Book-Keeping and Accountancy
This domain tests the double-entry system end to end: recording transactions in the journal, posting to the ledger, extracting a trial balance, and preparing trading and profit & loss accounts with the balance sheet. Year-end adjustments are where most marks are won or lost.
Core rules
- Accounting equation: Assets = Liabilities + Capital. Every transaction keeps it balanced.
- Golden rules: personal accounts - debit the receiver, credit the giver; real accounts - debit what comes in, credit what goes out; nominal accounts - debit expenses and losses, credit incomes and gains.
- Profit increases capital; drawings and losses reduce it.
- Adjustments (closing stock, outstanding and prepaid expenses, accrued income, depreciation, bad debts, provision for doubtful debts) each need two effects: one in the trading or P&L account and one in the balance sheet.
Worked example
A machine costs ₹1,20,000, has scrap value ₹20,000 and a life of 5 years. Depreciable amount = 1,20,000 − 20,000 = ₹1,00,000. Straight-line depreciation = 1,00,000 ÷ 5 = ₹20,000 per year. Entry: Depreciation A/c Dr 20,000; To Machinery A/c 20,000. Depreciation is debited to the P&L account and the machine appears in the balance sheet at 1,20,000 − 20,000 = ₹1,00,000.
Traps that cost marks
- A trial balance that agrees does not prove accuracy: errors of principle, compensating errors and complete omission stay hidden.
- Capital expenditure (machine, building) is not revenue expenditure (repairs, rent); mixing them is an error of principle.
- Drawings are deducted from capital, never shown as an expense.
- Closing stock appears in the trading account credit and in the balance sheet as a current asset - both effects are required.