Accounting
Domain scope
This section tests double-entry bookkeeping, financial statements and basic bank accounting. Questions often ask for the correct journal entry, the effect of a transaction on the accounting equation, or the carrying amount of an asset.
Core rules
- Accounting equation: Assets = Liabilities + Equity. Every transaction keeps it balanced.
- Debit and credit: assets and expenses increase with a debit; liabilities, equity and income increase with a credit.
- Accrual accounting records revenue when earned and expenses when incurred; cash accounting records them when cash moves.
- The trial balance checks that total debits equal total credits. Financial statements include the income statement, balance sheet and cash flow statement.
- In a bank, customer deposits are liabilities; loans and advances are assets; guarantees are typically off-balance-sheet commitments.
Worked example
Equipment costs Rs 100,000, has residual value Rs 10,000 and a useful life of 5 years. Straight-line depreciation = (100,000 - 10,000) / 5 = Rs 18,000 per year. Journal: debit depreciation expense Rs 18,000; credit accumulated depreciation Rs 18,000. After two years, carrying amount = 100,000 - 36,000 = Rs 64,000. The expense reduces profit; accumulated depreciation reduces the asset's book value.
Traps
Do not debit an asset to record a decrease. Do not confuse depreciation expense with accumulated depreciation. Do not record a loan disbursement as income. Do not ignore accruals or the residual value in depreciation.