Accountancy Note --(XI Management)

1. Book keeping/ double entry system

Q.1. write the meaning of book keeping.

Book keeping is composed of two words- 'book' and ‘keeping’. 'Book' mean record or collection of data, statistics and information of financial transactions, and 'keeping' means maintaining of those records. So book keeping is a science and art of keeping records of financial transactions in a regular, proper and systemic manner. In other words book keeping is a science and art of recording the regular financial transaction in a setoff books in such a manner so that the position of a businessman’s activities can be truly ascertained.

According to J.R.B atliboi, “book keeping is the art of recording business dealing in a set of books.”

Q.2. state any three objectives / importance of book keeping.

The following are major four objectives of book keeping;

1)       Keeping records of day to day financial transactions in proper and systematic manner.

2)       Ascertaining profit or loss of a firm during a certain period of time.

3)       Ascertaining the true financial position of a firm on a certain date.

Q.3 writes the meaning of double entry system of book keeping.

In every transaction, at least two parties are involved --- (i) giver and (ii) taker or receiver. A system of recording the transaction in two books showing the effect of two parties involved is double entry system of book keeping. In other words, it is the system of recording every financial transaction showing its double effect in form of debit and credit in the books of account. It is the concept that every debit there is a corresponding credit. It is a compete record of the financial transactions.

Thus, double entry book keeping system is the way of recording the day to day financial transactions showing dual aspects or double effect in form of debit and credit in a set of books.

Q. 4. Write the importance (features) of double entry system of book keeping.

i) Complete record of financial transaction: this system has a facility of recording of both personal and impersonal monetary transactions of the business. So it provides complete information about business transactions.

ii) Finding out net profit or loss: this system provides a details and accurate information about operating income and expenses so that the operating results, i.e. net profit or loss of the business can be easily found.

iii) Ascertainment of true financial position: since it keeps a complete record of financial transactions, a true financial position of a business on certain date can be ascertained through the preparation of balance sheet.

Q.5. give the meaning of accounting.

Accounting is that branch of knowledge which is concerned with measurement and communication of financial information about economic activities. Book keeping and accounting are synonymously same but bin broad sense, book keeping is just the keeping of financial record while accounting involves identifying the financial transactions, classifying, summarizing, analyzing, interpreting, and communicating to various parties of the business firm. In short, accounting is the measurement and reporting of transactions and financial events for decision making purpose.

According to R.N.Anthouy, “accounting system is a means of collecting, summarizing, recording and reporting in monetary terms the information of the business.”

Q.6. state any three functions/features/importance of accounting.

The major three functions of accounting are:

i)                     Recording financial transactions systematically: the main function of accounting is to record all financial transactions systemically and permanently.

ii)                   Determination of profit or loss: another major function of accounting is to determine the exact result of business operation, whether there is profit or loss during the certain period.

iii)                  Determine the financial position of a business: it is also the function of accounting to determine the true financial position of a business firm by preparing a balance sheet.

iv)                  Communicating financial events: another main function of accounting is to communicate the summarized and analyzed information to the concerned parties owners, managers, creditors, money lenders and government to take necessary decisions.

Q.7. write any three differences between book keeping and accounting.

Book keeping	Accounting
It is primary stage of recording financial transactions.	It is secondary stage which starts when job of book keeping ends.
It involves only record keeping part of accounting.	It involves the entire accounting process.
Its basic objective is to maintain systematic records of financial transactions.	Its main objective is to ascertain the net result of business operation.

2. Accounting concepts and principles

Q.1. write in brief about any two accounting concepts.

Business entity concept :-Business entity concept is that concept accounting to which a business is distinct from the owner. They should be treated as separate legal entitles. As a result, this makes it possible to record the transactions of the proprietor with the business. It means that the proprietor is to treated just like any other outsider to the business. So, business entity concept is to treat business and its record of transactions separately from the owner or proprietor.

