Maharashtra HSC Bookkeeping & Accountancy cheat sheet
Maharashtra HSC Bookkeeping & Accountancy · Keep the key ideas within reach.
Introduction to Book-keeping and Accountancy
Book-keeping records monetary transactions in books of account; accountancy is the wider discipline of designing, interpreting and communicating that information.
Book-keeping is clerical and routine; accounting includes summarising, analysing, interpreting and communicating results to users.
Objectives of book-keeping: permanent record, ascertainment of profit or loss, knowledge of financial position, assistance to management and detection of errors and frauds.
Qualitative characteristics: reliability, relevance, understandability and comparability of the recorded information.
Branches of accounting include financial, cost, management, tax and social accounting; book-keeping serves all of them as data source.
Users are internal (owners, managers, employees) and external (investors, lenders, creditors, government, consumers).
Basic accounting terms: capital, drawings, assets (fixed/current), liabilities (long-term/current), revenue, expense, purchases, sales, stock, debtor, creditor, goods.
Limitations: records only monetary transactions, ignores price-level changes, permits window dressing and depends on personal judgement in estimates.
Accountancy is a profession and a service activity; book-keeping is its record-keeping step, not a substitute for analysis.
Meaning and Fundamentals of Double Entry Book-keeping
Every transaction has two aspects, debit and credit; total debits always equal total credits, so the trial balance agrees.
Rules: debit the receiver and credit the giver (personal accounts); debit what comes in and credit what goes out (real accounts); debit expenses/losses and credit incomes/gains (nominal accounts).
Accounting equation: Assets = Liabilities + Capital; each transaction preserves the equality.
Capital = Assets - Liabilities; profit increases capital, drawings and losses reduce it.
Modern classification: assets, liabilities, capital, revenue and expenses; increases in assets/expenses are debits, increases in liabilities/capital/revenue are credits.
Transactions are first identified, then analysed for the two aspects, then recorded; a transaction without two aspects is not entered.
Contra entries affect only asset accounts, e.g. cash withdrawn from bank: debit Cash, credit Bank.
Dual aspect concept, going concern, money measurement and accrual are the concepts underpinning double entry.
Closing capital plus drawings minus additional capital equals profit under the statement-of-affairs method.
Journal
Journal is the book of original entry; transactions are recorded in date order with narration.
Format: Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.); narration explains the entry briefly.
Compound entry debits one account and credits several, or vice versa; total of each side must be equal.
Opening entry records brought-forward assets and liabilities: debit assets, credit liabilities and capital.
Goods withdrawn for personal use: debit Drawings, credit Purchases. Goods given as charity: debit Charity, credit Purchases.
Cash discount allowed is debited to Discount Allowed; discount received is credited to Discount Received.
Trade discount is deducted on the invoice and never recorded separately in the journal.
Bad debts written off: debit Bad Debts, credit Debtor; recovery of bad debt: debit Cash, credit Bad Debts Recovered.
Outstanding or prepaid items are adjusted through their respective nominal accounts, not through cash.
Ledger
Ledger is the principal book containing all accounts; posting transfers journal entries to the relevant accounts.
T-format: left side debit, right side credit; each account shows date, particulars, J.F., amount.
Balance c/d is written on the shorter side to equalise totals; balance b/d opens the next period on the opposite side.
Asset and expense accounts normally show debit balances; liability, capital and income accounts normally show credit balances.
Debit balance of a personal account means the person owes the business; credit balance means the business owes the person.
Posting rule: the account debited in the journal receives the debit amount, the account credited receives the credit amount.
Ledger folio (L.F.) cross-references journal page and ledger page for audit trail.
Total of all debit balances must equal total of all credit balances; otherwise a trial balance error exists.
Debtors, creditors, cash and bank accounts are posted frequently; nominal accounts are posted when the transaction occurs.
Subsidiary Books
Subsidiary books are special journals: purchases, sales, purchases return, sales return, cash book, bills receivable and bills payable books; journal proper handles the rest.
Purchases book records only credit purchases of goods, not cash purchases or asset purchases.
Sales book records only credit sales of goods; cash sales go to the cash book.
Purchases return book records return of credit-purchased goods; sales return book records return of credit-sold goods.
Cash book is both journal and ledger; single-column, double-column (cash and bank), and triple-column (cash, bank, discount) forms exist.
Contra entry in triple-column cash book: cash deposited into bank (debit Bank, credit Cash) and cash withdrawn (debit Cash, credit Bank); marked 'C'.
