Accountancy: Numerical Practice and Group C Question Bank

Group C of the Accountancy paper is three questions of eight marks each, and in almost every paper at least one of them is a full numerical — a final-accounts problem, a bank cash book or a statement of expenditure — with a theoretical question offered as its alternative.

Group B, too, regularly carries a bank reconciliation statement or a set of rectifying entries.

This chapter is therefore a drill book: ten numericals of the kinds that actually appear, each worked out step by step with the table the examiner expects, followed by four Group C theoretical questions with answer outlines.

4.1 Bank reconciliation statement from the cash book balance

Problem. The cash book of Sagarmatha Traders showed a bank balance of Rs. 84,000 on 30 Chaitra.

On comparing it with the passbook the following differences were found. i. Cheques of Rs. 22,000 were issued but not presented for payment. ii. Cheques of Rs. 14,000 were deposited but not yet collected by the bank. iii.

Bank charges of Rs. 1,200 had been debited by the bank only. iv.

Interest on investment of Rs. 8,000 had been collected by the bank and appeared only in the passbook. v. A customer had deposited Rs. 12,000 directly into the bank, not recorded in the cash book. vi.

A cheque of Rs. 6,000 deposited earlier had been dishonoured.

Required. Prepare the bank reconciliation statement.

Solution

Step 1 — Start with the cash book balance: Rs. 84,000.

Step 2 — Add the items that make the bank's record higher than the trader's: cheques issued but not presented (Rs. 22,000), interest collected by the bank (Rs. 8,000), direct deposit by a customer (Rs. 12,000).

Step 3 — Less the items that make the bank's record lower: cheques deposited but not collected (Rs. 14,000), bank charges (Rs. 1,200), cheque dishonoured (Rs. 6,000).

Particulars	Rs.	Rs.
Balance as per cash book		84,000
Add: cheques issued but not presented for payment	22,000
Add: interest on investment collected by the bank	8,000
Add: amount deposited directly by a customer	12,000	42,000
		1,26,000
Less: cheques deposited but not yet collected	14,000
Less: bank charges debited by the bank	1,200
Less: cheque deposited but dishonoured	6,000	21,200
Balance as per passbook		1,04,800

Answer. Balance as per passbook Rs. 1,04,800.

4.2 Bank reconciliation with an adjusted cash book

Problem. On 31 Ashad the cash book of Himal Traders showed a bank balance of Rs. 42,000.

On comparison with the passbook the following were found. i. The cash book showed a payment of Rs. 9,000 for insurance, but the bank had paid Rs. 10,000 on a standing instruction. ii.

Bank charges of Rs. 600 and interest on overdraft of Rs. 900 had been debited by the bank only. iii. A customer had deposited Rs. 7,500 directly into the bank. iv.

A cheque of Rs. 4,000 deposited earlier had been dishonoured. v. Cheques of Rs. 18,000 issued had not been presented; cheques of Rs. 9,000 deposited had not been collected.

Required. Prepare the adjusted cash book and the bank reconciliation statement.

Solution

Step 1 — Items appearing only in the passbook adjust the cash book: the extra Rs. 1,000 of insurance paid, the bank charges, the interest on overdraft, the customer's direct deposit and the dishonoured cheque.

Step 2 — Items that are timing differences stay in the reconciliation: cheques issued but not presented and cheques deposited but not collected.

Adjusted cash book (bank column)

Particulars	Rs.	Particulars	Rs.
To Balance b/d	42,000	By Insurance (additional paid by bank)	1,000
To Customer's direct deposit	7,500	By Bank charges	600
		By Interest on overdraft	900
		By Cheque dishonoured	4,000
		By Balance c/d (adjusted)	43,000
Total	49,500	Total	49,500

Step 3 — Adjusted balance = 49{,}500 - 6{,}500 = Rs.\ 43{,}000. Step 4 — Reconcile to the passbook.

