governmental revenue and
statement of security deposit etc. Monthly Statements 299
Monthly statements are the financial statements be prepared by all operating level
government offices at the end of month and submitted to the central level offices.
According to the nature of financial transactions, different monthly statements are
prepared in government offices. These statements include statement of expenditure,
monthly statement of outstanding advance, bank reconciliation statement, statement
of governmental revenue and statement of security deposit. These statements provide
information for various purposes. They support to maintain financial discipline and
control over the financial activities of operating level offices.
Monthly statements are the financial documents prepared by the operating level
government offices on monthly basis and submitted to the concerned central
level offices disclosing the various financial data and information.
Importance of monthly statements

Monthly statements are very important financial documents to be prepared by
operating level offices on regular basis. Those statements provide various useful
financial data and information. Though the different monthly statements provide
different financial information, common importance of all types of monthly statement
can be studied under the following points:
a. Source of financial data and information

According to the nature of monthly statements,

M emory ips T
they provide various financial data and  Source of financial data and information
information. It includes budget release,  Controlling over budget
 Easy for auditing
budget expenditure, balance of budget, cash  Better evaluation of government jobs
balance, bank balance etc. They also provide  Effective financial decision
information relating to uncleared amount of  Administrative tool
advances, position of fund, total amount of
governmental revenue etc. Thus, the monthly statements are considered as the
sources of financial data and information.
b. Controlling over budget

Monthly statements help to maintain control over budget. It gives clear
information about the annual appropriation, budget release, amount spent and
information about advance clearance. With the help of information provided by
such statements or reports, all operating level offices make expenditures under
various budget heads and sub-heads within the limitation of budget.

c. Easy for auditing
Auditing is the act of examining books of account for ascertaining the position
of government offices regarding financial rules and provisions. In this regard,
monthly statements provide up to date financial data and information for internal
as well as final auditing. With the help of such monthly statements, an auditor
may check the accounts related to budget like annual appropriation, budget
release, budget expenditure and surplus amount of budget. Thus, the monthly
statements help to make the act of auditing easier in government offices.
d. Better evaluation of government jobs

The government offices may launch various short term and long term programmes
which require the proper utilization of appropriated budget. It is necessary to
evaluate the performance of government offices regarding the achievement of
such programme. Since the monthly statements provide the required financial
information, it makes the job of evaluation easier. It also helps to evaluate the
efficiency, performance and problem of each programme carried out by the
government.
e. Effective financial decision
Monthly statements supply the various financial information related to the
budget. Thus, the effective financial decision can be made on time. It helps to make
the decision regarding transfer of budget, estimation and execution of budget etc.
Thus, in order to make the effective financial decision, monthly statements are
very important for government offices.
f. Administrative tool
Monthly statement is also considered as administrative tool of government
offices as it helps to formulate and implement various programmes and
projects. It helps to perform the day to day administrative jobs of an office. Monthly
statements are also useful for planning, policy making and implementing task in
an office. Thus, these statements also act as the effective tool for running financial
administration.
Types of monthly statements

The main types of monthly statements to be prepared by operating level government
offices are as follows:
a) Statement of expenditure (AGF No. 13)
b) Statement of outstanding advance (AGF No. 14)
c) Bank reconciliation statement (AGF No. 15)
d) Statement of government revenue (AGF No. 9)
e) Statement of security deposit (AGF No. 19)
Monthly Statements 301
Statement of expenditure
Statement of expenditure is one of the important monthly statements to be prepared
by operating level offices of government of Nepal. Under new accounting system, it
should be prepared at the end of each month and submitted to the concerned central
level office within the first week of the next month. Statement of expenditure is also
called monthly expenditure report. It has two parts i.e. upper part shows the position
of budget and the lower part shows the position of fund that includes bank balance,
cash balance, uncleared amount of advance, actual expenditure etc. Statement of
expenditure is prepared on the basis of information obtained from the bank cash
book, budget sheet, advance ledger and petty cash book. It is prepared under the
prescribed format of AGF No.13.
The monthly statement which is prepared by each operating level offices

to disclose the position of budget and position of fund is called statement of
expenditure.
Specimen of statement of expenditure

The specimen of statement of expenditure is as follows:
………Office/Department/Ministry
Statement of Expenditure
For the month of…………………
Expenditure of…… Release upto B.H. Budget Heads/ Annual Appropriation Expenditure Balance of Budget
Rs. ……. Rs. No. Sub-heads Rs. upto ....... Rs. Rs.
(1) (2) (3) (4) (5) (6) (7)
Revolving fund
balance
Fund position
Total release received upto………….. Rs…………….. Bank balance Rs….………..
Total expenditure upto ……………….. Rs…………….. Cash in hand Rs……….……
Outstanding (uncleared) advances Rs…………….. Total Rs……………
Actual expenditure (less uncleared advances) Rs…………….. Loan payable Rs……………
Loan receivable Rs………….…
Submitted by: Mr X Designation: Assistant Accountant Date: 31st…..
Approved by :Mr Y Designation: Chief Accountant Date: 31st…..
Parts of statement of expenditure

A statement of expenditure contains the following two parts:
1. Part showing the position of budget
2. Part showing the position of fund

Part showing the position of budget
This is the first and upper part of the statement of expenditure which discloses
the position of budget. It has seven columns relating to status of the budget. The
information to be mentioned in each column is given below:
Column 1 In this column, the amount of budget expenditure incurred under different
budget heads for the current month is mentioned.
Column 2 In this column, the cumulative total of budget release received under
different budget heads upto the end of current month is mentioned.
Generally, the amount of budget release will be equal to the amount of
budget expenditure upto the previous month. To fill up in this column, the
following concept should be kept in mind.
Release upto current month = Expenditure upto previous month
It also records the amount of revolving fund balance which is calculated as
follows:
Revolving fund balance = Total imprest fund release received –
Expenditure upto the previous month
Column 3 In this column, budget head number of related heads where budget
appropriation made is mentioned.
Column 4 In this column, name of budget head i.e. salary, rent, furniture etc. is
mentioned.
Column 5 In this column, the amount of annual appropriation for each budget head
is mentioned.
Column 6 In this column, the amount of total expenditure made in each budget head
upto current month is mentioned. It is calculated as follows:
Total expenditure upto the end of current month = Expenditure of current
month (Column 1) + Release upto the end of current month (Column 2)
Column 7 In this column, the balance of budget in each budget head is shown which
can be calculated as follows:
Balance of budget (Column 7) = Annual appropriation of budget

(Column 6) –Expenditure upto the end
of current month (Column 7)

 The relation of different columns under first part of the statement of expenditure can be shown as below:
Column 1 + Column 2 = Column 6
Column 5 – Column 6 = Column 7
Part showing the position of fund
The information to be mentioned in this part are as follows :
a. Total revolving fund/imprest fund release received upto current month
It shows the total imprest fund release till the end of current month. Generally,
it may be given in problem as additional information. If not given, it can be
calculated by applying the following condition:
Total imprest fund release received = Total expenditure + Bank balance
+ Cash balance + Loan given – Loan
received – Deposit received
b. Total expenditures upto current month
It is the amount of total expenditure shown by budget sheet up to the current
month. It is found from column six of upper part of statement of expenditure.
c. Un-cleared amount of advance
It is determined from advance account. The information relating to un-cleared
advance will be given in problem for practical purpose. It can also be determined
by deducting cleared amount from advance given.
d. Actual expenditure
The amount of actual expenditure is determined by deducting the amount of un-
cleared advance from the amount of total expenditure as follows:
Actual expenditure = Total expenditures – Uncleared advance
e. Bank balance
It is the amount of cash balance remained at bank at the end of current month. It
is determined from the bank cash book. If the amount of bank balance is not given
in problem, it is determined using the following formula:
Bank balance = Total imprest fund received –Total expenditure – Cash
balance – Loan given+ Loan received + Deposit received
f. Cash balance
It is the amount of cash balance in government office at the end of current month.
Sometimes, petty cash fund (Cash balance) is not given in the problem. In such case,
the following formula can be applied:
Petty cash fund or cash balance = Total imprest fund received – Total
expenditure – Bank balance– Loan
given + Loan received + Deposit
received
 The following condition can be applied in order to determine any of the required items in statement of
expenditure:
Total release–Total expenditure = Bank balance + Cash balance+ Loan receivable - Loan payable -
Deposit received
Ill-1 You are given the following information of District Education Office,
Bhaktapur:
Expenditure upto Expenditure of

B.H. No. Budget head / sub -head Annual budget Rs.
Ashwin Rs. Kartik Rs.
21111 Salary 2,92,500 67,500 22,500
21112 Local allowances 96,000 24,000 8,000
22311 Office related expenses 1,10,000 27,000 8,000
22121 House rent 2,40,000 60,000 20,000
29311 Furniture 2,00,000 75,000 20,000
Total 9,38,500 2,53,500 78,500
a) Total revolving fund received Rs. 3,45,000.
b) Cash in hand Rs. 500
c) Cash at bank Rs. 12,500
d) Uncleared furniture advance R s. 15,000
Required: Statement of expenditure for the month of Kartik
Solution:
District Education Office, Bhaktapur
For the month of Kartik
Expenditure Release upto B.H. Budget Heads/ Annual Expenditure Balance of
of Kartik Rs. Kartik Rs. No. Sub-heads Appropriation upto Kartik Rs. Budget Rs.
Rs.
22,500 67,500 21111 Salary 2,92,500 90,000 2,02,500
8,000 24,000 21112 Local allowances 96,000 32,000 64,000
8,000 27,000 22311 Office relatedexpenses 1,10,000 35,000 75,000
20,000 60,000 22121 House rent 2,40,000 80,000 1,60,000
20,000 75,000 29311 Furniture 2,00,000 95,000 1,05,000
78,500 2,53,500 9,38,500 3,32,000 6,06,500
91,500 Revolvingfund balance
78,500 3,45,000 9,38,500 3,32,000 6,06,500

Fund position
Total amount received upto Kartik Rs. 3,45,000 Bank balance Rs. 12,500
Total expenditure upto Kartik Rs. 3,32,000 Cash in hand Rs. 500
Rs. 13,000 Rs. 13,000
Outstanding (Uncleared) advances Rs 15,000
Total expenditure (Less uncleared advance) Rs. 3,17,000 Loan payable Rs……× × ×……....…
(3,32,000-15,000) Loan receivable Rs……× × ×………
Submitted by:………..…………….. Designation:………………….. Date:……….............................….