Going concern concept:-The assumption of business carried on continuously for indefinite period of time is known as ‘going concern concept’. So, while recording business transactions in the book of accounts, it should be assumed that business will be carried on indefinitely. This is why, the treatment of long term expenses are termed as assets and treated distinctly from short term expenses like purchase of goods, purchase of stationeries etc. thus an accountant should treat business activity as a continuing process and record transactions accordingly.

Q.2. write the meaning of ‘money measurement concept’ with example.

It is the concept that accounting should record only those facts that can be expressed in terms of money. For example, quarrel between the staff or businessmen, job left by a manager etc. are not recorded because those cannot be expressed in monetary term. Salaries paid to staff are recorded. Thus, only the information that can be expressed in terms of money is recorded, and this is known as money measurement concept.

Q.3. give the meaning of accounting period concept.

As per the going concern concept, the business is for indefinite period of time. But there is a need to know at intervals how the business is going on, whether there is profit or not. The accountant, therefore, choose some convenient segment of time, such as a year for the measurement of income, which is known as accounting period. So, the determination of a fiscal year by fixing the beginning and ending periods or dates is known as accounting period concept.

Q.4. write about ‘cost concept’ and ‘matching concept’ of accounting.

Cost concept of accounting

When fixed assets like machinery, furniture, land, building are purchased, they are recorded in the books of account in their cost price. Their valuation is they are recorded in the books of account in their cost price. Their valuation is not made in market price. So cost concept means to record all fixed assets purchased in their cost price.

Matching concept of accounting

Matching concept is the principle of comparing or matching the business cost or expenses with the revenue or income of the particular period in order to ascertain the net profit or loss. If the revenue earned is more than the cost or expense, the result is net profit, and vice versa. So, making comparison between income and expenditure is known as matching concept.

3. JOURNAL/SUBSIDIARY BOOKS (NON CASH BOOK)

Q.1. write the differences between journal and ledger.

The following are the differences between journal and ledger:

Journal	Ledger
It is a prime entry book.	It is the principal book.
Transactions are recorded in date-wise basis.	Transactions are recorded in head-wise basis.
It is a basis for preparing ledgers.	It is a basis for preparing trial balance.
Recording in journal is called entry.	Recording in ledger is called posting

Q.2. write in short about subsidiary books.

The books maintained separately to enter the transactions of regular and repetitive nature are known as subsidiary books. These are the alternative record of journal. Before the transactions are recorded in different individual ledger, they are recorded in original books which are called subsidiary books. They are also called primary records. Cash book, purchase book, sales book are the examples of subsidiary books.

Q.3. state the importance (advantages) of subsidiary books.

The following are the importance of subsidiary books.

i)                     They increase efficiency of workers due to the division of work.

ii)                   They save time because their posing are made periodically.

iii)                  There is no need of journal entry, so they make the accounting job easy and prompt.

Q.4. what is an invoice?

An invoice is a document or bill prepared and issued by the seller or importer which contains the particulars of goods, such as quality, quantity, price and other information about the goods. It is a bill sent to the debtors or customers along with goods. It is also a means for giving and taking the payment between the parties.

Q.5. what do you mean by debit note and credit note?

When the goods purchased on credit for resale are returned back to the creditors due to certain due to certain reasons, they are entered in a purchase return book and a note is sent to the creditor. That note is called debit note which shows that creditor has been debited in the book.

When the goods sold on credit are returned by the debtors due to certain reasons, they are also recorded in a sales return book and a note is prepared and sent to the debtor. That note is called credit note which shows that debtor has been credited in the book.

4. CASH BOOK AND BANKING TRANSACTIONS

Q.1. write the meaning of cash book.

A book maintained for recording the day to day transaction of cash receipts and payments is known as a cash book. It is a prime entry book maintained as one of the subsidiary books. Since it is prepared in‘t’ form to record both cash received and paid out, it also works as ledger and also known as cash account. Cash book are of different types. They are simple cash book, double columns cash book, triple columns cash book and petty cash book.

