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GNDU Question Paper-2022
Bachelor of Business Administration
B.B.A 1
st
Semester
Basic Accounting
Time Allowed: Three Hours Maximum Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Following was the position of Harish & Co. as on 1st April, 2021 :
Cash in Hand Rs. 10,000; Cash at Bank Rs. 16,800; Furniture Rs. 8,000; Stock Rs. 50,000;
Debtors- Ram Rs. 8,000; Shyam Rs. 12,000; Creditors-Anil Rs. 4,000; Sunil Rs. 5,000.
Following transactions took place during April, 2021:
April
2021
PARTICULARS
2
Received a cheque from Ram in full settlement of his account after deducting 5% cash
discount.
4
Deposited the above cheque into Bank.
5
Goods purchased for Rs. 20,000 at 10% trade discount and 5% cash discount. Payment
made by cheque.
6
Received a cheque from Shyam for Rs. 3,860 and discount allowed to him Rs. 140.
Cheque deposited into the bank on the same day.
10
Cash paid to Anil after deducting 2% cash discount.
15
Old furniture sold for Rs. 800.
16
Sold goods to Shiv Prashad of the list price of Rs. 10,000 at a trade discount of 15%.
18
Shiv Prashad returned goods of the list price of Rs. 1,000.
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20
Paid the furniture repair to Bahadur Singh Rs. 100.
25
Received a cheque from Shiv Prashad after deducting 4% cash discount. Cheque was
deposited into bank.
28
Bank charged Rs. 50 for 'Bank Charges.'
30
Received Commission Rs. 200.
2. Define financial accounting. Explain the objectives and limitations of
financial accounting.
SECTION-B
3. On 31st January, 2021 the Pass Book of Shri M.L. Gupta shows a debit balance of Rs.
41,000. Prepare a bank reconciliation statement from the following particulars:
(1) Cheques amounting to Rs. 15,600 were drawn on 27th January, 2021. Out of which
cheques for Rs. 11,000 were encashed up to 31-1-2021.
(2) A wrong debit of Rs. 800 has been given by the bank, in the Pass Book.
(3) A cheque for Rs. 200 was credited in the Pass Book but was not recorded in the Cash
Book.
(4) Cheques amounting to Rs. 21,000 were deposited for collection. But out of these,
cheques for Rs. 7,400 have been credited in the Pass Book on 5th February, 2021.
(5) A cheque for Rs. 1,000 was returned dishonoured by the bank and was debited in the
Pass Book only.
(6) Interest on overdraft and bank charges amounting to Rs. 100 were not entered in the
Cash Book.
(7) A cheque of Rs. 500 debited in the Cash Book omitted to be banked.
4. What do you mean by subsidiary books? Explain different types of subsidiary books.
What are the advantages of having subsidiary books?
SECTION-C
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5. From the following trial balance prepare the trading and profit and loss account for year
ending on 31st March, 2021 and balance sheet as at that date:
Particulars
Dr.(Rs.)
Cr.(Rs.)
Stock on 1
st
April 2020
22,300
-
Purchase and purchase return
2,30,000
5,200
Freehold premises
1,00,000
-
Incidental trade expenses
111,200
Insurance
1,850
Audit Free
800
Commission required
-
2 ,700
Interest
1400
Debtors and Creditors
32,400
24,830
Wages
30,200
-
Salaries
15,200
-
Capital
-
1,50,000
Drawings
12,000
-
Income Tax
3,600
-
Investments
8,000
-
Discount received and allowed
7,500
4,200
Sales return and allowed
6,400
3,17,400
B/R
5,200
-
Furniture
9,000
-
Rent
-
2,600
Cash in hand
5,080
-
Bank Balance
7,600
-
Total
5,08,330
5,08,330
Adjustments:
1. Stock on 31st March, 2021 is Rs. 70,000.
2. Write off 5% depreciation on freehold premises and 20% on office furniture.
3. Commission earned but not received Rs. 500.
4. Interest earned but not received Rs. 600.
5. Rs. 200 for rent have been received in advance.
6. Charge interest on capital @ 6% and Rs. 500 on drawings.
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6. What do you mean by financial statements ? Explain the various elements of financial
statements. What is the usefulness of financial statements ?