Approved by :……………………… Designation:………………….. Date:…………....................…
Statement of outstanding advance

Sometimes, the amount of advance given to any person or party in any budget head
may not have been cleared within the given date. If so, the operating level office
should report it to the concerned central level offices with the help of a statement in
monthly basis which is called monthly statement of outstanding advance. It is one of
the important monthly statements to provide information about uncleared advance.
It is prepared by each operating level office mentioning the name of person or party
receiving advance, amount of advance given and reasons for unclearing advance. It
is prepared on the basis of advance ledger account and bank cash book. It is prepared
under the format of AGF No. 14.
The financial document which is prepared to report the uncleared amount of

advance, name of the party receiving advance and reasons for unclearing such
advance is called statement of outstanding advance.
The specimen of statement of outstanding advance is given below:

Statement of Outstanding Advance
…………… year ………………… month
Date of advance given Advance given to ………….. Advance amount Reasons for unclearing advance
Certified that the above statement is correct.

Submitted by:………..…………….. Position:………………….. Date:………….
Approved by :……………………… Position:………………….. Date:……………

Ill-2 On 2074-07-23 Section Officer Mr. Dinesh Kumal was given advance
through cheque No. 34569 for purchase of furniture Rs. 10,000. The
advance amount was not cleared till the end of Kartik.
Required: Statement of outstanding advance (AGF No 14)

Solution:
………Office
Statement of Outstanding Advance
Date of advance given Name of receiver Amount Rs. Reasons for unclearing advance
23rdKartik 2074 Mr. Dinesh Kumal 10,000
Total 10,000

Submitted by:………..…………….. Position:………………….. Date:………….
Approved by :……………………… Position:………………….. Date:……………

 The amount shown in statement of outstanding advance should be equal to the amount of outstanding
advance shown in the statement of expenditure.
Bank reconciliation statement

Under new accounting system of government, all the financial transactions of
government offices are operated through bank. It means cash deposit and withdrawal
or payments are made through bank. For this, every office should open bank account
for performing such financial transactions. An office keeps the record of such financial
transactions by maintaining a book called bank cash book. The bank also maintains
the record on a book which is known as pass book or bank statement. The bank
balance shown by bank cash book and bank balance shown by bank statement should
be equal at the given date.
Sometimes, the bank balance shown by bank cash book and bank statement may
differ due to various reasons. In order to know the reasons of having difference in
bank balance between two books, a statement is prepared which is known as bank
reconciliation statement. Hence, it can be defined as the statement prepared by
operating level offices showing the reasons of difference in bank balance shown by
bank cash book and bank statement or pass book. It is prepared at the end of each
month and submitted to the concerned central level offices. It is prepared under the
format of AGF No. 15.
Following are the reasons of having differences in bank balance shown by bank cash
book and bank statement.
a) Cheque issued but not presented into bank .
b) Cheque deposited into bank but not credited or recorded into pass book or
statement
c) Any expenses debited in bank statement but not recorded or credited the same
in bank cash book.
d) Any income collected and credited by bank but not recorded in bank cash
book.
e) The wrong amount or entry made in bank cash book or bank statement.
The specimen of bank reconciliation statement is as follows.
The statement prepared by operating level office to reconcile the balances of

bank cash book and pass book or bank statement is known as bank reconciliation
statement.
Government of Nepal AGF No 15

Bank Reconciliation Statement
…………… year ………………… month
Particulars Amount Amount
Bank balance as per pass book/bank statement .................................................................... ×××
Add: In transit deposit / cheque paid but not collected

i) ……………....................................................................................................... ×××
ii) ………….......................................................................................................... ×××
Total ........................................................................................................................................ ×××
Less: Cheque issued but not presented
i) Cheque No. ……………………….................................................................... ×××
ii) Cheque No. …………………........................................................................... ××× ×××
Actual bank balance................................................................................................................ ×××
Bank balance as per cash book ........................................................................................... ×××

Submitted by:………...............…………….. Position:………...............…………….. Date:………...............……………..
Approved by:………...............…………….. Position:………...............…………….. Date:………...............……………..
Ill-2 Prepare a bank reconciliation statement under AGF No. 15:

a) Bank balance as per bank cash book at the end of Ashad 2074 amounted to
Rs.25,480.
b) Bank balance as per bank statement amounted to Rs. 19,480.
c) Cheque issued but not presented for payment:

Cheque No. 49357 of Rs.14,000 issued for purchase of furniture
Cheque No. 53928 of Rs. 10,000 issued for purchase of stationery
d) Cheque paid into bank but not collected:
Cheque No. 1439 of Rs. 21,000, refund advance of Mr. Gopal
Cheque No. 5348 of Rs. 9,000 received deposit
Solution:
Government of Nepal AGF No. 15
For the month of Ashad, 2074
Particulars Amount in Rs. Amount in Rs.
Bank balance as per pass book.......................................................................... 19,480
Add: Cheque paid into but not collected
i) Cheque No. 1439 advance refunded.......................................... 21,000
ii) Cheque No. 5348 deposit received............................................ 9,000 30,000
Total ....................................................................................................... 49,480
Less: Cheque issued but not presented for payment
i) Cheque No. 49357 for purchase of furniture............................... 14,000
ii) Cheque No. 53928 for purchase of stationery........................... 10,000 24,000
Bank balance as per cash book.......................................................................... 25,480
Submitted by:………...............…… Position:………...............…… Date:………...............……
Approved by:………...............…… Position:………...............…… Date:………...............……
Statement of governmental revenue

Government offices may collect its revenue from different sources. In order to provide
the information about the amount of revenue collected by operating level government
offices under various sources, they prepare statement on monthly basis which is
known as statement of governmental revenue. It is prepared under the format of AGF
No. 9. Its example is given below:
Ministry of Finance
Internal Revenue Department
Tax office, Babarmahal, Kathmandu
Monthly Statement of Revenue
Classification of Name of Revenue upto last Revenue of this

S.N. Total revenue in Rs.
revenue revenue heads month in Rs. month in Rs.
1 1-1-2-11 Production 1,50,000 25,000 1,75,000
2 1-1-2-12 Export 1,80,000 80,000 2,60,000
3 1-1-12-20 Miscellaneous 40,000 25,000 65,000
3,70,000 1,30,000 5,00,0000

Position of fund
Total revenue Rs. 5,00,000
Less Deposited in consolidated fund Rs. 4,70,000
Cash balance Rs. 30,000
Statement of security deposit

Security deposit is the amount collected from person or party in advance which will
be refunded to the concerned person or party after the completion of determined
task. Every operating level government offices should prepare a statement of the
transactions relating to security deposit and submit to the concerned central level
office which is known as monthly statement of security deposit. It is also prepared at
the end of every month under the format of AGF No. 19. It provides the information
about total amount of security deposit received, amount refunded after completion of
job and security deposit transferred to revenue account etc.
The statement which is prepared to provide information about the transactions

relating to security deposit is called monthly statement of security deposit.
The specimen of statement of security deposit is given below:

Statement of Security Deposit
From …………… to …………………
Particulars Amount
Total security deposit received upto the previous month ...................................................... ×××
Total security deposit received in the current month............................................................... ×××
Total........................................................................................................................................ ×××
Less: Security deposit refunded after the completion of office procedure.................................. ×××
Adjusted amount of security deposit or amount of security deposit transferred to revenue
account ............................................................................................................................ ××× ×××
Net amount of security deposit............................................................................................... ×××
Position of fund
Account number. ………………………… Bank balance ………........ Cash balance …………..
Submitted by:………..…………….. Position:………………….. Date:……..............……..
Approved by :……………………… Position:………………….. Date:…….............………
 In transit deposit refers to the amount of cash, cheque or draft deposited by the office into the bank
remained to be recorded in the books of bank.
 Bank pass book or statement is the document provided by bank to its account holder containing
information about deposit, withdrawal and balance.

