Accountancy and Book-keeping
Accountancy and Book-keeping tests whether you can pass an ordinary business transaction correctly through the books and interpret the result. Expect journal entries, ledger posting, trial balance, depreciation, bank reconciliation, provisions, and the treatment of capital versus revenue items.
The double-entry skeleton
Every transaction has two effects, so total debits always equal total credits. Journal entries are posted to ledger accounts, ledger balances form the trial balance, and the trial balance feeds the trading and profit-and-loss account and the balance sheet.
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.
Concepts that generate questions
Accrual basis records income when earned, not when received; going concern assumes continued operation; prudence recognises losses early but not anticipated profits. Depreciation is a charge for use, not a cash fund. Straight-line method: (cost - scrap) / useful life. Written-down-value method: a fixed percentage on the reducing book value. A provision is a charge against profit for a known obligation of uncertain amount; a reserve is an appropriation of profit.
Worked example
Machinery costing ₹2,00,000 is bought on 1 April and depreciated at 10% per annum. Under the straight-line method the annual charge is ₹20,000, so after three years the book value is ₹2,00,000 - ₹60,000 = ₹1,40,000. Under the written-down-value method it would be ₹2,00,000 × 0.9 × 0.9 × 0.9 = ₹1,45,800. The gap arises because WDV applies the rate to the reducing balance every year.
Traps
Applying WDV to original cost, treating machinery purchase or installation wages as revenue expenditure, calling a provision a reserve, and assuming a balanced trial balance proves accuracy - a wholly omitted transaction leaves it balanced.