SECTION-D
7. "Computerized Accounting Systems are best form of accounting system". Do you agree?
Comment.
8. Prepare the format of balance sheet with imaginary figures as per Companies Act, 2013.
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GNDU Answer Paper-2022
Bachelor of Business Administration
B.B.A 1
st
Semester
Basic Accounting
Time Allowed: Three Hours Maximum Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Following was the position of Harish & Co. as on 1st April, 2021 :
Cash in Hand Rs. 10,000; Cash at Bank Rs. 16,800; Furniture Rs. 8,000; Stock Rs. 50,000;
Debtors- Ram Rs. 8,000; Shyam Rs. 12,000; Creditors-Anil Rs. 4,000; Sunil Rs. 5,000.
Following transactions took place during April, 2021:
April
2021
PARTICULARS
2
Received a cheque from Ram in full settlement of his account after deducting 5% cash
discount.
4
Deposited the above cheque into Bank.
5
Goods purchased for Rs. 20,000 at 10% trade discount and 5% cash discount. Payment
made by cheque.
6
Received a cheque from Shyam for Rs. 3,860 and discount allowed to him Rs. 140.
Cheque deposited into the bank on the same day.
10
Cash paid to Anil after deducting 2% cash discount.
15
Old furniture sold for Rs. 800.
16
Sold goods to Shiv Prashad of the list price of Rs. 10,000 at a trade discount of 15%.
18
Shiv Prashad returned goods of the list price of Rs. 1,000.
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20
Paid the furniture repair to Bahadur Singh Rs. 100.
25
Received a cheque from Shiv Prashad after deducting 4% cash discount. Cheque was
deposited into bank.
28
Bank charged Rs. 50 for 'Bank Charges.'
30
Received Commission Rs. 200.
Ans: Starting Point: Harish & Co.’s Financial Position on April 1, 2021
Think of this as Harish’s business balance sheet at the beginning of the month. Here's what
he owns and owes:
Assets (Things Harish owns):
• Cash in Hand: ₹10,000
• Cash at Bank: ₹16,800
• Furniture: ₹8,000
• Stock (Goods to sell): ₹50,000
• Debtors (People who owe Harish money):
o Ram: ₹8,000
o Shyam: ₹12,000
Liabilities (What Harish owes others):
• Creditors (People Harish owes money to):
o Anil: ₹4,000
o Sunil: ₹5,000
So Harish starts the month with a healthy business setup.
Transactions During April 2021 (Explained Simply)
Let’s go day by day and explain what each transaction means.
April 2
Received a cheque from Ram in full settlement after 5% cash discount.
• Ram owed ₹8,000.
• Harish gave him a 5% discount = ₹400.
• Ram paid ₹7,600 by cheque.
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• Harish’s debtor Ram is now cleared.
• Harish will record ₹7,600 as bank receipt and ₹400 as discount allowed.
April 4
Deposited Ram’s cheque into the bank.
• The ₹7,600 cheque received from Ram is now added to Harish’s bank account.
April 5
Purchased goods worth ₹20,000 with 10% trade discount and 5% cash discount. Paid by
cheque.
• Trade discount = ₹2,000 → Net price = ₹18,000
• Cash discount = 5% of ₹18,000 = ₹900
• Harish paid ₹17,100 by cheque.
• Harish’s stock increases by ₹18,000, and bank decreases by ₹17,100.
• ₹900 is recorded as discount received.
April 6
Received cheque from Shyam ₹3,860 and allowed ₹140 discount. Deposited same day.
• Shyam owed ₹12,000.
• He paid ₹3,860 and got ₹140 discount.
• That clears ₹4,000 of his debt.
• Harish still has ₹8,000 pending from Shyam.
• ₹3,860 goes to bank, ₹140 is discount allowed.
April 10
Paid Anil in cash after 2% cash discount.
