CHSE Odisha Elective Accountancy cheat sheet

Accounting equation: Assets = Liabilities + Capital; every transaction preserves this equality, so each debit has an equal credit.

Golden rules: debit the receiver and credit the giver (personal accounts); debit what comes in and credit what goes out (real accounts); debit expenses and losses, credit incomes and gains (nominal accounts).

Going concern assumes the entity continues indefinitely, so assets are shown at cost less depreciation rather than liquidation value.

Accrual concept records revenue when earned and expense when incurred, regardless of cash movement; it creates outstanding and prepaid adjustments.

Money measurement, accounting period, consistency, and full disclosure are the other core concepts; consistency allows comparison across years.

Matching principle charges expenses of a period against revenues of that same period to derive correct profit.

Prudence (conservatism) recognises anticipated losses but not anticipated profits; it justifies provision for doubtful debts and stock at lower of cost or net realisable value.

Materiality permits ignoring trivial items; cost concept records assets at acquisition cost, and realisation recognises revenue only on transfer of goods or services.

Accounting standards and the conceptual framework sit above the concepts; where a concept conflicts with an accounting standard, the standard prevails.

Journal entry format: date, accounts debited (with amount), accounts credited (with amount, indented), and a narration explaining the transaction.

Compound entry records more than two accounts in one transaction; total of debits must equal total of credits within the entry.

Ledger is a book of accounts; posting transfers each journal debit or credit to the correct side of the relevant account, and the account balance is the difference of the two sides.

Balancing rule: the smaller side total is written on the larger side as 'Balance c/d'; the difference becomes the opening balance b/d on the opposite side.

Trial balance lists debit and credit balances as on a date; agreement of totals is a check on arithmetical accuracy, not proof of correctness.

Accounts with debit balances: assets, drawings, expenses, losses, purchases, sales returns (returns inward). Credit balances: liabilities, capital, incomes, gains, sales, purchase returns (returns outward).

Contra entries between Cash and Bank accounts appear on both sides of the trial balance and cancel out, so they do not affect agreement.

Trade discount is deducted on the invoice and never recorded; cash discount is recorded as discount allowed (debit) or discount received (credit).

BRS starts from the Cash Book bank balance or the Pass Book balance and reconciles to the other by adding and subtracting timing differences.

Cheques deposited but not yet credited: add to Cash Book balance; cheques issued but not yet presented: subtract from Cash Book balance.

Bank charges, interest on overdraft, direct payments by bank, and dishonoured cheques are recorded in the Pass Book first, so subtract them from the Cash Book balance.

Interest credited, dividends collected, and direct deposits by customers are in the Pass Book first, so add them to the Cash Book balance.

Overdraft treatment is reversed: an overdraft balance behaves as a negative balance, so every add/subtract rule flips when reconciling an overdraft.

Errors of principle (capital vs revenue, wrong account head) do not affect trial balance agreement but do affect profit; errors of omission, commission, and compensating errors may or may not affect it.

One-sided errors are corrected by a journal entry in the affected account only; two-sided errors need a complete journal entry with both accounts.

Suspense Account is opened temporarily for the difference in the trial balance and is closed once all one-sided errors are rectified.

Errors found after the balance sheet date but before finalisation require adjustment through the Profit and Loss Adjustment Account or the partner's capital accounts.

Straight line method: Depreciation = (Cost - Scrap value) / Useful life; the same amount is charged every year on original cost.

Written down value method: Depreciation = Book value at start of year × rate; the charge declines each year and the asset is never fully written off.

Depreciation is a non-cash expense charged to the Profit and Loss Account; accumulated depreciation is a contra-asset shown as a deduction from the asset.

Profit or loss on sale of asset = Sale proceeds - (Cost - Accumulated depreciation to date of sale).

Provision is a charge against profit for a known liability of uncertain amount (doubtful debts, depreciation, taxation); it is mandatory and reduces distributable profit.

Reserve is an appropriation of profit, not a charge; it is created for strengthening the financial position and is shown on the liabilities side.

Capital Reserve arises from capital profits (premium on shares, profit on sale of fixed assets) and cannot be distributed as dividend; Revenue Reserve can be.

Dividend Equalisation Reserve and General Reserve are revenue reserves; Secret Reserve arises when assets are undervalued or liabilities overstated.

Provision for doubtful debts is created on debtors after deducting further bad debts; a new provision replaces the old, and only the difference is charged or credited to the Profit and Loss Account.