Q.2. write any three advantages / importance of cash book.

The following are the advantages of cash book:

i)                     It shows a clear and exact balance of cash in hand and at bank.

ii)                   It works for both as journal and ledger, so it saves time, cost and labour.

iii)                  It helps to prepare a cash planning.

Q.3. what do you mean by “contra entry”?

While recording the cash transactions in a cash book, sometimes it affects both the sides, in cash column on one side and in bank column on other side, it is known as contra entry. For example, if cash is withdrawn from bank for office use, then if affects debits side of cash book on cash column and credit side on bank column. Such entries affect the both sides of the cash book and to distinguish these entries the letter “c” is written in the L.F. columns of both sides.

Q.4. define the imprest system of petty cash.

It is a system under which a certain sum of money likes Rs. 500 orRs.1000is given to the petty cashier to create a petty cash fund, which is sufficient to meet the small expenses of Rs.5, Rs.10, Rs.20 so on during a certain period. At the end of particular period like at the end of a particular month, the petty cashier submits his account of total expenditure made on petty items, and the amount equal to the amount spent on petty expenditure is given t the petty cashier to continue the maintenance of petty cash for the next month, which is called imprest system. It is also known as float system.

Q.5. write the difference between cash discount and trade discount.

Cash discount	Trade discount
It is given at the time of making cash payment.	It is given at the time of sale of goods on catalog price.
It is ledger is maintained.	It is ledger is not maintained.
It is not deducted in invoice.	It is deducted in invoice.
It is provided if cash payment is made quickly.	It is provided if large number of goods are purchased.

Q.6. why is bank reconciliation statement prepared? (Importance / advantages)

i)  It helps to detect errors committed either by the customer or by the bank.

ii) It helps to ensure quick and timely clearance of cheques.

iii) It helps to control any embezzlement.

5. CHEQUE

Q.1. what is a cheque?

Cheque is an order form issued to a bank by a person or a firm having the deposit I n the bank for payment of a certain amount of money to the person as per the instruction made in it. In the words, cheque is an order made by a deposit holder to the bank to pay a certain sum of money as per the instruction in the cheque to the person or bearer of the instruction. Cheques along with an application form are in a certain number compiled in a book form and given to the deposit holder to use when it happens to withdraw money from bank.

Q.2. explain the parties involved in a cheque.

The parties involved in a cheque are as follows:

i)                     Drawer: drawer is the party who issues a cheque ordering to the bank to pay a certain sum of money to the person named in it. In other words, drawer is the person or party who has his deposit in the bank and issues cheque to draw money from bank.

ii)                   Drawee: drawee is always bank who makes payment against the cheque issued by drawer.

iii)                  Payee: payee is the person or party who receives payment against the cheque issued by drawer. Sometimes drawer himself may be payee if he himself produces the cheque and takes payment from the bank against it.

Q.3. mention any three rules / qualities of a cheque.

The following are the rules / qualities of a cheque:

I)                      The date on which the cheque is drawn should be clearly and correctly written with amount and payee’s name in the cheque.

II)                   The amount in words and in figures should match match with each other and the amount should not exceed the actual deposit held in the bank as well.

III)                  There should be the signature of drawer as well as of payee.

Q.4. STATE ANY three reasons for dishonor of a cheque.

Bank may dishonor the cheque on the following reasons:

i)                     If the date is not clear or not mentioned.

ii)                   If the amount is not mentioned or not clear or not matched in words and figures or not equal or sufficient to the amount held in deposit.

iii)                  If the signature of the drawer is not given or not matched with that of the signature specimen kept by the bank.

Q.5.what is an order cheque?

A cheque issued making an order to the bank to pay a certain sum of money to the person named in it is known as order cheque. It is the cheque which has the provision of paying money only to the person named in cheque. In this system, the person whose name is in the cheque should also put his or her signature on the back of the cheque. Since in the cheque, other is given for the payment only to the person ordered. It is also also known as endorsement cheque.