• Anil was owed ₹4,000.
• 2% discount = ₹80
• Harish paid ₹3,920 in cash.
• Anil’s account is settled.
• ₹80 is recorded as discount received.
April 15
Sold old furniture for ₹800.
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• Harish receives ₹800 (cash or bank).
• Furniture value decreases.
• This is treated as income from sale of asset.
April 16
Sold goods to Shiv Prashad at list price ₹10,000 with 15% trade discount.
• Trade discount = ₹1,500
• Net sale = ₹8,500
• Shiv Prashad becomes a debtor for ₹8,500.
• Stock decreases, and sales are recorded.
April 18
Shiv Prashad returned goods of list price ₹1,000.
• Trade discount on return = ₹150
• Net return = ₹850
• Reduce Shiv’s debt by ₹850
• Add ₹850 back to stock.
April 20
Paid ₹100 to Bahadur Singh for furniture repair.
• This is an expense.
• Cash or bank reduces by ₹100.
• Recorded as repair expense.
April 25
Received cheque from Shiv Prashad after 4% cash discount. Deposited into bank.
• Shiv owed ₹8,500 – ₹850 (return) = ₹7,650
• 4% discount = ₹306
• Received ₹7,344 by cheque
• ₹306 is discount allowed
• Shiv’s account is cleared
• ₹7,344 added to bank.
April 28
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Bank charged ₹50 for bank charges.
• Bank balance reduces by ₹50
• Recorded as bank charges expense.
April 30
Received commission ₹200.
• Harish earns ₹200
• Cash or bank increases
• Recorded as commission income.
Summary
Each transaction affects Harish’s accounts in different ways:
• Debtors decrease when payments are received.
• Creditors decrease when payments are made.
• Bank and cash balances change based on receipts and payments.
• Discounts allowed are expenses; discounts received are incomes.
• Sales and purchases affect stock and revenue.
• Other incomes and expenses like commission or repair are recorded separately.
Why This Matters
Understanding these transactions helps Harish:
• Track who owes him money and who he owes.
• Know how much cash and bank balance he has.
• Record profits, expenses, and discounts properly.
• Prepare accurate financial statements at month-end.
2. Define financial accounting. Explain the objectives and limitations of
financial accounting.
Ans: Financial Accounting: Definition, Objectives, and Limitations
A Fresh Start — The Little Shop That Grew Too Big
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Imagine a small sweet shop in your town. At first, it’s run by one person — let’s call him
Ramesh Uncle. He remembers everything in his head: how much sugar he bought, how
many laddoos he sold, and how much money he earned in a day.
But over time, his shop becomes famous. People from nearby villages start coming. The
income grows, the expenses grow, and suppliers start sending bills on credit. Suddenly,
Ramesh Uncle realizes that he can’t keep all these details in his head anymore.
He needs a proper system — something that will record every rupee that comes in and goes
out, show him if he’s making a profit, and keep proof for others like investors, banks, or
even the tax department.
This is where Financial Accounting comes in.
1. Meaning of Financial Accounting
Financial accounting is a systematic process of recording, summarizing, and reporting the
financial transactions of a business.
It focuses mainly on:
• Past transactions (what has already happened),
• Recording them in books in a systematic way,
• Preparing final accounts (like Profit & Loss Statement and Balance Sheet).
In simple words, it is like keeping a diary of money — except this diary follows strict rules
(called accounting principles) so that anyone who reads it can understand the business’s
financial health.
2. Objectives of Financial Accounting
Just recording numbers isn’t the goal — financial accounting has several clear purposes.
Let’s break them down.
i) Keeping a Systematic Record
The first job is to record every transaction in an orderly manner. Without proper records,
confusion is inevitable.
Example: If Ramesh Uncle buys sugar for ₹2,000 and sells sweets for ₹5,000, he must have
written proof. Otherwise, months later, he may forget the exact amounts.
ii) Determining Profit or Loss
At the end of a period (say, one year), the business needs to know:
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• Did we make a profit?