Bill of exchange: an unconditional written order by the drawer directing the drawee to pay a stated sum to the payee or bearer on demand or at a fixed future date.

Promissory note: an unconditional written promise by the maker to pay a stated sum to the payee or bearer; only two parties, maker and payee.

Parties to a bill: drawer (creditor), drawee (debtor who accepts), and payee; acceptance makes the drawee the acceptor and creates the liability.

Due date = date of bill + tenor + 3 days of grace; if the due date falls on a public holiday, it becomes the preceding working day.

Discounting charges the holder a discount for immediate cash; the discount is an expense for the discounter and income for the bank.

Endorsement transfers the bill to a creditor; the endorser becomes liable if the acceptor dishonours, so endorsement creates a contingent liability.

Dishonour requires a notary public to note the bill; noting charges are borne by the party ultimately liable, usually the acceptor, and recovered from the debtor.

Retirement of bill: the acceptor pays before due date and earns a rebate, calculated as amount × rate × unexpired period / 12.

Renewal of bill: a new bill replaces the old one, often with interest charged by the drawer and part payment received from the acceptor.

Trading Account derives gross profit = Net sales - Cost of goods sold, where Cost of goods sold = Opening stock + Purchases + Direct expenses - Closing stock.

Profit and Loss Account derives net profit = Gross profit + Other income - Indirect expenses; it is closed by transfer to Capital Account.

Balance sheet format: Liabilities side shows Capital, Long-term loans, Current liabilities; Assets side shows Fixed assets, Investments, Current assets.

Closing stock appears in the credit of Trading Account and as a current asset in the balance sheet; it is valued at lower of cost or net realisable value.

Outstanding expenses are added to the expense in the Profit and Loss Account and shown as current liabilities; prepaid expenses are deducted and shown as current assets.

Accrued income is added to income and shown as a current asset; income received in advance is deducted and shown as a current liability.

Drawings are deducted from Capital; interest on drawings is added to Capital; interest on capital is an expense charged to Profit and Loss Account.

Bad debts, further bad debts, and provision for doubtful debts are charged to the Profit and Loss Account; the closing provision is deducted from debtors.

Manager's commission is computed on net profit before or after charging the commission; on-after basis uses profit × rate / (100 + rate).

Absence of a written deed means the Partnership Act applies: profits and losses shared equally, no interest on capital, no interest on drawings, and interest on advances at 6% per annum.

Profit and Loss Appropriation Account distributes profit among partners after charging interest on capital and crediting interest on drawings.

Interest on capital is allowed only when the deed provides for it; it is an appropriation, not a charge against profit, so it cannot create a loss.

Partner's salary or commission is debited to the Profit and Loss Appropriation Account and credited to the partner's capital or current account.

Interest on drawings is income to the firm and is credited to the Profit and Loss Appropriation Account; it is calculated on the amount and period the money was withdrawn.

Fixed capital method keeps two accounts per partner, Capital and Current; the fluctuating method records all transactions in the Capital Account itself.

Guarantee of minimum profit: the deficiency is borne by the guaranteeing partner (or partners) in the agreed ratio and debited to their accounts.

Past adjustments are made through a single journal entry comparing profit already credited with profit that should have been credited, the net difference going to each partner.

Sacrificing ratio = Old ratio - New ratio; the incoming partner's share is distributed to the sacrificing partners in that ratio.

Goodwill on admission is credited to the old partners in the sacrificing ratio; if the new partner brings goodwill in cash, it is shared among the sacrificing partners.

Revaluation Account records the increase or decrease in the value of assets and liabilities on reconstitution; profit or loss is shared by old partners in the old ratio.

Accumulated reserves and profits are transferred to the capital accounts of old partners in the old ratio; accumulated losses are debited in the old ratio.

Gaining ratio = New ratio - Old ratio; on retirement or death, the retiring partner's share of goodwill is compensated by the gaining partners in that ratio.

Retiring partner's dues = Capital balance + share of reserves + share of revaluation profit + interest on capital - drawings - share of losses.

On death, the deceased partner's share of profit to the date of death is estimated from the previous year's profit or on turnover basis and credited to the executor's account.

Section 37 of the Partnership Act: the outgoing partner or the legal heir is entitled, at their option, to interest at 6% per annum or to the share of profit earned with their money.

Joint Life Policy surrender value is credited to all partners in the old profit-sharing ratio when the policy is not taken to the individual accounts.

