Book-Keeping and Accountancy: From Journal to Final Accounts
This domain tests whether you can record a transaction correctly and carry it through to the balance sheet. Expect journal entries with GST, ledger posting, trial balance, bank reconciliation, depreciation and final accounts with year-end adjustments.
Core rules
- Debit the receiver, credit the giver. Assets and expenses increase on the debit side; liabilities, income and capital on the credit. The equation Assets = Liabilities + Capital must survive every entry.
- Flow: journal and subsidiary books → ledger → trial balance → trading account → profit and loss account → balance sheet.
- GST inside one state splits into CGST + SGST (half the rate each); across states it is IGST at full rate. Tax paid on purchases is Input Tax Credit - an asset until set off, never a cost.
- Depreciation: straight line on original cost; written down value on the opening book value each year, so the charge falls annually.
Worked example
Goods bought for ₹40,000 plus GST 12%, credit, supplier in Maharashtra. Purchases A/c Dr 40,000; Input CGST Dr 2,400; Input SGST Dr 2,400; To Supplier's A/c 44,800. Reasoning: the cost of goods is the net price only; the ₹4,800 tax is recoverable, so it sits as an asset; the creditor is owed the gross amount. An inter-state purchase would show a single Input IGST of ₹4,800 instead.
Traps that cost marks
- Debiting the gross invoice value to Purchases, which inflates cost and wipes out the credit.
- Mixing discount allowed (expense, debit) with discount received (income, credit).
- Adjustments must appear twice: outstanding salary, prepaid insurance, depreciation and closing stock each hit the trading/P&L side and the balance sheet.
- In bank reconciliation, cheques issued but not yet presented are added to the cash book balance - reversing this is the single most common error.
- Omitting narrations, or failing to balance and total the ledger accounts.