Q.6. what is a bearer cheque.

A cheque which can be encashed by any person who presents it ti the bank for payment is known as bearer cheque. In other words, a cheque which has the provision that whoever presents a cheque to the bank is bearer and the bank has to pay the money to the bearer.

Q.7. what do you mean by crossing cheque?

A cheque having two parallel lines with or without the words “and Co.” between the lines on the face of it is known as crossing cheque. Such a cheque is to be sent through post. This cheque cannot be encashed at counter but can be collected only by a bank related with the drawee bank. The payee has to deposit it into bank at first, and then he or she can draw the money by using his or her own cheque to receive the money. Crossing cheque may be of two types – (i) general or simple crossing cheque and (ii) special crossing cheque.

6. TRIAL BALANCE

Q.1. write the meaning of trial balance.

Trial balance is a statement of ledgers prepared to check the arithmetical accuracy in recording and posting the transactions. In other words, it is a tool to prove that the ledgers are arithmetically correct by showing the debit total equal to that of credit .it also a helpful statement to make a basis for the preparation of final accounts.

Q.2. write the objectives of preparing a trial balance.

The main objectives of preparing a trial balance are as follows:

i)                     To ascertain the arithmetical accuracy of ledger accounts.

ii)                   To help in locating the arithmetical errors.

iii)                  To show the clear picture of the position of all ledgers.

iv)                  To help in preparation of final accounts.

Q.3. explain the errors not disclosed by a trial balance.

i) Error of omission: if the transaction taken place but forgotten to be recorded in the books of account, such an error is known as error of omission. For example, if rent paid to landlord is omitted to record in original books, nothing will go in ledgers, and the trial balance will have no effect. Trial balance fails to disclose such error.

ii) Error of commission: if a transaction of Rs.5000 is wrongly entered as Rs.500, it is known as error of commission. Such an error takes place due to carelessness of accounting staff. Such error will have no effect in trial balance. Trial balance fails to disclose such error.

iii) Error of principle: if the transaction is entered against the principle of book keeping, it is known as error of principle. For example, if purchase of furniture is recorded as debiting purchase account instead of furniture account, it is called error of principle.

iv)Compensating error: if the error of recording the transaction is covered by error occurred next time, it is known as compensating error. In other words, if an error is compensated by another error, it is called compensating error. For example, recording the transactions of goods purchased for cash Rs.20000 and on credit Rs.1000 recorded as purchased as purchased of goods of goods on cash Rs.1000 and on credit Rs.2000.

Q.4. write the differences between trial balance and balance sheet.

Trial balance	Balance sheet
It is prepared to detect the arithmetical errors in accounting.	It is prepared to determine the true financial position of a firm.
It can be any time like monthly, half yearly or yearly.	It is generally prepared at the end of the financial year.
It is a list of all accounts.	It is a list of only real and personal accounts.

Q.5. why is final account prepared? (importance / objectives)

Final account is prepared for the following purposes:

i)         To determine gross and net profit or loss of the business.

ii)       To know the financial position of the business.

iii)      To know about strength and weakness of the business.

7. CAPITAL AND REVENUE CONCEPT

Q.1. what do you mean by capital expenditure? Write with example.

The expenditures of one time in nature or the expenditures which gives benefit ti the business for long period is known as capital expenditure. In other words, expenditure made for purchase of assets is a capital expenditure. Such expenses affects in balance sheet and its effects remain for furniture, machinery, building etc, similarly research and development costs are the examples of capital expenditure.

Q.2. write with example the meaning of revenue expenditure.

The expenditures which give benefit to the business for short period is known as revenue expenditure. In the words, revenue expenditure are such expenditures which are made in the same accounting period and they are done to earn profit by operating business regularly and smoothly. Such expenses are made to maintain fixed assets and its effect remains within only one economic year.

Expenditures like payment of salary, wages, rent, purchase of stationery, repair of assets etc. are the examples of revenue expenditures.