• Or did we suffer a loss?
Financial accounting helps prepare the Trading Account and Profit & Loss Account, which
give the exact answer.
For example, Ramesh Uncle might think he’s earning well because the shop is always busy
— but after preparing accounts, he might see that high rent and electricity bills are eating
away his earnings.
iii) Showing the Financial Position
It’s not just about profit — the business also needs to know its worth at a particular date.
The Balance Sheet shows:
• Assets (what the business owns),
• Liabilities (what the business owes),
• Capital (owner’s stake in the business).
It’s like a snapshot of the business’s health.
iv) Providing Information to Stakeholders
Different people need financial information for different reasons:
• Owners want to know profit/loss.
• Investors want to know if it’s worth investing.
• Banks want to see if the business can repay loans.
• Government needs data for tax purposes.
Financial accounting makes it possible to give all these parties reliable information.
v) Legal Requirement
In many cases, maintaining proper financial accounts is not optional — it’s mandatory.
For example, companies under the Companies Act must prepare accounts in a specific
format.
vi) Helping in Decision-Making
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Past data often helps in future decisions.
Example: If Ramesh Uncle sees that the sale of laddoos increases sharply during festivals, he
might plan extra production next year.
vii) Evidence in Disputes
Sometimes, disputes arise — with suppliers, customers, or even tax authorities. Properly
maintained accounts act as proof and can protect the business.
A Short Story to Show the Importance
Let’s say Ramesh Uncle sells sweets worth ₹10,000 to a wedding caterer on credit. Months
later, the caterer denies owing that much. If Ramesh Uncle has proper invoices and entries
in his accounts, he can easily prove his claim. Without them, it’s just his word against the
caterer’s.
3. Limitations of Financial Accounting
While financial accounting is extremely useful, it’s not perfect. It has some limitations you
should be aware of.
i) Records Only Monetary Transactions
It only records transactions that can be measured in money.
If Ramesh Uncle’s shop gains a great reputation in the town, that’s valuable — but it won’t
appear in the accounts because it’s not a measurable figure.
ii) Historical Nature
Financial accounting tells us what has happened, not what will happen.
It’s like driving while looking only in the rear-view mirror — you know where you’ve been,
but not what’s ahead.
iii) Doesn’t Show the Real Value of Assets
Assets are usually recorded at their purchase price (historical cost), not their current market
value.
Example: If the shop’s building was bought 10 years ago for ₹5 lakh, it’s still shown as ₹5
lakh in the books, even if its market value is ₹15 lakh now.
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iv) No Full Control Over Frauds
Even with proper accounts, frauds can occur if people manipulate entries. Financial
accounting itself can’t fully prevent dishonesty.
v) Ignores Non-Financial Factors
Business success also depends on factors like employee satisfaction, quality of management,
and market trends — but these don’t appear in financial statements.
vi) Based on Accounting Rules
Financial statements are prepared according to specific accounting principles. These rules
may have flexibility, meaning two accountants could present slightly different pictures of
the same business.
vii) Not Sufficient for Internal Management
Managers often need more detailed, forward-looking data (like budgets or cost
breakdowns), which financial accounting doesn’t provide — that’s the job of management
accounting.
4. Linking Objectives and Limitations — A Balanced View
Financial accounting is like a mirror — it shows a true reflection of the business’s financial
face (objectives). But like any mirror, it has blind spots (limitations).
A business must therefore use it along with other tools like cost accounting, budgeting, and
forecasting for a complete picture.
5. Quick Recap for Exam Memory
Here’s a mnemonic to remember the Objectives: "SPF-LID"
• S – Systematic records
• P – Profit/Loss calculation
• F – Financial position
• L – Legal compliance
• I – Information for stakeholders
• D – Decision-making support
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And for Limitations: "HIM-IGNO"
• H – Historical nature
• I – Ignores non-financial factors
• M – Monetary transactions only
• I – Incomplete fraud prevention
• G – Given at historical cost
• N – Not enough for management
• O – Optional valuation differences
Final Words
If you think about it, financial accounting is like the official diary of a business. It records
what really happened in money terms, tells us whether the journey was profitable, and
shows where the business stands today.