Ill-4 The following transactions are extracted from the record of a government
office:
Annual budget Expenditure of
Rs. Shrawan Rs.
21111 Salary................................................................................ 2,86,000 22,000
22111 Water supply and electricity charges........................... 96,000 8,000
22311 Office re;ated expenses................................................... 1,44,000 11,000
29311 Furniture and fixture...................................................... 2,00,000 50,000
29511 Machinery and equipment............................................ 5,00,000 1,00,000
Total................................................................................... 12,26,000 1,91,000
a) Total imprest fund received Rs. 2,25,000
b) Uncleared furniture advance Rs. 20,000
c) Petty cash fund balance Rs. 500
d) Bank balance Rs. 33,500
Required: Statement of expenditure for the month of Shrawan
Solution:
………………….. Office
For the month of Shrawan
Expenditure of Release upto Annual Expenditure
Budget Balance of Budget
Shrawan Shrawan B.H.No. Appropriation upto Shrawan
Heads/Sub-heads Rs.
Rs. Rs. Rs. Rs.
22,000 21111 Salary 2,86,000 22,000 2,64,000
8,000 22111 Water supply and electricity 96,000 8,000 88,000
11,000 22311 Office expenses 1,44,000 11,000 1,33,000
50,000 29311 Furniture and fixture 2,00,000 50,000 1,50,000
1,00,000 29511 Machinery and equipment 5,00,000 1,00,000 4,00,000
1,91,000 - 12,26,000 1,91,000 10,35,000
2,25,000 Revolving fund balance

1,91,000 2,25,000 12,26,000 1,91,000 10,35,000
Fund position
Total amount received upto Shrawan Rs. 2,25,000 Bank balance Rs. 33,500
Total expenditure upto Shrawan Rs.1,91,000 Cash in hand Rs. 500
Rs. 34,000 Rs. 34,000
Outstanding advances Rs 20,000
Total expenditure (Less uncleared advance) Rs. 1,71,000 Loan payable Rs……………

(1,91,000-20,000) Loan receivable Rs……………
Submitted by:………..…………….. Designation:………………….. Date:………….
Approved by :……………………… Designation:………………….. Date:……………
Ill-5 The following information were given to you:

Annual budget Expenditure Expenditure of
Rs. upto Kartik Rs. Marga Rs.
21111 Salary........................................... 4,30,000 1,32,000 33,000
21113 Dearness allowance................... 90,000 28,000 7,000
22112 Communication charge............. 96,000 30,000 8,000
22521 Production materials................. 6,00,000 1,00,000 25,000
29411 Vehicles........................................ 10,00,000 4,00,000 1,00,000
Total.............................................. 22,16,000 6,90,000 1,73,000
a) Amount received on revolving fund till the date Rs. 8,70,000.
b) Balance in petty cash fund Rs. 1,000.
c) Advance of production material Rs. 20,000 remain uncleared.
d) Loan to be paid Rs. 10,000.
Required: Statement of expenditure showing:
a) Budget release in each head
b) Total expenditure upto Kartik
c) Revolving fund balance
d) Bank balance
Solution: Government of Nepal AGF No.13
………………….. Office
For the month of Marga
Release Expenditure
Expenditure Budget Annual Balance of
upto B.H.No. upto Marga
of Marga Rs. Heads/Sub-heads Appropriation Rs. Budget Rs.
Marga Rs. Rs.
33,000 1,32,000 21111 Salary 4,30,000 1,65,000 2,65,000
7,000 28,000 21113 Dearness allowance 90,000 35,000 55,000
8,000 30,000 22112 Communication charges 96,000 38,000 58,000
25,000 1,00,000 22521 Production material 6,00,000 1,25,000 4,75,000
1,00,000 4,00,000 39411 Vehicles 10,00,000 5,00,000 5,00,000
1,73,000 6,90,000 22,16,000 8,63,000 13,53,000

1,80,000 Revolving fund balance - - -
1,73,000 8,70,000 22,16,000 8,63,000 13,53,000

Fund position
Total amount received upto Marga Rs. 8,70,000 Bank balance Rs..16,000
Total expenditure upto Marga Rs. 8,63,000 Cash in hand Rs. 1,000
Rs. 7,000 Rs. 17,000
Total expenditure (Less uncleared advances) Rs. 8,43,000 Loan payable Rs. 10,000
(8,63,000-20,000) Loan receivable Rs………
Working note:
d) Bank balance = Total amount received – Total expenditure – Cash balance + Loan payable
= 8,70,000 – 8,63,000 – 1,000 + 10,000 = Rs. 16,000
Ill-6 From the following transactions, prepare the monthly expenditure report
for the month of Chaitra 2074:
Annual budget Expenditure upto Expenditure upto

Budget head / sub-head
Rs. Falgun Rs. Chaitra Rs.
Salary...................................................... 5,80,000 3,52,000 3,96,000
House rent.............................................. 72,000 48,000 54,000
Repair and maintenance...................... 1,00,000 65,000 70,000
Books and materials.............................. 2,00,000 1,50,000 1,75,000
Travelling programme expenses......... 96,000 65,000 70,000
a) Total release for initial revolving fund Rs. 7,90,000.
b) Bank balance Rs. 4,500.
c) Loan given to nearby office Rs. 20,000.
d) Advance account of bank cash book shows Rs. 12,000 in the debit and
Rs. 10,000 in credit column respectively.
Solution:
………………….. Office
For the month of Chaitra
Annual
Expenditure Release upto Expenditure Balance of
B.H.No. Budget heads/Sub-heads Appropriation
of Chaitra Rs. Chaitra Rs. upto Chaitra Rs. Budget Rs.
Rs.
44,000 3,52,000 21111 Salary 5,80,000 3,96,000 1,84,000
6,000 48,000 22121 House rent 72,000 54,000 18,000
5,000 65,000 22212 Repair and maintenance 1,00,000 70,000 30,000
25,000 1,50,000 22313 Books and materials 2,00,000 1,75,000 25,000
5,000 65,000 22613 Travelling expenses 96,000 70,000 26,000
85,000 6,80,000 10,48,000 7,65,000 2,83,000
1,10,000 Revolving fund balance
85,000 7,90,000 10,48,000 7,65,000 2,83,000

Fund position
Total amount received upto Chaitra Rs. 7,90,000 Bank balance Rs..4,500
Total expenditure upto Chaitra Rs. 7,65,000 Cash in hand Rs. 500
Rs. 25,000 Rs. 5,000
(12,000 – 10,000)
Total expenditure (Less uncleared advances) Rs. 7,63,000 Loan payable Rs. ×
(7,65,000-2,000) Loan receivable Rs. 20,000
Working note:
Bank balance = Total amount received – Total expenditure – Cash balance – Loan receivable
or, 4,500 = 7,90,000 – 7,65,000 – Cash balance – 20,000
or, 4,500 = 25,000 – Cash balance – 20,000
Cash balance = Rs. 500
Ill-7 You are given the following information of District Education Office,
Rasuwa:
Expenditure of
Annual budget Balance of Budget
Budget head/sub-head Magh
Rs. Rs.
Rs.
Salary.................................................. 2,20,000 16,000 85,000
Uniforms............................................. 60,000 5,000 25,000
Fuel for other purpose...................... 1,08,000 9,000 40,000
Miscellaneous expenses................... 84,000 6,000 33,000
Public construction........................... 7,00,000 50,000 2,00,000
a) Petty cash balance Rs. 800.
b) Uncleared uniform advance Rs. 3,000.
c) Deposit received from contractor Rs. 10,000.
d) Bank balance Rs. 20,200.
Required: Statement of expenditure (AGF No. 13) showing:
a) Budget release in each head
b) Total expenditure upto Magh in each head
c) Total revolving fund received