Bank reconciliation statement as on 31 Ashad

Particulars	Rs.	Rs.
Balance as per adjusted cash book		43,000
Add: cheques issued but not presented		18,000
		61,000
Less: cheques deposited but not collected		9,000
Balance as per passbook		52,000

Answer. Adjusted cash book Rs. 43,000; balance as per passbook Rs. 52,000.

4.3 Rectification of errors and the suspense account

Problem. The following errors were discovered after the trial balance had been prepared. i. Salary paid Rs. 20,000 was wrongly debited to the house rent account. ii. The sales book was overcast by Rs. 5,000. iii.

A purchase of machinery of Rs. 40,000 was debited to the purchases account. iv.

A sale of Rs. 7,000 to Bina was posted to Bina's account as Rs. 700. v. Wages paid Rs. 3,000 for the erection of a machine were debited to the wages account.

Required. Pass the rectifying entries, state the effect on the trial balance and prepare the suspense account.

Solution

Step 1 — (i) Two expense accounts, both amounts equal: Salary A/c Dr. 20,000; To House Rent A/c 20,000. Two-sided — the trial balance agreed.

Step 2 — (ii) The sales book overcast means the credit side is too high: Sales A/c Dr. 5,000; To Suspense A/c 5,000. One-sided — the suspense account was credited with the difference.

Step 3 — (iii) An error of principle: Machinery A/c Dr. 40,000; To Purchases A/c 40,000. Two-sided — the trial balance agreed, but profit is understated by Rs. 40,000 and machinery is understated.

Step 4 — (iv) Bina's account was debited Rs. 700 instead of Rs. 7,000, short by Rs. 6,300: Bina A/c Dr. 6,300; To Suspense A/c 6,300. One-sided. Step 5 — (v) An error of principle: Machinery A/c Dr. 3,000; To Wages A/c 3,000. Two-sided.

Suspense account

Particulars	Rs.	Particulars	Rs.
To Balance b/d (if any)	—	By Sales A/c (overcast)	5,000
		By Bina A/c (short posting)	6,300
Total	11,300	Total	11,300

Answer. The debit column of the trial balance was short by Rs. 11,300, carried in the credit of the suspense account and now cleared by the two one-sided corrections. The three two-sided errors (i), (iii) and (v) did not affect the trial balance at all.

4.4 Full final accounts with adjustments

Problem. The following is the trial balance of Sagarmatha Traders as on 31 Ashad 2082.

Particulars	Debit (Rs.)	Credit (Rs.)
Opening stock	60,000
Purchases	2,40,000
Carriage inward	12,000
Wages	36,000
Salaries	30,000
Rent	20,000
Furniture	80,000
Debtors	55,000
Bank	42,000
Cash	5,000
Capital		1,50,000
Sales		3,50,000
Creditors		50,000
Commission received		30,000
Total	5,80,000	5,80,000

Additional information: (i) closing stock Rs. 70,000; (ii) outstanding salary Rs. 4,000; (iii) prepaid rent Rs. 2,000; (iv) depreciation on furniture at 10 per cent.

Required. Prepare the trading account, the profit and loss account and the balance sheet.

Solution

Step 1 — Cost of goods sold = 60{,}000 + 2{,}40{,}000 + 12{,}000 + 36{,}000 - 70{,}000 = Rs.\ 2{,}78{,}000; gross profit = 3{,}50{,}000 - 2{,}78{,}000 = Rs.\ 72{,}000.

Trading account for the year ended 31 Ashad 2082

Particulars	Rs.	Particulars	Rs.
To Opening stock	60,000	By Sales	3,50,000
To Purchases	2,40,000	By Closing stock	70,000
To Carriage inward	12,000
To Wages	36,000
To Gross profit c/d	72,000
Total	4,20,000	Total	4,20,000

Step 2 — Salary becomes 30{,}000 + 4{,}000 = Rs.\ 34{,}000; rent becomes 20{,}000 - 2{,}000 = Rs.\ 18{,}000; depreciation = 10\% \times 80{,}000 = Rs.\ 8{,}000.