Petty cash book uses the imprest system; the petty cashier is reimbursed to restore the fixed float.
Posting from subsidiary books is done to individual ledger accounts periodically; the total is posted to the control account.
Bills receivable book records bills drawn and accepted by customers; bills payable book records bills accepted by the business.
Bank Reconciliation Statement
BRS reconciles the cash book bank balance with the pass book balance on a given date and explains the difference.
Causes: cheques issued but not presented, cheques deposited but not collected, bank charges and interest not recorded, direct deposits by customers, standing instructions, dishonoured cheques, errors.
Start with cash book balance: add cheques issued but not presented, add credits by bank not in cash book, deduct cheques deposited but not credited, deduct bank debits not in cash book.
Start with pass book balance: reverse every treatment used for the cash book balance.
Overdraft balances are handled by reversing the addition and deduction rules, or by treating the overdraft as a negative balance.
Cheque deposited and dishonoured: deduct from cash book balance if not yet recorded in the cash book.
Interest allowed by bank and dividends collected are added to the cash book balance when starting from the cash book.
Errors in the cash book must be corrected in the cash book itself, not merely adjusted in the BRS.
A debit balance in the cash book (bank column) corresponds to a credit balance in the pass book.
Depreciation
Depreciation is the permanent, gradual and continuing reduction in the book value of a fixed asset due to use, wear and tear, obsolescence or passage of time.
Straight-line method: Depreciation = (Cost - Scrap value) / Useful life; equal charge each year; asset reduces to scrap value.
Written-down value method: Depreciation = Opening book value x rate; charge declines each year; asset never reaches zero.
Depreciation is a non-cash expense charged to the profit and loss account; the asset appears at book value in the balance sheet.
Accumulated depreciation account accumulates the charge; asset account remains at cost when this method is used.
Profit or loss on sale = Sale proceeds - Book value on date of sale; book value = Cost - Accumulated depreciation.
Depreciation is charged from the date of purchase or from the date of put to use, as per policy; part-year charges use months.
Methods of providing depreciation include fixed instalment, diminishing balance, annuity and sinking fund methods.
Depreciation is a charge against profit, not an appropriation of profit; it is not a cash outflow.
Rectification of Errors
Errors of omission (complete or partial), commission, principle, compensating errors and errors of original entry are the main types.
Errors affecting the trial balance are one-sided errors: wrong casting, posting to wrong side, wrong amount posted, omission of posting.
Errors not affecting the trial balance are two-sided: complete omission, wrong account of same class, compensating errors, errors of principle.
Suspense account is opened when the trial balance does not agree; its balance is the difference.
One-sided errors are corrected by a journal entry with the affected account and Suspense Account.
Two-sided errors are corrected by a complete journal entry debiting and crediting the correct accounts.
Sale of fixed asset credited to Sales is an error of principle; correct by debiting Sales and crediting the asset account.
If the trial balance agrees after correction, the suspense account is closed; otherwise the remaining balance is shown in the balance sheet.
Rectification entries are passed in the year of discovery; prior-period material errors are adjusted through the profit and loss adjustment account.
Final Accounts of a Proprietary Concern
Trading account gives gross profit = Net sales - Cost of goods sold; Cost of goods sold = Opening stock + Purchases + Direct expenses - Closing stock.
Net sales = Sales - Sales returns; Net purchases = Purchases - Purchase returns.
Profit and loss account gives net profit = Gross profit + Other incomes - Indirect expenses.
Balance sheet is a statement of assets and liabilities on a date; it is not an account with debit and credit balances.
Closing stock appears on the credit of trading account and on the assets side of the balance sheet.
Adjustments: outstanding expense added to expense and shown as liability; prepaid expense deducted and shown as asset.
Accrued income added to income and shown as asset; income received in advance deducted and shown as liability.
Depreciation debited to profit and loss account and deducted from the asset; bad debts and provision for doubtful debts treated similarly.
Drawings deducted from capital; interest on capital added to capital and debited to profit and loss account.
Manager's commission on net profit before charging such commission = Rate x Profit / (100 + Rate).
Carriage inward is a direct expense in trading account; carriage outward is an indirect expense in profit and loss account.
Single Entry System
Single entry records only personal accounts and cash; it is incomplete double entry, not a system without entries.
Statement of affairs method: Closing capital - Opening capital + Drawings - Additional capital = Profit or Loss.
Net worth method uses assets and liabilities at two dates to derive capital; it is suitable for small businesses.
Conversion method prepares full double-entry records from incomplete data using total debtors and total creditors accounts.
