Professional / Subject Knowledge (Banking, Accounting, Law)
Coverage
The professional paper combines banking operations, accounting and commercial law. Expect questions on the RBI Act and Banking Regulation Act, Negotiable Instruments Act, SARFAESI, IBC, KYC/AML, cooperative societies, loans and advances, and basic accounting.
Rules and concepts
- Double entry: every debit has an equal credit; assets = liabilities + capital.
- Golden rules: debit the receiver and credit the giver for personal accounts; debit what comes in and credit what goes out for real accounts; debit expenses and losses and credit incomes and gains for nominal accounts.
- NPA: a loan becomes non-performing when interest or principal is overdue for more than 90 days; agricultural loans have crop-season norms.
- NI Act, 1881: Section 138 deals with dishonour of cheques for insufficiency of funds; a cheque is valid for three months.
- SARFAESI Act, 2002 allows secured creditors to enforce security without court intervention after due notice.
- IBC, 2016 provides a time-bound corporate insolvency resolution process.
Worked example
A firm purchases furniture for ₹50,000 cash. The furniture account, a real account, is debited because goods come in; the cash account is credited because cash goes out. Assets increase by ₹50,000 and decrease by ₹50,000, so the balance sheet total is unchanged. If the purchase were on credit, the credit would go to the supplier's personal account instead of cash.
Traps
Treating capital expenditure as revenue expenditure; applying the 90-day NPA rule to all agricultural loans; and confusing SARFAESI with the IBC. In law questions, read the exact section number and the phrase 'without intervention of the court'.