Solution:
District Education Office, Rasuwa
For the month of Marga
Annual Expenditure
Expenditure Release upto Budget Heads/Sub- Balance of
B.H.No. Appropriation upto Magh
of Magh Rs. Magh Rs. heads Budget Rs.
Rs. Rs.
16,000 1,19,000 21111 Salary 2,20,000 1,35,000 85,000
5,000 30,000 21121 Uniform 60,000 35,000 25,000
9,000 59,000 22314 Fuel for other purpose 1,08,000 68,000 40,000
6,000 45,000 22711 Miscellaneous expenses 84,000 51,000 33,000
50,000 4,50,000 29611 Public construction 7,00,000 5,00,000 2,00,000
86,000 7,03,000 11,72,000 7,89,000 3,83,000
97,000 Revolving fund balance
86,000 8,00,000 11,72,000 7,89,000 3,83,000
Fund position
Total amount received upto Magh Rs. 8,00,000 Bank balance Rs. 20,200
Total expenditure upto Magh Rs. 7,89,000 Cash in hand Rs. 800
Rs. 11,000 Rs. 21,000
Outstanding (Uncleared) advances Rs. 3,000
Total expenditure (Less uncleared advance) Rs. 7,86,000 Loan payable Rs ×
(7,89,000-3,000) Loan receivable Rs ×
Security deposit received: Rs. 10,000
Working note:
Bank balance = Total amount received – Total expenditure – Cash balance + Security deposit received
20,200 = Total amount received – 7,89,000 – 800 + 10,000
Total amount received = 7,89,000 + 20,200 + 800 – 10,000
= Rs. 8,00,000
Ill-8 The following information are given:
Bank balance as per the bank cash book of office at the end of Chaitra 2070 is Rs.
96,050 but the bank pass book has shown Rs. 73,500 on the same date. The following
differences were found on comparison of two statements.
a) Office has issued the following cheques but they have not yet been presented for
payment.
 Cheque No. 53901 issued to stationery house for office stationery Rs. 4,950
 Cheque No. 63013 issued to Vintuna suppliers for sport material Rs. 13,500
b) Office has deposited the following amount but not credited by the bank
 Imprest fund received from the Office of the Treasury and Comptroller
Rs. 40,000
 Excess advance amount cleared by Mr. Sharma, Accountant deposited
into bank Rs. 1,000
Required: Bank reconciliation statement (AGF No. 15)
Solution:
For the month of Chaitra, 2070
Particulars Amount Amount
Bank balance as per pass book............................................................. 73,500
Add: Cheque deposited but not collected:
Imprest fund received........................................................... 40,000
Excess advance of Mr. Sharma............................................. 1,000 41,000
Total....... 1,14,500
Less: Cheque issued but not presented for payment
Cheque No. 53901 for office stationery............................... 4,950
Cheque No. 63013 for sport materials . .............................. 13,500 18,450
Bank balance as per cash book............................................................. 96,050
Submitted by:………..……………....... Position:………..……………....... Date:………..…………….......

Approved by:………..……………....... Position:………..……………....... Date:………..…………….......
Key
Terms
Bank reconciliation statement – statement prepared to reconcile the differences in
bank balance between cash book and pass book.
Monthly statements – statements prepared by operating level offices
on monthly basis to report the various financial
information to the central level offices.
Statement of expenditure – monthly statement prepared to disclose the
information about position of budget and position
of fund.
Statement of revenue – statement prepared to provide the information
about the revenues collected from various sources.
Statement of security deposits – statement prepared to provide information about
receipt, refund and forfeiture of security deposit.
1. What is monthly statements?

2. Write the AGF number of statement of expenditure and bank reconciliation
statement.
3. Which monthly statements fall under AGF No 9 and AGF No 19?
4. How many columns are in upper part of statement of expenditure?
5. How is actual expenditure obtained under the statement of expenditure?
6. Write name of any two monthly statements to be prepared by operating
level offices.

1. What do you mean by monthly statements? Describe the importance of
monthly statements.
2. What is bank reconciliation statement? Why is it prepared?
3. Mention the causes of having differences between bank balance shown by
bank cash book and bank pass book or statement.
4. Write short notes on:
a) Statement of government revenue (AGF No. 9)
b) Statement of security deposit (AGF N. 19)

1. Mention the types of monthly statement and describe about statement of
expenditure.
2. Why is statement of expenditure prepared? Also mention the methods of
preparing it.
3. Describe the types of monthly statements to be prepared by operating level
government offices.
PP-1 The following information are given:

B.H. No. Budget head / sub- head
Rs. Ashwin Rs. Kartik Rs.
21111 Salary.......................................... 4,30,000 95,000 33,000
21112 Local allowance......................... 1,00,000 23,000 8,000
22111 Water and electricity charges... 1,32,000 33,000 11,000
29311 Furniture..................................... 2,00,000 50,000 20,000
29511 Machinery and equipment...... 3,00,000 1,00,000 50,000
Total............................................. 11,62,000 3,01,000 1,22,000
a) Total imprest fund received Rs. 4,50,000.
b) Cash in hand Rs. 500.
c) Uncleared furniture advance Rs. 10,000.
Required: Statement of expenditure of Kartik showing:
a) Budget release in each budget head
b) Budget balance in each budget head
c) Total expenditure upto Kartik
d) Bank balance
e) Revolving fund balance Ans: c) Rs. 4,23,000 d) Rs. 26,500
PP-2 The following information are given to you:
B.H. No. Budget head/sub-head Annual budget Expenditure upto Expenditure of

Rs. Kartik Rs. Marga Rs.
21111 Salary.......................................... 2,86,000 88,000 22,000
22112 Communication charges.......... 1,08,000 35,000 9,000
22311 Office related expenses............. 1,00,000 42,000 7,000
22121 House rent.................................. 1,20,000 40,000 10,000
29311 Furniture..................................... 2,00,000 60,000 20,000
Total............................................. 8,14,000 2,65,000 68,000
b) Uncleared furniture purchase advance Rs. 15,000.
c) Petty cash fund balance Rs. 1,000.
Required: Statement of expenditure of Marga showing:

a) Budget release in each budget head
c) Total expenditure upto Marga
d) Bank balance
e) Revolving fund balance
Ans: c) Rs. 3,33,000 d) Rs. 6,000
PP-3 You are provided the following information:
B.H. Budget head / sub- head Annual budget Expenditure upto Expenditure of
No. Rs. Chaitra Rs. Baishakh Rs.
21111 Salary................................................... 5,72,000 4,10,000 44,000
21121 Uniform............................................... 1,00,000 75,000 10,000
22311 Office re;ated expenses...................... 1,60,000 1,20,000 12,500
22212 Repair and maintenance................... 50,000 30,000 5,000
29411 Vehicles................................................ 7,00,000 4,00,000 1,00,000
Total...................................................... 15,82,000 10,35,000 1,71,500
a) Total revolving fund received Rs. 12,10,000.
b) Uncleared dress material purchase advance Rs. 8,000
c) Petty cash fund balance Rs. 500.
Required: Statement of expenditure (AGF No. 13)
PP-4 You are given the following information:

Rs. Marga Rs. Poush Rs.
21111 Salary................................................ 3,20,000 1,20,000 24,000
21123 Medical treatment expenses.......... 50,000 10,000 5,000
22122 Other rent......................................... 1,26,000 60,000 12,000
22521 Production materials...................... 1,25,000 75,000 10,000
29511 Machinery........................................ 5,00,000 2,00,000 20,000
Total................................................... 11,21,000 4,65,000 71,000
a) Revolving fund balance Rs. 75,000.
b) Advance of production material Rs. 7,000 remain uncleared.
c) Loan to be paid Rs. 10,000.

d) Petty cash fund balance Rs. 500.
Required: Statement of expenditure (A.G.F. No 13)
PP-5 The following information are provided to you:
Budget head /sub-head
Rs. Magh Rs. Falgun Rs.
Salary....................................................... 2,60,000 1,60,000 1,80,000
Dearness allowance............................... 1,00,000 56,000 64,000
Office related expenses.......................... 1,20,000 70,000 80,000
Miscellaneous expenses........................ 60,000 35,000 40,000
Machinery and equipment................... 3,00,000 2,00,000 2,50,000
Total.......................................................... 8,40,000 5,21,000 6,14,000
b) Uncleared machinery purchase advance Rs. 30,000.
c) Petty cash fund balance Rs. 400.
d) Loan to be collected Rs. 8,000.
Required: Statement of expenditure of Falgun showing:
a) Budget expenditure of Falgun in each budget head
c) Net expenditure
d) Bank balance
Ans: c) Rs. 5,84,000 d) Rs. 2,600
PP-6 The following transactions are extracted from the record of a
government office
Budget head/sub-head
Rs Falgun Rs. Chaitra Rs.
Salary.................................................... 5,20,000 3,60,000 4,00,000
Communication charge...................... 2,00,000 1,30,000 1,45,000
Repair and maintenance.................... 95,000 60,000 67,000
Production material............................ 2,00,000 1,00,000 1,25,000
Vehicles................................................. 7,00,000 3,00,000 4,00,000
Total....................................................... 17,15,000 9,50,000 11,37,000
a) Balance in imprest fund Rs.2,00,000.
b) Cash balance Rs. 1,000.
c) Loan given to nearby office is to be collected.
d) Motorcycle purchase advance Rs. 85,000 remain uncleared.

e) Bank balance Rs. 7,000.
a) Expenditure of Chaitra in each budget head
b) Balance of budget in each budget head
c) Net expenditure
d) Loan receivable amount
Ans: c) Rs. 10,52,000 d) Rs. 5,000
PP-7 The following transactions were extracted from the record of a government
office:
Annual budget Expenditure of
Budget head/sub-head Balance of budget Rs.
Rs. Magh Rs.
Salary..................................................... 80,000 6,000 34,000
Water and electricity charges.............. 30,000 2,000 15,000
Other rent.............................................. 40,000 3,000 19,000
Uniform................................................. 25,000 - 15,000
Vehicles.................................................. 1,00,000 10,000 30,000
Fuel for other purpose......................... 36,000 3,000 15,000
Total........................................................ 3,11,000 24,000 1,28,000
a) The debit column and credit column of bank cash book shows Rs. 7,000 and
Rs. 3,000 respectively.
b) Balance in petty cash fund Rs. 300.
c) Bank balance Rs. 2,700
a) Total expenditure upto Magh
b) Total release upto Magh
c) Net expenditure
d) Total revolving fund received
Ans: a) Rs. 1,83,000 b) Rs. 1,59,000 c) Rs. 1,79,000 d) Rs. 1,86,000