Profit and loss account for the year ended 31 Ashad 2082

Particulars	Rs.	Particulars	Rs.
To Salaries	30,000	By Gross profit b/d	72,000
Add: outstanding salary	4,000	By Commission received	30,000
	34,000
To Rent	20,000
Less: prepaid rent	2,000
	18,000
To Depreciation on furniture	8,000
To Net profit (transferred to capital)	42,000
Total	1,02,000	Total	1,02,000

Step 3 — Capital = 1{,}50{,}000 + 42{,}000 = Rs.\ 1{,}92{,}000; furniture = 80{,}000 - 8{,}000 = Rs.\ 72{,}000.

Balance sheet as on 31 Ashad 2082

Liabilities	Rs.	Assets	Rs.
Capital	1,50,000	Furniture	80,000
Add: Net profit	42,000	Less: Depreciation	8,000
	1,92,000		72,000
Creditors	50,000	Closing stock	70,000
Outstanding salary	4,000	Debtors	55,000
		Bank	42,000
		Cash	5,000
		Prepaid rent	2,000
Total	2,46,000	Total	2,46,000

Answer. Gross profit Rs. 72,000; net profit Rs. 42,000; balance sheet total Rs. 2,46,000.

4.5 Final accounts with bad debts and a provision

Problem. The trial balance of Himal Traders as on 31 Chaitra 2082 is given below.

Particulars	Debit (Rs.)	Credit (Rs.)
Opening stock	40,000
Purchases	1,60,000
Wages	20,000
Salaries	24,000
Rent	12,000
Debtors	50,000
Machinery	60,000
Bank	30,000
Cash	4,000
Capital		1,20,000
Sales		2,30,000
Creditors		30,000
Discount received		20,000
Total	4,00,000	4,00,000

Additional information: (i) closing stock Rs. 50,000; (ii) write off bad debts Rs. 2,000; (iii) create a provision for doubtful debts at 5 per cent on the remaining debtors; (iv) depreciate machinery at 10 per cent.

Solution

Step 1 — Cost of goods sold = 40{,}000 + 1{,}60{,}000 + 20{,}000 - 50{,}000 = Rs.\ 1{,}70{,}000; gross profit = 2{,}30{,}000 - 1{,}70{,}000 = Rs.\ 60{,}000.

Step 2 — Debtors after bad debts = 50{,}000 - 2{,}000 = Rs.\ 48{,}000; provision = 5\% \times 48{,}000 = Rs.\ 2{,}400; depreciation = 10\% \times 60{,}000 = Rs.\ 6{,}000.

Trading account for the year ended 31 Chaitra 2082

Particulars	Rs.	Particulars	Rs.
To Opening stock	40,000	By Sales	2,30,000
To Purchases	1,60,000	By Closing stock	50,000
To Wages	20,000
To Gross profit c/d	60,000
Total	2,80,000	Total	2,80,000

Profit and loss account for the year ended 31 Chaitra 2082

Particulars	Rs.	Particulars	Rs.
To Salaries	24,000	By Gross profit b/d	60,000
To Rent	12,000	By Discount received	20,000
To Bad debts	2,000
To Provision for doubtful debts	2,400
To Depreciation on machinery	6,000
To Net profit	33,600
Total	80,000	Total	80,000

Balance sheet as on 31 Chaitra 2082

Liabilities	Rs.	Assets	Rs.
Capital	1,20,000	Machinery	60,000
Add: Net profit	33,600	Less: Depreciation	6,000
	1,53,600		54,000
Creditors	30,000	Closing stock	50,000
		Debtors	50,000
		Less: Bad debts	2,000
			48,000
		Less: Provision 5 %	2,400
			45,600
		Bank	30,000
		Cash	4,000
Total	1,83,600	Total	1,83,600

Answer. Gross profit Rs. 60,000; net profit Rs. 33,600; balance sheet total Rs. 1,83,600.

4.6 Bank cash book (A.G.F. No. 209)

Problem. The following transactions took place in the bank account of a District Coordination Unit during the month of Shrawan 2082.