Q.3. write with example the meaning of capital income or receipts.

The receipts or income made by sale of fixed assets or investment of obtained by way of loans, by issue of share capital are known as capital receipts. In the words, all in come made in long term basis and not related to trading activities are capital receipts.

Amount received by selling old furniture, by issuing shares, by obtaining loans are the examples of capital receipts.

Q.4.     write with example the meaning of revenue receipts/ revenue income.

The income made in regular basis by operating business is known as revenue receipts or income. In other words, the regular income generated from day to day business activities in a business is revenue receipt.

Income made by sales, interest received, commission received, discount received etc. are the examples of revenue receipts or revenue income.

Q.5. what do you mean by capital loss?

Any loss realized in the sale of fixed assets or in issue of shares below face value is known as capital loss. For example, if a part of machinery having book value of Rs.4000 is sold for Rs.3000 then there is a loss of Rs.1000. this loss is known as capital loss.

Q.6. write with example the meaning of capital gain or capital profit.

The profit realized in the sale of fixed assets or in issue of shares above face value is known as capital profit. For example, it a part of machinery having book value of Rs.4000 is sold for Rs. 5000, then there is a gain of Rs.1000. this gain is known as capital gain or capital profit.

Q.7. state the difference between capital and revenue receipts.

Capital receipts	Revenue receipts
It is the income made by selling fixed assets or issue of shares.	It is the income made in regular basis by operating the business.
It is not distributed as profits.	It is distributed in form of bonus, dividend etc.
It is shown in the liabilities part of balance sheet.	It is shown in the credit part of profit and loss account.
Sale of furniture is a capital receipt .	Rent received by letting furniture is a revenue receipt.

Q.8. state the difference between capital and revenue expenditures.

Capital expenditure	Revenue expenditure
It is the expenditure made for purchase or acquiring assets.	It is the income made in regular basis by operating the business.
It has long term effect on income.	It has short term effect on income.
It is shown in the assets parts of balance sheet.	It is shown in the debit part of profit and loss account.
Purchase of furniture is a capital receipt.	Repair of furniture is a revenue receipt.

8. RESERVES AND PROVISION

Q.1. what do you mean by reserve?

    Reserve means the amount set aside out of the divisible profit for strengthening the financial position of the business. It is an appropriation of profit. Such a fund is created for meeting unknown liability or loss in future such as for repayment of loan, replacement of wasting assets etc. reserves may be capital reserve secret reserve and specific reserves may be capital reserve, general reserve secret reserve and specific reserve.

Q.2. why is reserve created? Write any three important (advantage) of it.

(i)       It helps to meet any known future losses.

(ii)     It helps in repayment of liabilities like repayment of loan

(iii)    It helps to strengthen the business in finance.

Q.3. what do you mean by capital and revenue reserve?

Capital reserve: it is the reserve which is created from capital revenue.  For example, the amount set aside out of profit earned from the sale of fixed assets.

Revenue reserve: it is the reserve which is created from out of profit earned during the financial year. It can three types

i) General reserve         ii) specific reserve and          iii) secret reserve

Q.4. what is general reserve? Write two advantage of it.

Reserve created without any fix purpose and objective is called general reserve. Amount of such a fund can be utilized in any unknown future liability. It is the appropriate of profit of the business in particular period. So the amount set aside out of divisible profit for meeting unknown future loss and liability is known as general reserve. Its advantages are:

i)                     It helps to meet any unknown future losses and repayment of liabilities like repayment of loan.

ii)                   It helps to strengthen the business in finance.

Q.5. what is secret reserve?

Reserve created but not shown in balance sheet is called secret reserve. It is also known as ‘hidden reserve’ or internal reserve’ or ‘inner reserve’. So the reserve created confidentially by not showing in balance sheet is known as secret reserve. It is created by undervaluation of closing stock, providing excessive depreciation and provision for losses.