PP-8 You are provided the following information:
Annual budget Expenditure upto Balance of budget
Rs. Kartik Rs. Rs.
Salary........................................................ 1,20,000 35,000 55,000
Food.......................................................... 40,000 12,000 25,000
Water supply and electricity charges.. 36,000 12,000 20,000
Production materials and services........ 60,000 25,000 30,000
Miscellaneous expenditure.................... 24,000 8,000 15,000
Building construction............................. 1,00,000 40,000 55,000
Total........................................................... 3,80,000 1,32,000 2,00,000

a) Petty cash fund balance Rs.400.
b) Bank balance Rs. 6,600.
c) Uncleared production material purchase advance Rs. 3,000.
d) Deposit received from the contractor Rs. 1,000.
Required: Statement of expenditure of Marga showing:
a) Total expenditure upto Marga
b) Total expenditure of Marga
c) Net expenditure
d) Total revolving fund received
Ans: a) Rs. 1,80,000 b) Rs. 48,000 c) Rs. 1,77,000 d) Rs. 1,86,000
PP-9 The following information are given to you:
Bank balance as per the office bank cash book at the end of Ashadh 2074 shows a
balance of Rs. 89,750 but the bank pass book has shown Rs. 79,550 on the same date.
The following differences were found:
a) Office has deposited the following amounts but not credited by the bank:
Loan received from nearby office deposited into bank Rs. 25,000
Excess advance amount of Mr. Oli deposited into bank Rs. 2,500
b) Office has issued the following cheques but have not yet been presented for
payment:
Cheque No. 03459 issued to stationery suppliers for office materials Rs. 5,000
Cheque No. 04936 issued to furniture centre for purchase of furniture
Rs. 12,300
Required: Bank reconciliation statement (AGF No. 15)
PP-10 Prepare a bank reconciliation statement under AGF No. 15:
a) Bank balance as per bank cash book at the end of Chaitra 2074 amounted to
Rs. 77,030.
b) Bank balance as per bank statement amounted to Rs. 59,030.
c) Cheques issued but not presented for payment are:
Cheque No. 15980 of Rs. 10,000 for purchase of sport materials
Cheque No. 21890 of Rs. 5,000 for purchase of office materials
d) Cheques paid into bank but not collected are:
Cheque No. 490 of Rs. 19,000 advance refunded from Gopal
Cheque No. 5007 of Rs. 14,000 deposit received from contractor


SEE Model Questions Sets
Office Management and Accountancy
(CDC Model Questions Set 2065)
Time: 2 hrs 15 minutes F.M.: 75
Candidates are required to give their answers in their own wwords as far as practicable. The figures in
the margin indicate full marks.
Set 1
Group A
Answer the following questions in one sentence: [5×1=5]
2. What is bearer cheque?
3. How is the net profit determined?
4. Which institution does the final audit of government offices?
5. Write the AGF Number of bank cash book and statement of expenditure.
Group B
Give short answer to the following questions: [8×5=40]
6. What is tippani? Mention any four points to be considered while drafting it. [1+4]
7. What is filing? List out any four advantages and four disadvantages of numerical
filing method. [1+4]
8. Why is foreign trade necessary? Write any two similarities and two dissimilarities of
home trade and foreign trade. [1+2+2]
9. Prepare a trial balance of Nepal Store for the fiscal year 2063/64 based on the following
particulars: [5]
Description Amount Description Amount
Capital Rs.2,13,000 Salary Rs. 25,000
Purchases 75,000 Discount received 2,000
Sales 1,25,000 Stationery 5000
Goodwill 45,000 Machine 1,90,000
[ Ans: Total Rs. 3,40,000]
10. Prepare a balance sheet of B & D distributors on the basis of following particulars on 31st
Ashadh 2064: [5]
Capital Rs.1,75,000 Land Rs. 1,25,000
Investment 80,000 Accrued income 10,000
Bank overdraft 30,000 Debtors 35,000
Net profit 40,000 Wages payable 5,000
[Ans: Total Rs. 2,50,000]
11. From the following particulars, prepare a profit and loss account to find out net profit or
net loss: [5]
Gross profit Rs. 1,00,000 Salary Rs. 25,000
Discount received 2,000 Carriage out 7,000
Interest 3,000 Depreciation 6,000
Dividend received 5,000 Advertisement 12,000
[Ans: Net profit Rs. 54,000]
See
SEE Model
Model Questions Sets 323
Questions Sets
12. Highlight the necessity of new accounting system and explain any of its three features in
brief. [2+3]
13. Why is bank cash book prepared? What kinds of effect are seen in which accounts of bank
cash book while clearing excess expenditure rather than advance amount? [2+3]
Group C
Write long answer to the following questions: [3×10=30]
14. Introduce bank and describe any six functions of commercial bank. [1+9]
15. Prepare Goswara vouchers (AGF No 10) on the basis of following transactions of District
Irrigation Office, Sarlahi: [10]
a) 2064/04/10 Received bank order of Rs.3,00,000 as revolving fund.
b) 2064/04/14 Rs. 10,000 paid for furniture purchase through cheque No. 00245.
c) 2064/04/17 Senior Clerk Miss Rita Giri was paid an amount of Rs.4,000 for
program TADA in advance through cheque No. 00246.
d) 2064/04/20 Established a petty cash fund of Rs. 500.
e) 2064/04/25 The advance received by senior clerk Rita Giri was cleared according
to the statement submitted by her and excess expenditure Rs. 500 was
paid by cheque No. 00248.
16. The details of expenses in District Police Office, Dolpa are as follows:
B.H No Budget heads Annual Expenditure up to Expenditure

Appropriation Rs. Poush (Rs.) of Magh Rs.
21111 Salaries 1,44000 72,000 12,000
21112 Local allowance 12,000 6,000 1,000
22311 Office related expenses 10,000 4,000 2,000
22212 Repairs & maintenance 6,000 3,000 500
22711 Miscellaneous expenses 8,000 5000 1,500
29411 Vehicles 20,000 12,000 3,000
Total 2,00,000 1,02,000 20,000
a) Revolving fund balance Rs. 25,000
b) Advance for vehicle of Rs. 2,000 is not cleared.
c) Petty cash fund established with Rs. 1,000.
Prepare statement of expenditure for the month of Magh of 2064 showing the following
information:
a) Expenditure upto Magh [3]
b) Balance of budget [2]
c) Bank balance [2]
d) Revolving fund release [2]
e) Net expenditure [1]
[Ans: a) Rs. 1,22,000 b) Rs. 78,000 c)Rs. 4,000 d) Rs. 1,27,000 e) Rs. 1,20,000]

Set 2
Group A
Answer the following questions in one sentence: [5×1=5]
1. Write the full form of A.T.M.
2. Name the first bank of Nepal.
3. Which institution does the internal audit of operating level government offices?
4. How is gross profit of the business firm ascertained?
5. Mention the AGF No. of budget sheet and bank reconciliation statement.
Group B
Give short answer of the following questions. [8×5=40]
6. Why is report prepared? Describe any four types of report. [1+4]
7. What is alphabetical filing? State its four merits and four demerits. [1+2+2]
8. What is foreign invoice? Explain any four types of foreign invoice in brief. [1+4]
9. Prepare a trial balance of Subhalaxmi Concern, Banke from the following particulars as
on Chaitra end 2074: [5]
Furniture & fixtures Rs.2,25,000 Purchases Rs. 4,30,000

Salary and wages 67,500 Sales revenue 4,50,000
Capital 2,50,000 Dividend received 7,500
Bank loan 60,000 Opening stock 45,000
10. Following particulars relating to Bishal Traders are given to you:
Gross profit Rs. 1,90,000 Depreciation Rs. 20,000
Income from investment 25,000 Advertisement 11,500
Insurance premium 7,500 Transfer fees 8,500
Salary paid 34,000 Dividend receipt 16,000
Required: Profit and loss account as on 31st Chaitra 2074 [5]
[Ans: Net profit Rs. 1,66,500]
11. Prepare a balance sheet of Butterfly Company, Kathmandu for Chaitra end 2074 from the
following information: [5]
Capital Rs. 7,00,000 Cash at bank Rs. 60,000