There was no opening balance. i. 04/02 — budget release received from the Treasury and Comptroller Office, Rs. 6,00,000. ii. 04/08 — payment order issued against 22311 office materials, Rs. 45,000. iii. 04/12 — advance of Rs. 70,000 given to a section officer against 31111 for the purchase of a computer. iv. 04/20 — the advance was cleared on a bill of Rs. 82,000, the excess being paid by payment order. v. 04/25 — salary payment order for the month, total salary Rs. 2,40,000, after deducting provident fund Rs. 30,000 and income tax Rs. 5,000. vi. 04/28 — the provident fund and income tax deducted were deposited.

Required. Prepare the bank cash book and state the closing balance.

Solution

Step 1 — The release is money received: debit Rs. 6,00,000. Step 2 — Office materials Rs. 45,000 and the advance Rs. 70,000 are payments: credits.

Step 3 — On clearance, only the excess of Rs. 82,000 − Rs. 70,000 = Rs. 12,000 is a fresh payment; the rest clears the advance. Step 4 — Salary: only the net Rs. 2,40,000 − 30,000 − 5,000 = Rs. 2,05,000 leaves the bank.

Step 5 — The deductions deposited, Rs. 35,000, also leave the bank.

Date	Voucher no.	Particulars	Debit (Rs.)	Credit (Rs.)	Balance (Rs.)
04/02	1	Budget release received from the DTCO	6,00,000		6,00,000
04/08	2	Payment order — 22311 office materials		45,000	5,55,000
04/12	3	Advance to section officer — 31111 computer		70,000	4,85,000
04/20	4	Excess of the computer bill over the advance (82,000 − 70,000)		12,000	4,73,000
04/25	5	Salary of Shrawan, net of provident fund Rs. 30,000 and income tax Rs. 5,000		2,05,000	2,68,000
04/28	6	Provident fund and income tax deposited		35,000	2,33,000
04/30		Balance c/d		2,33,000	—
		Total	6,00,000	6,00,000

Answer. Total receipts Rs. 6,00,000; total payments Rs. 3,67,000; closing balance Rs. 2,33,000 (debit), subject to reconciliation with the passbook.

Note that the computer head 31111 finally carries Rs. 82,000 of expenditure, while only Rs. 12,000 of it was paid after the advance.

4.7 Statement of expenditure

Problem. The following particulars relate to a District Office for the month of Poush 2082.

Head no.	Head	Annual appropriation (Rs.)	Expenditure up to Poush (Rs.)	Expenditure of Poush (Rs.)
21111	Remuneration	5,00,000	2,10,000	35,000
22111	Uniform	60,000	9,000	1,500
22311	Office materials	25,000	12,000	2,000
22612	Travelling expenses	90,000	34,000	8,000
22711	Miscellaneous expenses	45,000	13,000	2,500

An uncleared advance of Rs. 6,000 for fuel is outstanding.

Required. Prepare the statement of expenditure showing the available balance.

Solution

Step 1 — Total appropriation = 5{,}00{,}000 + 60{,}000 + 25{,}000 + 90{,}000 + 45{,}000 = Rs.\ 7{,}20{,}000. Step 2 — Total expenditure up to Poush = 2{,}10{,}000 + 9{,}000 + 12{,}000 + 34{,}000 + 13{,}000 = Rs.\ 2{,}78{,}000.

Step 3 — Total expenditure of Poush = 35{,}000 + 1{,}500 + 2{,}000 + 8{,}000 + 2{,}500 = Rs.\ 49{,}000. Step 4 — Available balance = 7{,}20{,}000 - 2{,}78{,}000 - 6{,}000 = Rs.\ 4{,}36{,}000.