Q.6. write the differences between provision and reserve.

provisions	Reserves
It is the amount fixed at time.	It is the amount fixed by managerial decision.
It is created for certain liability.	It is created for uncertain liability.
It is used for losses or risks at future.	It is used to maintain strong economic condition of the business.

9. Government accounting /new accounting system

Q.1.define the term government accounting (new accounting system)?

The accounting maintained in government offices to record the day to day government expenditure and income is known as government accounting. It is the accounting which includes the process of recording, analysis, classifying, summarizing, communication and interpreting financial information about government. It is known as new accounting system. It is totally concerned with keeping record of government revenue and their proper utilization in different work of development and administration. It is a scientific, modern, uniformed and decentralized accounting system which is totally based on principle of double entry system.

Q.2. write the features (characteristics) of new accounting system.

The main features of new accounting system are as follows:

(i)       Based on Double Entry System: it is totally based on widely accepted principle of double entry system, under which the financial transaction are recorded showing their double effect in form of debit and credit.

(ii)     Simplicity and uniformity: it is simple to understand and apply, and it has brought uniformity because all the government offices keep the record the government financial transaction in this new accounting system.

(iii)    Budget head: there is the provision of keeping the record of government expenditure under classified budget heads.

Q.3. what are the objectives /importance of new accounting system?

The following are the objective of new accounting system:

a)       To obtain basic financial statistics and data necessary from time to time for the preparation of financial report.

b)       To keep control upon the fund availed for each project and other resource as well as expenditure.

c)       To collect a summary of data necessary for the budget of government.

Q.4. state any 3 difference between commercial and government accounting .

The following are the difference between commercial and government accounting:

Commercial accounting	Government accounting
It is maintained by business organization.	It is maintained by government offices.
The amount of profit or loss and the financial position of a business firm is evaluated in it.	The correct use of government revenue and fund are evaluated on it.
This is not based on budget.	This is based on budget.

10. Bank cash book /budget sheet/petty cash

Q.1. write the meaning of bank cash book.

Bank cash book is a ledger maintained by all operating level government offices to keep the record of cash receipt and payment. It is known as auditor general form no.5. It consists of five account, such as cash, bank, budget expenditure, advance and miscellaneous accounts. It has 17 columns. So sit is also known as multi column cash book. The main objective of maintaining bank cash book is to keep control on cash from fraud, misappropriation and manipulations.

Q.2. why is bank cash book prepared? (Objective /important)

1)       To maintain a ledger of cash transaction in operating level offices.

2)       To know the position of banking transaction.

3)       To keep control over the cash from misuse, misappropriation and manipulation.

Q.3. write any 3 things to be considered while preparing a bank cash book.

1.       Only the cash transactions are recorded in a bank cash book.

2.       Recording in bank cash book is made chronologically on basis of journal voucher.

3.       At the end of each month, the total of all account are drawn.

Q.4. write, what do you meant by budget sheet?

Budget sheet is a statement of annual budget appropriation, terminal budget release and the day to day government expenditures made on different heads. It is maintained by cooperation level office.  It has a classified budget heads under which the record are made. So, it is also known as budget account. It is named as auditor general from 8.its main objective is to keep control over the budget from misuse and appropriation.

Q.5. Write the importance of budget sheet.

(i)       It provides information about the annual appropriation, terminal budget release for each budget expenditure heads.

(ii)     It provides day to day expenditure made in different budget heads.

(iii)    It helps to control budget expenditure from misuse and misappropriation.

Q.6. Briefly writes what do you know about petty cash fund?

 The fund which is created in government offices with a view to pay out for the small expenses like the expenses for postage ,telegram ,bus fare, tea and refreshment purchase of stationery item etc. is known as a petty cash fund . This fund may be of Rs.200 to Rs. 5000 for period which is handed oer to the petty cashier and he record all petty transaction in a separate form known as auditor general from no .22 .At the end of that fix period the petty cashier should submit that statement to main cashier to get reimbursement of his expenses. The head cashier gives him an amount equal to the expenses made.