Closing stock 1,34,000 Book debts 2,00,000
Net loss 68,000 Expenses payable 80,000
Bank overdraft 82,000 Business premises 4,00,000
[Ans: Total 7,94,000]
12. Differentiate between internal audit and final audit. [5]
13. What is budget sheet? Explain its parts with their usefulness. [2+3]
Group C
Give long answer of the following questions: [3×10=30]
14. What is central bank? Describe the major functions of central bank of Nepal. [2+8]
15. Prepare journal vouchers of Land Revenue Office, Khotang from the following
transactions: [10]
a) 2074/04/05 Received a bank order equal to one sixth of last year’s total budget
expenditure Rs.24,00,000 as an initial imprest fund.
See
SEE Model
Questions Sets
b) 2074/04/10 Purchased a photocopy machine of Rs. 40,000 from Machinery
Suppliers and paid by cheque No 00048.
c) 2074/04/18 Section Officer Ms Anamika Acharya was paid an advance of Rs.
35,000 for travelling expenses through cheque No 00049.
d) 2074/04/25 Travelling expenses advance of Ms Anu Acharya was cleared on the
basis of expenditure bill submitted by her.
e) 2074/04/30 Out of total salary Rs. 99,000 and dearness allowances Rs. 12,000,
deducted provident fund Rs. 18,000, income tax Rs. 6,000 and
balances has been distributed through cheque No 00050.
16. The following particulars of Dudhkoshi Rural Municipality, Solukhumbu are given :
Annual Expenditure upto Expenditure of
B.H No Budged heads
budget(Rs.) Chaitra (Rs.) Baishakh (Rs.)
21111 Salary 4,00,000 1,80,000 40,000
21113 Dearness allowance 80,000 25,000 10,000
22212 Repair & maintenance 1,20,000 60,000 40,000
22313 Books & materials 1,50,000 75,000 25,000
29411 Vehicles 3,00,000 2,00,000 –
29511 Machinery & equipment 2,50,000 1,00,000 50,000
Total 13,00,000 6,40,000 1,65,000
(i) Amount of imprest fund received Rs. 8,50,000
(ii) Petty cash fund balance Rs. 2,000
(iii) Uncleared amount of advance on repair and maintenance Rs. 5,000
Required: Statement of expenditure showing the following:
a) Expenditure up to Baishakh [3]
b) Imprest fund balance [1]
c) Balance of budget [2]
d) Bank balance [2]
e) Net expenditure [2]
[Ans: a) Rs.8,05,000 b)Rs. 2,10,000 c) Rs.4,95,000 d) Rs.43,000 e) Rs.8,00,000]
Set 3
Group A
Give answer of the following questions in one sentence: [5×1=5]
1. Write the full form of SAFTA and SAPTA.
2. When was central bank of Nepal established?
3. How is closing stock of business firm valued?
4. Who does the final audit of a company?
5. Mention the AGF No. of bank cash book and statement of security deposit.
Group B
Give short answer of the following questions: [8×5=40]
6. Give the meaning of report and state any four considerations for preparing it. [1+4]
7. What is indexing? How does it support to filing system? Give any four reasons. [1+4]

8. Introduce home trade and explain four methods of performing home trade in order. [1+4]
9. Write any five dissimilarities between government accounting and business accounting. [5]
10. What is bank cash book? Explain its any four accounts in brief. [1+4]
11. From the following particulars of Snowland Company on 31st December 2017, prepare a
trial balance: [5]
Capital Rs.2,00,000 Bills payable Rs. 25,000
Investment 1,85,000 Rent received 5,000
Depreciation 20,000 Cash balance 33,000
Unearned commission 15,000 Salary and wages 7,000
12. Prepare a profit and loss account of Touch- Me-Not Company for the year ended 31st
Chaitra 2074 : [5]
Gross loss Rs. 45,000 Interest paid Rs. 13,500
Administrative expenses 52,000 Travelling expenses 14,000
Miscellaneous income 13,000 Depreciation 19,000
Rent received 7,100 Salary and wages 27,000
[Ans: Net loss Rs. 1,50,400]
13. Prepare a balance sheet from the following information of Mero Traders as on 31st
December 2017: [5]
Reserve fund Rs. 15,000 Net profit Rs. 7,50,000
Bank balance 54,000 Advance payment 5,10,000
Drawing 1,50,000 Capital 10,35,000
Leasehold premises 9,00,000 Marketable securities 1,86,000
[Ans: Total 16,50,000]
Group C
14. What are financial institutions? Describe any four financial institutions operating in
Nepal. (2+8)
15. Prepare AGF No. 10 of the following transactions of District Co-ordination Committee,
Kathmandu: [10]
a) 2074/08/01 Received a bank order of Rs. 4,00,000 for the actual expenditure of
previous month Rs. 3,50,000.
b) 2074/08/10 Issued a cheque of Rs. 15,000 for purchasing stationery materials for
office use.
c) 2074/08/15 Created petty cash fund of Rs. 2,000 through cheque in the
responsibility of Petty Cashier Sharada Gurung.
d) 2074/08/25 Furniture advance of Nayab Subba Mr. Bhojraj Kafle Rs. 25,000 has
been cleared by issuing cheque for excess expenditure Rs. 5,000.
e) 2074/08/30 Issued a cheque of Rs. 1,97,000 for distribution of salary after making
deduction of provident fund Rs. 50,000 income tax of Rs. 8,000 and
provident fund loan of Rs. 20,000.
See
SEE Model
Questions Sets
16. You are provided the following information of a government office, Kathmandu:
Annual budget Expenditures up Expenditures up to
Budget heads
(Rs.) to Chaitra (Rs.) Baishakh (Rs.)
Salary 3,00,000 2,00,000 2,40,000
Dearness allowance 30,000 16,000 22,000
House rent 90,000 65,500 75,500
Contingencies 65,000 50,000 50,000
Vehicles 1,00,000 25,000 95,000
Machinery & equipment 1,21,000 70,000 95,000
Total 7,06,000 4,26,500 5,12,500
i) Revolving fund received Rs. 5,50,000
ii) Petty cash fund balance Rs. 500
iii) Inter - office loan Rs. 5,000 remains unpaid.
iv) Vehicle advance Rs. 2,000 has not been cleared.
a) Revolving fund balance [2]
b) Expenditure of Baishakh in each head [2]
c) Bank balance [2]
d) Net expenditure deducting advance [2]
e) Budget balance in each head [2]
[Ans: a) Rs. 1,23,500 b) Rs. 86,000 c) Rs. 42,000 d) Rs. 5,10,500 e) Rs. 1,93,500]
Set 4
Group A
Answer the following question in one sentence. (5×1=5)
1. Write the establishment date of WTO.
2. Which bank issues notes and coins in the country?
3. Give any two examples of direct expenses.
4. Mention any two accounts of bank cash book.
5. Which budget heads fall under the budget head number 22711 and 29411?
Group B
Give short answer of the following questions: (8×5=40)
6. What is office procedure? Write any four objectives of preparing tippani under it. [1+4]
7. What is subjective filing? State its four merits and four demerits. [1+2+2]
8. Write any five differences between home trade and foreign trade. [5]
9. What is new accounting system of government of Nepal? Explain its four objectives.[1+4]
10. Why is budget sheet prepared in government offices? Write any four rules for posting the
transactions into budget sheet. [1+4]
11. Prepare a trial balance of Nepal Store for the year ended 31st Chaitra 2074 from the
following particulars: [5]
Capital Rs. 5,00,000 General reserve Rs. 60,000
Customers. 1,60,000 Patent right 1,50,000
Purchases 3,60,000 Dividend income 30,000
Sales 4,00,000 Loan given 3,20,000
[Ans : Total Rs. 9,90,000]

12. Prepare a trading account of Januka & Sisters Company for the year ended 31st Chaitra
2017 from the following particulars : [5]
Beginning inventory Rs. 1,20,000 Closing stock Rs. 1,68,000
Purchases 2,76,000 Wages 48,000
Sales 4,80,000 Factory rent & rates 47,000
Return inward 20,000 Carriage inward 12,000
[Ans: Gross profit Rs. 1,25,000]
13. From the following particulars of Danphe Construction Company, prepare a profit and
loss account as on 31st Ashadh 2074 : [5]
Gross profit Rs.1 ,75,000 Audit fees Rs. 15,000
Rent from tenant 25,000 Sale of scrap 10,000
Discount allowed 12,500 Interest on loan 5,000
Salaries 65,000 Printing 28,000
Group ‘C’
Give long answer to the following questions: [3×10=30]
14. What is insurance? Write any two primary functions of insurance and explain any four
types of life insurance. [1+1+8]
15. Prepare journal vouchers [AGF No 10) from the following transactions of Tax Office,
Saptari : [10]
a. Shrawan 2 Received initial imprest fund of Rs. 4,50,000 through Rastriya Banijya
Bank.
b. Shrawan 5 Paid telephone charges of Rs. 10,000 to Nepal Telecom Office through
cheque.
c. Shrawan 18 An advance of Rs. 40,000 paid to Section Officer Miss Anupama Khanal
for buying a computer through cheque.
d. Shrawan 20 Salary for the month Rs. 88,000 (including provident fund) and local
allowance Rs. 6,000 has been distributed after deducting provident
fund Rs. 16,000 and income tax Rs. 4,000 through cheque.
e. Shrawan 30 Section Officer Miss Anupama Khanal submitted the expenditure bill
of Rs. 35,000 and pay- in- slip for the balance amount and requested
for advance clearance.
16. The following transactions were extracted from the record of a government office:
Annual budget Expenditure of Balance of
Rs. Magh Rs. budget Rs.
Salary..................................................... 80,000 6,000 34,000
Water and electricity charges............. 30,000 2,000 15,000
Other rent.............................................. 40,000 3,000 19,000
Uniform................................................. 25,000 - 15,000
Vehicles.................................................. 1,00,000 10,000 30,000
Fuel for other purpose......................... 36,000 3,000 15,000
Total....................................................... 3,11,000 24,000 1,28,000
a) The debit column and credit column of bank cash book shows Rs. 7,000 and
Rs. 3,000 respectively.
b) Balance in petty cash fund Rs. 300.
See
SEE Model
Questions Sets
c) Bank balance Rs. 2,700
a) Total expenditure upto Magh [3]
b) Total release upto Magh [3]
c) Net expenditure [2]
d) Total revolving fund received [2]
[Ans: a) Rs. 1,83,000 b) Rs. 1,59,000 c) Rs. 1,79,000 d) Rs. 1,86,000]
Set 5
Group A
Give answer of the following questions in one sentence: (5×1=5)
1. When did Nepal get the membership of WTO?
2. Write the full form of ABBS.
3. Write any two examples of indirect income.
4. When was new accounting forms brought into use under the recommendation of the
Auditor General?
5. Write the name of monthly statement which is made provision under AGF No. 9 and
AGF No. 14.
Group B
Write short answer of the following questions: [8×5=40]
6. What is proposal? Write any two similarities and three differences between ordinary
proposal and special proposal. [1+1+3]
7. What is trade? Explain any four means of payment used in trade. [1+4]
8. What is geographical filing? Write its two advantages and two disadvantages. [1+2+2]
9. Describe the importance of audit in government offices. [5]
10. What is budget sheet? Write any four differences between bank cash book and budget
sheet. [1+4]
11. Prepare a trial balance of Bipana Trading Concern as on 31 December 2017 from the
st
following particulars: [5]