Head no.	Head	Appropriation (Rs.)	Expenditure to date (Rs.)	Of Poush (Rs.)	Uncleared advance (Rs.)	Available (Rs.)
21111	Remuneration	5,00,000	2,10,000	35,000	—	2,90,000
22111	Uniform	60,000	9,000	1,500	—	51,000
22311	Office materials	25,000	12,000	2,000	—	13,000
22612	Travelling expenses	90,000	34,000	8,000	6,000	50,000
22711	Miscellaneous	45,000	13,000	2,500	—	32,000
	Total	7,20,000	2,78,000	49,000	6,000	4,36,000

Answer. Appropriation Rs. 7,20,000; expenditure to date Rs. 2,78,000; Poush expenditure Rs. 49,000; uncleared advance Rs. 6,000; available balance Rs. 4,36,000.

4.8 Government journal vouchers

Problem. Pass the journal vouchers for the following transactions of a District Administration Office. i. A payment order of Rs. 70,000 was issued against budget head 31111 for the purchase of a computer. ii.

An advance of Rs. 90,000 was given to a section officer against 31121 for the purchase of furniture. iii. The advance was cleared on a furniture bill of Rs. 1,05,000, the excess being paid by a further payment order. iv.

Provident fund of Rs. 25,000 and income tax of Rs. 3,000 deducted from the salary of the month were deposited into the concerned office.

Solution

Step 1 — (i) 31111 Machinery and equipment (computer) A/c Dr. 70,000; To DTCO A/c 70,000. (Being a payment order issued for the purchase of a computer.) Step 2 — (ii) Furniture advance A/c Dr. 90,000; To DTCO A/c 90,000. (Being an advance issued for the purchase of furniture.) Step 3 — (iii) 31121 Furniture and fixtures A/c Dr. 1,05,000; To Furniture advance A/c 90,000; To DTCO A/c 15,000. (Being the furniture advance cleared on a bill of Rs. 1,05,000, the excess of Rs. 15,000 being payable.) Step 4 — (iv) Provident fund payable A/c Dr. 25,000; Income tax payable A/c Dr. 3,000; To Bank A/c 28,000. (Being the amount deducted from salary deposited into the concerned office.) Answer. The four vouchers above.

Note that (ii) is not an expenditure but a recoverable advance, and that the furniture head finally carries Rs. 1,05,000.

4.9 Retention accounting

Problem. A contractor's running bill for a road contract is Rs. 6,00,000. A retention of 5 per cent is withheld. Later, a defect costing Rs. 18,000 is not remedied by the contractor.

Show the journal vouchers (a) when the bill is passed, (b) when the retention is released in full if no defect appears, and (c) when the retention is adjusted and the balance forfeited.

Solution

Step 1 — Retention = 5\% \times 6{,}00{,}000 = Rs.\ 30{,}000; net paid = Rs.\ 5{,}70{,}000.

Step 2 — (a) Road construction expenditure A/c Dr. 6,00,000; To Contractors' retention A/c 30,000; To Bank / DTCO A/c 5,70,000. (Being the running bill passed and retention of 5 per cent withheld.) Step 3 — (b) Contractors' retention A/c Dr. 30,000; To Bank A/c 30,000. (Being the retention released on the expiry of the defect liability period.) Step 4 — (c) Contractors' retention A/c Dr. 30,000; To Repair and maintenance expenditure A/c 18,000; To Miscellaneous revenue A/c 12,000. (Being the retention adjusted against the cost of remedying the defect and the balance forfeited to government revenue.) Answer. Retention Rs. 30,000 in each case; on forfeiture Rs. 18,000 is set against the repair expenditure and Rs. 12,000 becomes revenue.

Until it is released or forfeited, the retention is a liability, not revenue.

4.10 Revenue statement

Problem. A District Education Office collected the following revenue up to the month of Poush. Prepare the revenue statement and state the amount to be deposited.

Head	Description	Collected (Rs.)	Undeposited (Rs.)
14223	Income from the education sector	3,60,000	—
14224	Examination fee	2,40,000	40,000
14227	Passport fee	1,20,000	20,000
14151	Rent of government property	1,80,000	—

Solution

Step 1 — Total collected = 3{,}60{,}000 + 2{,}40{,}000 + 1{,}20{,}000 + 1{,}80{,}000 = Rs.\ 9{,}00{,}000. Step 2 — Total undeposited = 40{,}000 + 20{,}000 = Rs.\ 60{,}000. Step 3 — Deposited in the period = 9{,}00{,}000 - 60{,}000 = Rs.\ 8{,}40{,}000.