Reconstitution through change in profit-sharing ratio requires revaluation of assets and liabilities and adjustment of goodwill among the partners, without any new partner.

Dissolution closes the books: all assets are realised, liabilities paid, and the surplus or deficit is distributed among partners in the profit-sharing ratio.

Realisation Account is debited with all assets except cash and bank, and credited with liabilities except partner's loan and capital; proceeds and payments are recorded there.

Partner's loan is paid before capital but after outside creditors; a partner's loan is not transferred to the Realisation Account.

Unrecorded assets when realised are credited to the Realisation Account; unrecorded liabilities paid are debited to the Realisation Account.

Insolvency of a partner: the deficiency is borne by the solvent partners in their capital ratio (Garner v. Murray) unless the deed provides for the profit-sharing ratio.

Piecemeal distribution applies the maximum loss method or the proportionate capital method, paying the partner with the largest capital relative to profit share first.

Dissolution expenses are borne by the firm and debited to the Realisation Account; expenses borne by a partner are debited to that partner's capital account.

If a partner takes over an asset, the agreed value is credited to the Realisation Account and debited to the partner's capital account.

Share capital is shown in the balance sheet as authorised, issued, subscribed, called-up, and paid-up capital; calls in arrears are deducted from called-up capital.

Shares issued at a premium: the premium is credited to Securities Premium Account and can be used only for specified purposes such as bonus issue, buyback, or preliminary expenses.

Calls in advance are shown as a current liability; interest on calls in advance is payable at 12% per annum if the articles are silent.

Calls in arrears attract interest at 10% per annum if the articles are silent; the company may charge interest on calls in arrears.

Shares issued for consideration other than cash are recorded at the agreed value, and the amount is credited to the vendor or asset account.

Forfeiture of shares: the paid-up amount is forfeited and credited to Share Forfeiture Account; the unpaid amount is debited to the calls-in-arrears account.

Reissue of forfeited shares at a discount cannot exceed the amount forfeited; any balance left in the Forfeiture Account is transferred to Capital Reserve.

Debentures issued at a discount: the discount is written off against Securities Premium or charged to the Statement of Profit and Loss over the life of the debentures.

Interest on debentures is a charge against profit, payable whether or not the company earns a profit, and is subject to tax deducted at source.

Current ratio = Current assets / Current liabilities; a 2:1 ratio is the conventional benchmark for liquidity.

Quick ratio = Quick assets / Current liabilities, where quick assets exclude stock and prepaid expenses; a 1:1 ratio is the usual benchmark.

Debt-equity ratio = Long-term debt / Shareholders' funds; it measures financial leverage and solvency.

Proprietary ratio = Shareholders' funds / Total assets; a higher ratio indicates greater financial strength and lower dependence on outsiders.

Gross profit ratio = Gross profit / Net sales × 100; net profit ratio = Net profit / Net sales × 100; both are profitability measures.

Stock turnover ratio = Cost of goods sold / Average stock; debtors turnover = Net credit sales / Average debtors; higher turnover means better efficiency.

Return on investment = Net profit before interest and tax / Capital employed × 100; capital employed = Shareholders' funds + Long-term debt.

Earnings per share = Profit available to equity shareholders / Number of equity shares; dividend payout ratio = Dividend per share / Earnings per share.

Comparative and common-size statements are tools of analysis; common-size statements express each item as a percentage of net sales or total assets.

Cash flow statement classifies flows into operating, investing, and financing activities and reconciles opening and closing cash and cash equivalents.

Operating activities under the indirect method start with net profit before tax and adjust for non-cash items, then for changes in working capital.

Non-cash items added back include depreciation, amortisation, loss on sale of assets, and provision for doubtful debts; interest and dividend income are deducted.

Investing activities include purchase and sale of fixed assets, investments, and interest and dividend received.

Financing activities include issue and redemption of shares and debentures, long-term borrowings, and payment of interest and dividend.

Increase in current assets is deducted and increase in current liabilities is added in the operating section; the reverse applies to decreases.

Cash and cash equivalents include cash in hand, bank balances, and short-term highly liquid investments with original maturity of three months or less.

Tax paid is treated as an operating outflow; interest paid on borrowings is treated as a financing outflow under the AS-3 presentation.

A transaction that does not involve cash, such as issue of shares for assets, is excluded from the cash flow statement and disclosed separately.