But — just as a diary can’t tell you everything about a person’s life (like their dreams,
feelings, or mood), financial accounting can’t tell the whole story of a business. That’s why
it’s important, but not the only thing managers rely on.
SECTION-B
3. On 31st January, 2021 the Pass Book of Shri M.L. Gupta shows a debit balance of Rs.
41,000. Prepare a bank reconciliation statement from the following particulars:
(1) Cheques amounting to Rs. 15,600 were drawn on 27th January, 2021. Out of which
cheques for Rs. 11,000 were encashed up to 31-1-2021.
(2) A wrong debit of Rs. 800 has been given by the bank, in the Pass Book.
(3) A cheque for Rs. 200 was credited in the Pass Book but was not recorded in the Cash
Book.
(4) Cheques amounting to Rs. 21,000 were deposited for collection. But out of these,
cheques for Rs. 7,400 have been credited in the Pass Book on 5th February, 2021.
(5) A cheque for Rs. 1,000 was returned dishonoured by the bank and was debited in the
Pass Book only.
(6) Interest on overdraft and bank charges amounting to Rs. 100 were not entered in the
Cash Book.
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(7) A cheque of Rs. 500 debited in the Cash Book omitted to be banked.
Ans: A Different Start – The “Two Friends” Analogy
Imagine two close friends – Mr. Cash Book and Mr. Pass Book. They both keep track of the
same story: how much money you have in the bank. But here’s the twist – they don’t always
write the same thing on the same day. Sometimes Mr. Cash Book writes a note about
money going out, but Mr. Pass Book takes a few days to record it. Other times, the bank
(Mr. Pass Book) charges you for something and forgets to tell you, so Mr. Cash Book has no
clue.
At the end of the month, when both friends compare notes, their amounts don’t match.
That’s when Bank Reconciliation Statement (BRS) comes in – it’s like a “peace meeting”
between the two friends, where we sort out all the misunderstandings so their records
match again.
In our story, Mr. M.L. Gupta is the one trying to bring these two friends into agreement for
31st January 2021. The Pass Book is showing a debit balance of Rs. 41,000. Now remember –
a debit balance in the Pass Book means that it’s an overdraft (you owe money to the bank).
We will start from this amount and adjust for all the differences one by one.
Step-by-Step Story of the Differences
Let’s carefully go through each point like clues in a detective case.
1. Cheques issued but not yet presented
• On 27th January 2021, cheques worth Rs. 15,600 were given to people.
• Out of this, cheques worth Rs. 11,000 were encashed (presented to the bank) before
31st January.
• Which means: Rs. 15,600 – Rs. 11,000 = Rs. 4,600 worth of cheques are still with the
people and haven’t reached the bank yet.
Effect: Since the Pass Book hasn’t reduced the overdraft for these Rs. 4,600 yet (because the
bank hasn’t seen them), the Pass Book is showing more overdraft than it should. To correct
this, we will reduce the overdraft by Rs. 4,600 in our statement.
2. Wrong debit by bank – Rs. 800
Sometimes banks make mistakes. Here, the bank has wrongly deducted Rs. 800 in the Pass
Book.
Effect: Overdraft is showing Rs. 800 more than reality, so we’ll add Rs. 800 back.
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3. Cheque credited in Pass Book but not in Cash Book – Rs. 200
A cheque of Rs. 200 was directly credited in the Pass Book, but our Cash Book doesn’t know
about it yet.
Effect: This amount is reducing the overdraft in the Pass Book but not in the Cash Book.
Since we’re starting with the Pass Book, there’s no change in the Pass Book’s balance – but
to match with the Cash Book later, we’ll reduce overdraft by Rs. 200.
4. Cheques deposited but not yet collected
Cheques worth Rs. 21,000 were deposited for collection, but cheques worth Rs. 7,400 were
credited in the Pass Book after 31st January (on 5th Feb).
