Accountancy and Book-keeping
Accountancy and Book-keeping tests whether you can record transactions correctly and convert records into final statements. The paper favours practical entries, adjustments and reconciliation rather than theory alone.
Core rules
- The accounting equation is Assets = Liabilities + Capital. Every transaction has a two-sided effect, which is the basis of double entry.
- A journal entry gives date, particulars, L.F., debit, credit and narration. Posting transfers debits and credits to ledger accounts; the trial balance then checks equality.
- Final accounts: trading account gives gross profit; profit and loss account gives net profit; balance sheet shows assets and liabilities.
- Depreciation: straight-line method charges an equal amount each year; written-down value method charges a fixed percentage on the reducing book value.
- A bank reconciliation statement explains differences between the cash book and passbook: cheques issued but not presented, cheques deposited but not credited, bank charges, interest and direct deposits.
Worked example
Machinery costs ₹1,00,000, residual value ₹10,000 and useful life is five years. Straight-line depreciation = (1,00,000 - 10,000) / 5 = ₹18,000 per year. Under 10% WDV, year one depreciation is ₹10,000 and year two is 10% of ₹90,000 = ₹9,000. The method must be applied consistently.
Traps
Capital expenditure is shown as an asset, not charged fully to profit and loss. Outstanding expenses are added to expenses and shown as a liability; prepaid expenses are deducted from expenses and shown as an asset. Do not treat depreciation as a cash payment. Contra entries affect cash and bank only.