Total debtors account: Opening balance + Credit sales - Cash received - Returns - Discount allowed - Bad debts = Closing balance.
Total creditors account: Opening balance + Credit purchases - Cash paid - Returns - Discount received = Closing balance.
Credit sales can be derived from cash book and total debtors account when not directly given.
Cash sales = Total sales - Credit sales; cash purchases = Total purchases - Credit purchases.
Single entry is simple and cheap but lacks arithmetical accuracy, true profit and reliable financial position.
Bill of Exchange
Bill of exchange is a written unconditional order signed by the maker, directing a person to pay a certain sum to a specified person or bearer.
Parties: drawer, drawee (acceptor) and payee; drawer and payee may be the same person.
Promissory note contains an unconditional promise to pay; the maker is the debtor and the payee is the creditor.
Terms: tenor, days of grace (three days added), due date, discounting, endorsement, retirement and noting.
Discounting charges = Bill amount x Rate x Unexpired period / 12; discount is an expense for the drawer.
Dishonour: drawer debits the drawee's account with the bill amount plus noting charges; the acceptor debits Bills Payable.
Renewal: the acceptor pays part cash and accepts a new bill for the balance plus interest; interest is income to the drawer.
Retirement of bill before due date entitles the acceptor to a rebate, calculated on the unexpired period.
In the books of the acceptor, the bill is a liability (Bills Payable); in the books of the drawer, it is an asset (Bills Receivable).
Accounts of Not-for-Profit Concerns
Not-for-profit concerns prepare Receipts and Payments Account, Income and Expenditure Account and Balance Sheet.
Receipts and Payments Account is a summary of the cash book: all receipts and payments, capital and revenue, opening and closing balances.
Income and Expenditure Account is like the profit and loss account; it records only revenue items on accrual basis and gives surplus or deficit.
Only revenue receipts and payments appear in the income and expenditure account; capital items appear only in the balance sheet.
Subscription: current-year amount credited to income; advance subscription is a liability; arrears are an asset only if considered recoverable.
Life membership fees and legacies are capital receipts, generally shown in the balance sheet, unless policy treats them as income.
Donations for specific purposes are capitalised; general donations are treated as income.
Sale of old newspapers or sports materials is income; sale of a fixed asset is a capital receipt.
Surplus or deficit = Income - Expenditure; it is added to or deducted from the opening capital fund in the balance sheet.
Introduction to Book-keeping and Accountancy
Book-keeping records monetary transactions in books of account; accountancy is the wider discipline of designing, interpreting and communicating that information.
Book-keeping is clerical and routine; accounting includes summarising, analysing, interpreting and communicating results to users.
Objectives of book-keeping: permanent record, ascertainment of profit or loss, knowledge of financial position, assistance to management and detection of errors and frauds.
Qualitative characteristics: reliability, relevance, understandability and comparability of the recorded information.
Branches of accounting include financial, cost, management, tax and social accounting; book-keeping serves all of them as data source.
Users are internal (owners, managers, employees) and external (investors, lenders, creditors, government, consumers).
Basic accounting terms: capital, drawings, assets (fixed/current), liabilities (long-term/current), revenue, expense, purchases, sales, stock, debtor, creditor, goods.
Limitations: records only monetary transactions, ignores price-level changes, permits window dressing and depends on personal judgement in estimates.
Accountancy is a profession and a service activity; book-keeping is its record-keeping step, not a substitute for analysis.
Meaning and Fundamentals of Double Entry Book-keeping
Every transaction has two aspects, debit and credit; total debits always equal total credits, so the trial balance agrees.
Rules: debit the receiver and credit the giver (personal accounts); debit what comes in and credit what goes out (real accounts); debit expenses/losses and credit incomes/gains (nominal accounts).
Accounting equation: Assets = Liabilities + Capital; each transaction preserves the equality.
Capital = Assets - Liabilities; profit increases capital, drawings and losses reduce it.
Modern classification: assets, liabilities, capital, revenue and expenses; increases in assets/expenses are debits, increases in liabilities/capital/revenue are credits.
Transactions are first identified, then analysed for the two aspects, then recorded; a transaction without two aspects is not entered.
Contra entries affect only asset accounts, e.g. cash withdrawn from bank: debit Cash, credit Bank.
Dual aspect concept, going concern, money measurement and accrual are the concepts underpinning double entry.
Closing capital plus drawings minus additional capital equals profit under the statement-of-affairs method.
Journal
Journal is the book of original entry; transactions are recorded in date order with narration.
Format: Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.); narration explains the entry briefly.