Capital Rs.5,20,000 Freehold premises Rs. 3,60,000
Bank loan 40,000 Drawing 40,000
Purchases 6,00,000 Depreciation 50,000
Suppliers 50,000 Sales 4,40,000
[Ans: Total Rs. 10,50,000]
12. From the following particulars, prepare a profit and loss account of Laxmi Enterprises as
on 31st Chaitra 2074: [5]
Gross profit Rs. 2,10,000 Interest on investment Rs. 45,000
Rent received 21,000 Free sample distribution 20,000
Bad debts 69,000 Discount on purchase 24,000
Salesman commission 30,000 Trade expenses 45,000

13. Prepare a balance sheet of New Nepal Company, Ilam from the following particulars as
on 31st June 2017 : [5]
Building Rs. 2,25,000 Capital Rs. 4,50,000
Bills payable 60,000 Net loss 30,000
Trade mark 75,000 Wages due 70,000
Accrued income 50,000 Furniture & fitting 2,00,000
Group C
14. What is cheque? Mention the parties involved in cheque and also explain the types of
cheque. [2+2+6]
15. Prepare journal vouchers of District Health Office, Kaski from the following
transactions : [10]
a) 2074 Kartik 2 Received a bank order of Rs. 3,00,000 and budget release order for Rs.
2,30,000 for the actual expenditure of Ashwin.
b) 2074 Kartik 8 A cheque of Rs. 10,000 was issued for the payment of communication
charges.
c) 2074 Kartik 15 Section Officer Mr. Ashok Basnet returned a bank voucher of Rs.
25,000 to office which was taken for purchasing food materials and
cleared his advance accordingly.
d) 2074 Kartik 26 Following petty expenses were reimbursed through cheque:
Tea & coffee Rs. 250 Electricity changes Rs.350
Internet expenses Rs. 300 Stationery Rs. 100
e) 2074 Kartik 30 Salary for the month Rs. 90,000 (excluding PF) and dearness allowance
Rs. 12,000 has been distributed through cheque after deducting
provident fund as per rule and citizen investment fund of Rs. 6,000.
16. Develop bank cash book from the following transactions of District Land Reform Office,
Solukhumbu: [10]
a) 2074/08/05 Bank balance Rs. 1,00,000
b) 2074/08/10 Received bank order and budget release order of Rs. 2,50,000 for the
actual expenditure of last month.
c) 2074/08/15 Established petty cash fund of Rs. 2,000 in favour of Petty Cashier
Miss Rama Khatiwada through cheque No 24250.
d) 2074/08/20 An advance of Rs. 25,000 is paid to Section Officer Mr. Himal
Chaudhary for buying office furniture through cheque No 24251
e) 2074/08/25 Paid Rs. 15,000 to Balaju Garments through cheque No 24252 for
buying uniform to staffs.
f) 2074/08/30 Out of total salary Rs. 66,000(including provident fund) and local
allowance Rs. 10,000, deducted provident fund Rs. 12,000 and income
tax Rs. 5,000 and balances were distributed through cheque.
[ Ans: Bank balance Rs. 2,46,000]
See
SEE Model
Questions Sets
Set 6
Group A
2. Which is the firstly established central bank in the world?
3. How is net profit of the business adjusted in balance sheet?
4. Which institution does the final audit of operating level government offices?
5. Write the name of form which is made provision under AGF No 8.
Group B
Give short answer of the following questions. 8×5=40
6. What is meant by resolution? Describe its types with suitable examples. (1+4)
7. What is numerical filing? Mention its four advantages and four disadvantages. (1+2+2)
8. What is World Trade Organization? Write its four functions. (5)
9. Draft a trial balance of Nepal Wool House , Lalitpur at the end of fiscal year 2074 based
on the following particulars. (5)
Land & building Rs.2,65,000 Beginning inventory Rs.62,500

Purchases 1,30,000 Sales 2,22,750
Bank overdraft 35,000 Salaries and wages 45,000
Long- term loan 44,750 Proprietor’s capital 2,00,000
[Ans: Total Rs.5,02,500]
10. Prepare a balance sheet of Ramailo Traders, Nuwakot on the basis of following particulars
as on 31st Ashadh 2074. (5)
Capital Rs.5,00,000 Bankers Rs.1,50,000

Marketable securities 50,000 Net profit 75,000
Cash in hand 80,000 Investment 4,70,000
Reserve fund 65,000 Receivables 1,90,000
[Ans.: Total Rs7,90,000]
11. Determine the gross profit or gross loss of Sathi Traders from the following particulars as
on 31st Chaitra . 2074. (5)
Opening stock Rs.50,000 Store consumed Rs.25,000

Purchases 2,50,000 Productive wages 45,000
Stock at the end 60,000 Factory rent 60,000
Sales 5,58,000 Return from customers 8,000
[Ans.: Gross profit Rs1,80,000]
12. Define audit and write any four differences between internal audit and final audit. (1+4)
13. What is budget sheet? Mention its any six usefulness for government offices. (1+4)

Group C
Give long answer of the following questions. 3x10=30
14. What is commercial bank? Name any two commercial bank of Nepal and describe their
any six functions. (2+1+7)
15. Prepare AGF No 10 of Internal Revenue Office, Khotang from the following transactions
for the month of Magh, 2074. (10)
a) Magh 3 Received bank order of Rs. 4,50,000 for the previous month’s expenditure
Rs. 3,00,000
b) Magh 10 An advance of Rs. 25,000 is paid to Section Officer Mr. Ramakanta
Chaudhary for travelling expenses through cheque No 444567.
c) Magh 15 Bought a computer of Rs. 50,000 and paid through cheque No 444568.
d) Magh 25 Travelling expenses advance of Mr Ramakanta Chaudhary cleared on
the basis of expenditure bill of Rs. 20,000 and pay in slip for the balance
amount .
e) Magh 29 Salary Rs. 99,000 (including PF) and dearness allowance Rs. 10,000
distributed by cheque No 444569 deducting therefrom Rs. 18,000 as
provident fund and Rs. 6,000 as income tax.
16. Following are the transactions of District Land Reform Office, Solukhumbu:
a) 2074/05/05 Bank balance Rs.2,00,000
b) 2074/05/10 Established petty cash fund of 2,000 through cheque No. 682530 in
favour of Petty Cashier Miss Ajanabee Bhandari.
c) 2074/05/15 Issued cheque No 682531 of Rs. 20,000 as an advance to Mrs Bina Shrestha
(Section Officer) for buying office furniture.
d) 2074/05/20 Paid Rs. 4,500 to City Fuel Centre, Balaju through cheque No 682532 for
fueling to Maruti Car numbered Ba 2 Jha 2684.
e) 2074/05/22 Issued a cheque No 682533 of Rs. 2,000 to Section Officer Mrs. Bina
Shrestha for clearance of her furniture advance as she submitted the bill
of Rs. 22,000.
f) 2074/05/30 Total salary for the month Rs. 33,000 has been distributed after deducting
provident fund Rs. 6,000 through cheque No 682534.
Required: Bank cash book
[Ans: Bank balance Rs.1,44,500]
Set 7
Group A
1. Write the full form of SAPTA.
2. Give the meaning of crossed cheque.
3. How is closing stock valued in the business firm?
4. Under which ministry does the Office of Finance Comptroller General remain?
5. Write the name of form which is made provision under AGF No 5.
See Model Questions Sets 333