Head code	Description	Collected (Rs.)	Deposited (Rs.)	Cash in hand (Rs.)
14151	Rent of government property	1,80,000	1,80,000	—
14223	Income from the education sector	3,60,000	3,60,000	—
14224	Examination fee	2,40,000	2,00,000	40,000
14227	Passport fee	1,20,000	1,00,000	20,000
	Total	9,00,000	8,40,000	60,000

Check: 9{,}00{,}000 = 8{,}40{,}000 + 60{,}000. ✔ Answer. Collected Rs. 9,00,000; deposited Rs. 8,40,000; Rs. 60,000 to be deposited on the first working day of the next month.

4.11 VAT chain

Problem. A producer sells goods to a wholesaler for Rs. 3,00,000, the wholesaler sells them to a retailer for Rs. 3,60,000 and the retailer sells them to the consumer for Rs. 4,00,000, all prices being exclusive of VAT.

The VAT rate is 13 per cent. Compute the VAT deposited by each dealer and the total received by the government, and verify the total.

Solution

Stage	Sale price (Rs.)	Value added (Rs.)	Output tax (Rs.)	Input tax (Rs.)	Deposited (Rs.)
Producer	3,00,000	3,00,000	39,000	—	39,000
Wholesaler	3,60,000	60,000	46,800	39,000	7,800
Retailer	4,00,000	40,000	52,000	46,800	5,200
Total		4,00,000			52,000

Step 1 — Producer: 13\% \times 3{,}00{,}000 = 39{,}000. Step 2 — Wholesaler: output 13\% \times 3{,}60{,}000 = 46{,}800; less input 39,000 → 7,800.

Step 3 — Retailer: output 13\% \times 4{,}00{,}000 = 52{,}000; less input 46,800 → 5,200.

Step 4 — Verification: 39{,}000 + 7{,}800 + 5{,}200 = 52{,}000 = 13\% \times 4{,}00{,}000. ✔ Answer. Producer Rs. 39,000; wholesaler Rs. 7,800; retailer Rs. 5,200; total Rs. 52,000, borne entirely by the final consumer.

4.12 Store ledger

Problem. The store of a government office holds steel chairs under head 31121. On Baisakh 1, 60 chairs were received at Rs. 2,800 each.

On Baisakh 6, 15 chairs were issued to the administration section; on Baisakh 15, 30 more were received; on Baisakh 24, 20 were issued to the examination section. Complete the store ledger and find the value of the closing stock.

Solution

Date	Particulars	Receipt (no.)	Issue (no.)	Balance (no.)
Baisakh 1	Received from the supplier	60		60
Baisakh 6	Issued to the administration section		15	45
Baisakh 15	Received from the supplier	30		75
Baisakh 24	Issued to the examination section		20	55

Step 1 — Total received = 60 + 30 = 90; total issued = 15 + 20 = 35; balance = 55. Step 2 — Closing stock = 55 \times 2{,}800 = Rs.\ 1{,}54{,}000. Answer. Closing balance 55 chairs, valued at Rs. 1,54,000.

The bin card on the shelf must show exactly the same three numbers.

4.13 Group C theoretical questions

1. What is a bank reconciliation statement? Explain its need and the causes that make the cash book and the passbook differ, and show the usual format starting from the cash book balance. [8]
2. What is an accounting error? Explain the types of errors and state which of them are detected by the trial balance and which are not. [8]
3. What are final accounts? Explain the steps in their preparation and the treatment of any five adjustments, stating in each case the two effects. [8]
4. What is a bank cash book? Explain its columns and the rules for its preparation, and state which items are entered on the debit side and which on the credit side. [8]