Compound entry debits one account and credits several, or vice versa; total of each side must be equal.
Opening entry records brought-forward assets and liabilities: debit assets, credit liabilities and capital.
Goods withdrawn for personal use: debit Drawings, credit Purchases. Goods given as charity: debit Charity, credit Purchases.
Cash discount allowed is debited to Discount Allowed; discount received is credited to Discount Received.
Trade discount is deducted on the invoice and never recorded separately in the journal.
Bad debts written off: debit Bad Debts, credit Debtor; recovery of bad debt: debit Cash, credit Bad Debts Recovered.
Outstanding or prepaid items are adjusted through their respective nominal accounts, not through cash.
Ledger
Ledger is the principal book containing all accounts; posting transfers journal entries to the relevant accounts.
T-format: left side debit, right side credit; each account shows date, particulars, J.F., amount.
Balance c/d is written on the shorter side to equalise totals; balance b/d opens the next period on the opposite side.
Asset and expense accounts normally show debit balances; liability, capital and income accounts normally show credit balances.
Debit balance of a personal account means the person owes the business; credit balance means the business owes the person.
Posting rule: the account debited in the journal receives the debit amount, the account credited receives the credit amount.
Ledger folio (L.F.) cross-references journal page and ledger page for audit trail.
Total of all debit balances must equal total of all credit balances; otherwise a trial balance error exists.
Debtors, creditors, cash and bank accounts are posted frequently; nominal accounts are posted when the transaction occurs.
Subsidiary Books
Subsidiary books are special journals: purchases, sales, purchases return, sales return, cash book, bills receivable and bills payable books; journal proper handles the rest.
Purchases book records only credit purchases of goods, not cash purchases or asset purchases.
Sales book records only credit sales of goods; cash sales go to the cash book.
Purchases return book records return of credit-purchased goods; sales return book records return of credit-sold goods.
Cash book is both journal and ledger; single-column, double-column (cash and bank), and triple-column (cash, bank, discount) forms exist.
Contra entry in triple-column cash book: cash deposited into bank (debit Bank, credit Cash) and cash withdrawn (debit Cash, credit Bank); marked 'C'.
Petty cash book uses the imprest system; the petty cashier is reimbursed to restore the fixed float.
Posting from subsidiary books is done to individual ledger accounts periodically; the total is posted to the control account.
Bills receivable book records bills drawn and accepted by customers; bills payable book records bills accepted by the business.
Bank Reconciliation Statement
BRS reconciles the cash book bank balance with the pass book balance on a given date and explains the difference.
Causes: cheques issued but not presented, cheques deposited but not collected, bank charges and interest not recorded, direct deposits by customers, standing instructions, dishonoured cheques, errors.
Start with cash book balance: add cheques issued but not presented, add credits by bank not in cash book, deduct cheques deposited but not credited, deduct bank debits not in cash book.
Start with pass book balance: reverse every treatment used for the cash book balance.
Overdraft balances are handled by reversing the addition and deduction rules, or by treating the overdraft as a negative balance.
Cheque deposited and dishonoured: deduct from cash book balance if not yet recorded in the cash book.
Interest allowed by bank and dividends collected are added to the cash book balance when starting from the cash book.
Errors in the cash book must be corrected in the cash book itself, not merely adjusted in the BRS.
A debit balance in the cash book (bank column) corresponds to a credit balance in the pass book.
Depreciation
Depreciation is the permanent, gradual and continuing reduction in the book value of a fixed asset due to use, wear and tear, obsolescence or passage of time.
Straight-line method: Depreciation = (Cost - Scrap value) / Useful life; equal charge each year; asset reduces to scrap value.
Written-down value method: Depreciation = Opening book value x rate; charge declines each year; asset never reaches zero.
Depreciation is a non-cash expense charged to the profit and loss account; the asset appears at book value in the balance sheet.
Accumulated depreciation account accumulates the charge; asset account remains at cost when this method is used.
Profit or loss on sale = Sale proceeds - Book value on date of sale; book value = Cost - Accumulated depreciation.
Depreciation is charged from the date of purchase or from the date of put to use, as per policy; part-year charges use months.
Methods of providing depreciation include fixed instalment, diminishing balance, annuity and sinking fund methods.
Depreciation is a charge against profit, not an appropriation of profit; it is not a cash outflow.
Rectification of Errors
Errors of omission (complete or partial), commission, principle, compensating errors and errors of original entry are the main types.
Errors affecting the trial balance are one-sided errors: wrong casting, posting to wrong side, wrong amount posted, omission of posting.