Group B
Give short answer of the following questions. 8x5=40
6. Why is memo prepared? Write any six considerable points for drafting it. (1+4)
7. Introduce subjective filing and mention its four pros and four cons. (1+2+2)
8. What is foreign trade? Write any two similarities and four dissimilarities between home
trade and foreign trade. (2+1+2)
9. You are required to prepare a trial balance of Fashion Home Traders from the following
ledger balances as on 31st December 2017. (5)
Customers Rs.2,68,000 Purchases Rs. 2,50,000
Suppliers 1,40,500 Return out 10,000
Bankers 85,000 Sales revenue 3,75,000
Machinery 3,12,500 Capital 2,20,000
10. Draft a balance sheet of Sukanya Company, Chabahil, Kathmandu on the basis of following
particulars as on 31st December 2017. (5)
Capital Rs. 6,00,000 Land & building Rs.3,00,000

Goodwill 1,60,000 Net loss 30,000
Loan received 2,00,000 General reserve 1,20,000
Unearned income 30,000 Machine 4,60,000

11. Prepare a profit and loss account of Sanu Traders from the following particulars as on 31st
Chaitra 2074. (5)
Gross profit Rs.3,60,000 Bank charges Rs.11,000

Dividend receipt 25,000 Interest on saving 18,000
Salary and wages 66,000 Depreciation 24,000
Bonus distributed 20,000 Advertisement 30,000
[Ans: Net profit Rs. 2,52,000]
12. What is new accounting system? Explain the reasons for continuous use of this accounting
system in government offices. (1+5)
13. Why is bank cash book prepared? Explain the effect of transactions in bank cash book
while clearing advance for excess expenditure. (2+3)
Group C
Give long answer of the following questions. 3x10=30
14. What is central bank? Name the central bank of Nepal and describe its any seven
functions. (2+1+7)
15. From the following transactions of District Irrigation Office Palpa, prepare journal

vouchers. (10)
a) 2074/4/01 An order was received from the office of the treasury and comptroller
for initial revolving fund of Rs. 1,50,000 through bank transfer.
b) 2074/4/12 Paid Rs. 20,000 to National Computer for purchase of computer through
cheque no. 002
c) 2074/4/17 Advance for Vehicle of Rs. 25,000 was given to Section Officer Mr. Dilip
Parajuli through cheque no. 003.
d) 2074/4/25 Following expenses made from petty cash fund were reimbursed
through cheque no 004
Rs. 50 for communication, Rs. 150 for electricity and Rs. 200 for tea and
coffee.
e) 2074/4/30 Issued a cheque of Rs.51,000 for distribution of salary after deducting
provident fund Rs. 12,000 and income tax Rs. 3,000
16. You are supplied the following information of District Irrigation Office, Rasuwa:
B.H. Annual Budget Expenditure Expenditure

Budget head
No. (Rs) up to Magh (Rs.) of Falgun ( Rs.)
21111 Salary 7,20,000 5,20,000 50,000
22121 House rent 1,20,000 80,000 12,000
22211 Fuel 1,92,000 1,40,000 14,000
22711 Miscellaneous 1,00,000 50,000 10,000
29311 Furniture 2,00,000 1,00,000 -
29511 Machinery 1,80,000 1,40,000 6,000
a. Revolving fund release Rs.12,00,000
b. Cash balance Rs. 1,000
c. Furniture advance of Rs. 6,000 to Miss Anamika remains uncleared.
d. Loan to be paid Rs. 20,000
Required : Statement of expenditure of Falgun showing:

a) Revolving fund balance (2)
b) Budget release in each head (2)
c) Bank balance (3)
d) Net expenditure (1)
e) Balance of budget in each head (2)
[Ans: a) Rs.1,70,000 c) Rs. 97,000 d) Rs.11,16,000]
See Model Questions Sets 335

Bibliography
Agrawal, G. R., (2009) Principles of Management in Nepal, Kathmandu: MK Publishers and
Distributors .
Arora M.N. (1994), Cost Accountancy Principles and Practices, New Delhi: Vikas Publishing
House Pvt. Ltd.
Arora, S.P., (1998) Office Organization and Management, New Delhi : Vikash Publishing
House.
Bhusan, Y.K., (1993) Fundamentals of Business Organization and Management, New Delhi :
Sultan Chand and Sons.
Burch John J.,(1994), Cost and Management Accounting Saint Paul: West Publishing company.
Company Act, 2053
Dangol R.M., Koirala Shalik Ram (Dr.),(2059) A Basic course in Accountancy , Kathmandu :
Taleju Prakashan.
Gupa, R.N., (2004) A Textbook of Business Studies, New Delhi: Sultan Chand & Company.
Haimann, T., (1980) Professional Management, New Delhi: Eurasia Publishing House.
K.C., Fatta, (2011) Principles of Business Studies, Kathmandu Vidyarthi Pustak Bhandar,
Khanal J.R., Basnet D.K. and Others (2074), Accounting for Financial Analysis and Planning
for BBS first year Kathmandu: Deepmala Publications Pvt. Ltd.
Khanal J.R., Basnet D.K. and Others (2074), Cost and Management Accounting for BBS second
year Kathmandu: Deepmala Publications Pvt. Ltd.
Khanal J.R., Basnet D.K., (2073), Accountancy Practice Book for Grade X and SEE ,Kathmandu
: Asmita Books Publishers and Distributors.
Khanal J.R., Basnet D.K., (2074), Business Studies for Grade XI and XII Kathmandu: Deepmala
Publications Pvt. Ltd.
Khanal, J., Basnet, D. K., (2074) Nayab Subba Byabasthapan Ra Lekha : Tritiya Patra ,
Kathmandu : Deepmala Publication Pvt. Ltd.
Koontz, H. and Weihrich, H., (1990) Essential of Management, New York Mc-Grow Hill
Publishing Co.
Munakarmi S.P., (2004), Accountancy and Auditing Kathmandu: Educational Enterprises (P)
Ltd.
Pandey I.M. (1999), Financial Management, New Delhi: Vikas Publishing House Pvt. Ltd.
Robbins, S.P, and Mary C, (2009) Management, New Delhi : Prentice Hall of India Pvt. Ltd.
Saksena, S.C., (1984) Business Organization and Management, Agra: Sahitya Bhawan,
Sharma, R. R., (2011) Business Studies, Kathmandu: Buddha Academic Publishers and
Distributors Pvt. Ltd.
Sharma, R.S., (1960) Insurance : Principles and Practices, New Delhi: Vora and Co. (Pvt.) Ltd.
Sherlaker, S.A. (1982) Modern Business Organization and Management: New Delhi: System
Approach, Himalayan Publishing House.
Shukla, M.C., (1988) Business Organization and Management, New Delhi:S. Chanda and
Company (Pvt.) Ltd.,
Siddiqui S.A., (2003-2004),Comprehensive Financial Accountancy New Delhi. Laxmi
Publications (P) Ltd.

ACCOUNT

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ACCOUNT

Uploaded by

Copyright:

Available Formats

Readmore's

TU Road, Kuleshwor, Kathmandu, Nepal.

First Edition : 2072 BS (2015)

No part of this book may be reproduced or transmitted by any means, electronic,

Read to help others read !

Chapter 4 FINANCIAL INSTITUTIONS 63-100

Chapter 7 GOVERNMENT ACCOUNTING 183-214

Chapter 10 BUDGET SHEET 283-298

Chapter 11 MONTHLY STATEMENT 299-322

SEE Model Questions Sets.....................................................................323-335

Office procedure is the specific technique, way or administrative action followed

Need of office procedure

Types of office procedure

12 Office Management and Accountancy

Tippani Report Resolution

Considerations for drafting a tippani

14 Office Management and Accountancy

P.O. Box No.............

I forward it with recommendation for approval as it seems justifiable.

Short Notes to Remember (SNR 1.1)

Report is a descriptive and analytical statement of facts, information and

16 Office Management and Accountancy

Government Audit Annual Educational Committee

The report which is prepared by the government to provide information to the

The report which is prepared by an auditor after examination of books of account

The report which is prepared by the students or academicians on completion

18 Office Management and Accountancy

The report which is prepared by the group of individuals formed by the

Considerations for preparing a report

Resolution is the written proposal of subject matter or problem presented by

20 Office Management and Accountancy

Ordinary resolution Committee report

Short Notes to Remember (SNR 1.2)

Similarities and dissimilarities between ordinary

a. Matters It is presented for regular It is presented for extra

b. Meeting It is presented in ordinary It is presented in special or

c. Majority It can be passed by simple It can be passed only by special

d. Example Appointment of director Liquidation of company or

22 Office Management and Accountancy

A. Very short answer questions

1. What is office procedure?

1. Define office procedure and state its necessity for office.

C. Long answer questions

24 Office Management and Accountancy

Filing And Indexing 25

Need or importance of filing

26 Office Management and Accountancy

c. Evidence for the future

d. Guidelines to the employees

e. Support to the management

Alphabetical filing is the way of arranging the files or folders in a drawer

Filing And Indexing 27

b. For individual’s name with title and position

d. For individual’s as well as organization’s name with position

28 Office Management and Accountancy

Disadvantages of alphabetical filing

Filing And Indexing 29

Disadvantages of numerical filing

30 Office Management and Accountancy

Filing And Indexing 31

Disadvantages of geographical filing

Traditional Modern filing

Box filling Misil filling Horizontal filing Vertical filing

32 Office Management and Accountancy