Answer outlines

1. Definition (1). A statement prepared on a date to explain and reconcile the difference between the bank column of the cash book and the passbook. Need (3). To check the accuracy of both records and trace errors; to find the true bank balance; to detect dishonoured cheques, unrecorded charges and direct deposits; to prepare the balance sheet; to prevent fraud; to satisfy the auditor and the bank. Causes (2). Timing — cheques issued but not presented, cheques deposited but not collected. Bank-only entries — bank charges, interest, dividend collected, direct deposits, standing instructions, dishonoured cheques. Errors in either book. Format (2). Start with the cash book balance; add cheques issued but not presented, interest and dividends collected, direct deposits and wrong credits by the bank; less cheques deposited but not collected, bank charges and interest on overdraft, dishonoured cheques, standing instructions and wrong debits; arrive at the passbook balance. Show the table.

2. Definition (1). A mistake in recording, posting, casting, carrying forward or summarising a transaction, or in applying an accounting principle. Types (4). Errors of principle (capital expenditure treated as revenue and the reverse); errors of omission (complete and partial); errors of commission (wrong amount, wrong account, wrong side, wrong casting, wrong balance carried forward); compensating errors. Explain each with an example. Detection (3). The trial balance detects only one-sided errors — casting and balancing errors, posting to the wrong side, a wrong amount posted in one account, partial omission. It cannot detect two-sided errors — errors of principle, complete omission, compensating errors, the wrong account of the same class and a transaction entered twice in both accounts. Conclude that the trial balance proves arithmetical accuracy only.

3. Definition (1). The statements prepared at the end of the period from the trial balance after adjustments, to show the profit or loss and the financial position. Steps (3). Complete and agree the trial balance; bring in the closing entries; prepare the trading account and find the gross profit; prepare the profit and loss account and find the net profit; add the net profit to capital and deduct drawings; prepare the balance sheet; check that the two sides agree. Adjustments (4). Explain any five out of: closing stock, outstanding expense, prepaid expense, accrued income, income received in advance, depreciation, interest on capital, interest on drawings, goods taken by the proprietor, provision for doubtful debts, manager's commission — stating in each case the effect in the trading or profit and loss account and the effect in the balance sheet. Emphasise that every adjustment has two effects, and that a missing second effect is the commonest reason for a balance sheet not tallying.

4. Meaning (2). The bank cash book, म.ले.प.फा.नं. २०९, is the operating level office's combined record of its bank account, showing all money received and paid with a running balance. Columns (2). Date; voucher number; particulars; debit (money received); credit (money paid); balance. Debit side (2). Budget release received, revenue deposited, retention and deductions received, refund of an unspent advance, amount transferred in. Credit side (2). Expenditure paid, advances paid, retention and deductions paid over or refunded, amounts transferred out, and the closing balance carried down. Add the rules: enter in date order with the voucher number; carry a running balance; total both sides; reconcile with the passbook every month and send a copy with the statement of expenditure.

4.14 Extended model answers (10 marks)

The Accountancy theory paper often asks for a full 10-mark answer on a statement or an account. These two models show the length and layout expected: introduction, format or table, explained points with a figure, and conclusion.

Extended questions

1. What is a bank reconciliation statement? Explain the eight reasons for the difference between the cash book and the passbook, and prepare a statement from the figures given in the answer. [10]
2. What are final accounts? Explain the trading account, the profit and loss account and the balance sheet, with the adjustments needed at the end of the year. [10]

(a) Cash book

(b) Ledger

(c) Cheque

(d) Bank passbook

Model answer D1: bank reconciliation statement (10 marks)

Introduction. A bank reconciliation statement (BRS) is a statement prepared on a given date to explain the difference between the bank balance shown in the firm's cash book and the balance shown in the bank's passbook (bank statement).

The firm and the bank record the same transactions, but not always on the same date, so the two balances often differ. The statement finds the cause of every difference and proves that both records are correct.

Objectives. It detects errors, prevents fraud, shows the cheques still to be cleared, and tells the true bank balance available to the firm.

Reasons for the difference.