Errors not affecting the trial balance are two-sided: complete omission, wrong account of same class, compensating errors, errors of principle.
Suspense account is opened when the trial balance does not agree; its balance is the difference.
One-sided errors are corrected by a journal entry with the affected account and Suspense Account.
Two-sided errors are corrected by a complete journal entry debiting and crediting the correct accounts.
Sale of fixed asset credited to Sales is an error of principle; correct by debiting Sales and crediting the asset account.
If the trial balance agrees after correction, the suspense account is closed; otherwise the remaining balance is shown in the balance sheet.
Rectification entries are passed in the year of discovery; prior-period material errors are adjusted through the profit and loss adjustment account.
Final Accounts of a Proprietary Concern
Trading account gives gross profit = Net sales - Cost of goods sold; Cost of goods sold = Opening stock + Purchases + Direct expenses - Closing stock.
Net sales = Sales - Sales returns; Net purchases = Purchases - Purchase returns.
Profit and loss account gives net profit = Gross profit + Other incomes - Indirect expenses.
Balance sheet is a statement of assets and liabilities on a date; it is not an account with debit and credit balances.
Closing stock appears on the credit of trading account and on the assets side of the balance sheet.
Adjustments: outstanding expense added to expense and shown as liability; prepaid expense deducted and shown as asset.
Accrued income added to income and shown as asset; income received in advance deducted and shown as liability.
Depreciation debited to profit and loss account and deducted from the asset; bad debts and provision for doubtful debts treated similarly.
Drawings deducted from capital; interest on capital added to capital and debited to profit and loss account.
Manager's commission on net profit before charging such commission = Rate x Profit / (100 + Rate).
Carriage inward is a direct expense in trading account; carriage outward is an indirect expense in profit and loss account.
Single Entry System
Single entry records only personal accounts and cash; it is incomplete double entry, not a system without entries.
Statement of affairs method: Closing capital - Opening capital + Drawings - Additional capital = Profit or Loss.
Net worth method uses assets and liabilities at two dates to derive capital; it is suitable for small businesses.
Conversion method prepares full double-entry records from incomplete data using total debtors and total creditors accounts.
Total debtors account: Opening balance + Credit sales - Cash received - Returns - Discount allowed - Bad debts = Closing balance.
Total creditors account: Opening balance + Credit purchases - Cash paid - Returns - Discount received = Closing balance.
Credit sales can be derived from cash book and total debtors account when not directly given.
Cash sales = Total sales - Credit sales; cash purchases = Total purchases - Credit purchases.
Single entry is simple and cheap but lacks arithmetical accuracy, true profit and reliable financial position.
Bill of Exchange
Bill of exchange is a written unconditional order signed by the maker, directing a person to pay a certain sum to a specified person or bearer.
Parties: drawer, drawee (acceptor) and payee; drawer and payee may be the same person.
Promissory note contains an unconditional promise to pay; the maker is the debtor and the payee is the creditor.
Terms: tenor, days of grace (three days added), due date, discounting, endorsement, retirement and noting.
Discounting charges = Bill amount x Rate x Unexpired period / 12; discount is an expense for the drawer.
Dishonour: drawer debits the drawee's account with the bill amount plus noting charges; the acceptor debits Bills Payable.
Renewal: the acceptor pays part cash and accepts a new bill for the balance plus interest; interest is income to the drawer.
Retirement of bill before due date entitles the acceptor to a rebate, calculated on the unexpired period.
In the books of the acceptor, the bill is a liability (Bills Payable); in the books of the drawer, it is an asset (Bills Receivable).
Accounts of Not-for-Profit Concerns
Not-for-profit concerns prepare Receipts and Payments Account, Income and Expenditure Account and Balance Sheet.
Receipts and Payments Account is a summary of the cash book: all receipts and payments, capital and revenue, opening and closing balances.
Income and Expenditure Account is like the profit and loss account; it records only revenue items on accrual basis and gives surplus or deficit.
Only revenue receipts and payments appear in the income and expenditure account; capital items appear only in the balance sheet.
Subscription: current-year amount credited to income; advance subscription is a liability; arrears are an asset only if considered recoverable.
Life membership fees and legacies are capital receipts, generally shown in the balance sheet, unless policy treats them as income.
Donations for specific purposes are capitalised; general donations are treated as income.
Sale of old newspapers or sports materials is income; sale of a fixed asset is a capital receipt.
Surplus or deficit = Income - Expenditure; it is added to or deducted from the opening capital fund in the balance sheet.