1. Cheques issued but not yet presented. The firm has already credited its bank column, but the bank pays only when the payee presents the cheque.
2. Cheques deposited but not yet collected. The firm has debited its bank column, but the bank credits the amount only after the cheque is cleared.
3. Bank charges. The bank deducts service charges and fees at once, and the firm learns of them from the passbook.
4. Interest credited by the bank. The bank adds interest on the deposit, which is not yet in the cash book.
5. Direct deposits by customers. A customer pays directly into the firm's account through a transfer, for example by mobile banking.
6. Direct payments by the bank. Insurance premium, loan instalment or electricity bill paid on the firm's standing instruction.
7. Dishonoured cheques. A customer's cheque is returned unpaid, and the bank debits the account.
8. Errors. A wrong amount, a wrong side or an omitted entry in either book.

Effect of each item

Item	Effect on the cash book	Effect on the passbook
Cheque issued, not presented	Already recorded	Not yet recorded
Cheque deposited, not collected	Already recorded	Not yet recorded
Bank charges	Not recorded	Already deducted
Interest credited	Not recorded	Already added
Direct deposit	Not recorded	Already added

Illustration. The balance as per the cash book on 30 Ashadh is Rs 50,000. Cheques issued but not presented are Rs 6,000, cheques deposited but not yet collected are Rs 4,000, bank charges of Rs 500 and interest of Rs 1,500 are not yet in the cash book.

Step 1: adjusted cash book balance = 50{,}000 - 500 + 1{,}500 = Rs 51,000.

Bank reconciliation statement as on 30 Ashadh	Rs
Balance as per adjusted cash book	51,000
Add: cheques issued but not yet presented	6,000
Less: cheques deposited but not yet collected	(4,000)
Balance as per passbook	53,000

Conclusion. After the statement is prepared, the two balances are explained item by item. A firm should prepare it at least once a month, because a difference that is not explained may hide an error or a fraud.

Model answer D2: final accounts and year-end adjustments (10 marks)

Introduction. Final accounts are the statements prepared at the end of the accounting year to find the profit or loss for the year and to show the financial position on the last day.

They consist of the trading account, the profit and loss account and the balance sheet. They are prepared from the trial balance after the adjustments.

1. Trading account. It shows the gross profit or gross loss from buying and selling goods.

Cost of goods sold = opening stock + purchases + direct expenses - closing stock, and gross profit = sales - cost of goods sold.

2. Profit and loss account. It starts with the gross profit, adds other incomes such as commission or interest received, and deducts indirect expenses such as salary, rent, advertisement and depreciation.

The result is the net profit or net loss, which is added to the capital.

3. Balance sheet. It lists the assets (what the firm owns: cash, bank, debtors, stock, furniture, building) and the liabilities and capital (what it owes: creditors, loans, owner's capital) on one date. Total assets always equal total liabilities and capital.

Adjustments at the year end.

Adjustment	Treatment in the final accounts
Closing stock	Credit side of the trading account; asset in the balance sheet
Outstanding expense	Added to the expense; shown as a liability
Prepaid expense	Deducted from the expense; shown as an asset
Income received in advance	Deducted from the income; shown as a liability
Accrued income	Added to the income; shown as an asset
Depreciation	Charged to the profit and loss account; deducted from the asset
Bad debts	Charged to the profit and loss account; deducted from debtors

Illustration. Sales Rs 5,00,000, opening stock Rs 60,000, purchases Rs 3,00,000, carriage inwards Rs 20,000, closing stock Rs 80,000, salary Rs 60,000, rent Rs 24,000, depreciation Rs 10,000.

Item	Working	Rs
Cost of goods sold	60,000 + 3,00,000 + 20,000 − 80,000	3,00,000
Gross profit	5,00,000 − 3,00,000	2,00,000
Indirect expenses	60,000 + 24,000 + 10,000	94,000
Net profit	2,00,000 − 94,000	1,06,000

Conclusion. The final accounts tell the owner whether the business earned a profit, and tell the bank, the Inland Revenue Department and investors how strong the business is.

Adjustments are essential because they bring the accounts in line with the accrual principle, in which expenses and incomes belong to the year in which they occur and not the year in which cash moves.