Effect: This Rs. 7,400 is not yet recorded in the Pass Book by 31st Jan, so the overdraft in the
Pass Book is higher than reality. We’ll reduce overdraft by Rs. 7,400.
5. Dishonoured cheque – Rs. 1,000
A cheque was returned dishonoured and debited in the Pass Book only.
Effect: The overdraft in the Pass Book is more by Rs. 1,000 compared to the Cash Book. To
match, we will add Rs. 1,000 to the overdraft.
6. Interest on overdraft and bank charges – Rs. 100
The bank charged Rs. 100 for interest and charges, which is recorded only in the Pass Book.
Effect: The overdraft in the Pass Book is more by Rs. 100, so we’ll add Rs. 100 to overdraft.
7. Cheque debited in Cash Book but not banked – Rs. 500
A cheque worth Rs. 500 was recorded in the Cash Book as deposited, but it was never
actually given to the bank.
Effect: Cash Book has reduced balance, but Pass Book has no change. Since we start from
the Pass Book, we must reduce overdraft by Rs. 500 to match.
Now Let’s Put It All Together in a BRS Table
We start from Overdraft as per Pass Book: Rs. 41,000 and adjust:
Particulars
Amount
(Rs.)
Effect
Overdraft as per Pass Book
41,000
Starting point
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Add: Cheques issued but not presented
4,600
Reduce overdraft
Add: Bank’s wrong debit
800
Reduce overdraft
Add: Cheque credited in Pass Book but not in Cash
Book
200
Reduce overdraft
Add: Cheques deposited but not yet credited
7,400
Reduce overdraft
Less: Dishonoured cheque
(1,000)
Increase
overdraft
Less: Interest & bank charges
(100)
Increase
overdraft
Add: Cheque recorded in Cash Book but not banked
500
Reduce overdraft
Let’s carefully total step-by-step to avoid mistakes:
Starting overdraft: 41,000
41,000 – 4,600 = 36,400
36,400 – 800 = 35,600
35,600 – 200 = 35,400
35,400 – 7,400 = 28,000
28,000 + 1,000 = 29,000
29,000 + 100 = 29,100
29,100 – 500 = 28,600
So, Overdraft as per Cash Book = Rs. 28,600.
Making It Feel Real – A Quick Mini-Story
Think of Mr. Gupta running a small shop. He writes down his bank dealings in his Cash Book
every evening. The bank, on the other hand, writes in the Pass Book whenever they see
cheques, deposits, or charges. One day, Gupta sees that his Pass Book shows Rs. 41,000
overdraft and thinks, “Wait a second… my notes say something different.”
He pulls out all the clues: some cheques he issued haven’t been cashed yet, one cheque
bounced, the bank made a silly Rs. 800 mistake, some deposits are still in limbo, and—
oops—one cheque is still in his drawer!
Piece by piece, he fixes the differences until finally, both books agree. That’s the satisfaction
of a perfect Bank Reconciliation Statement – the financial equivalent of solving a mystery.
Why This Process Matters
1. Accuracy: Ensures your books match the bank’s records.
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2. Error Detection: Finds mistakes made by either you or the bank.
3. Fraud Prevention: Identifies suspicious transactions quickly.
4. Peace of Mind: You know exactly how much money you have (or owe).
Final Answer:
Overdraft as per Cash Book = Rs. 28,600
4. What do you mean by subsidiary books? Explain different types of subsidiary books.
What are the advantages of having subsidiary books?
Ans: A New Beginning: The Messy Diary Problem
Imagine you own a small stationery shop. Every day, customers come in to buy pens,
notebooks, and colours. You jot down all transactions in one big diary — purchases, sales,
cash received, payments made, everything. At first, this feels easy. But after a few months,
when you want to check how much you sold in March or how much you owe a supplier, it’s
chaos. You flip through dozens of pages, trying to find scattered entries.
This is exactly the problem early accountants faced. If everything is written in one book,
finding and managing information becomes a headache. So, over time, they created a
smarter method — divide the big diary into smaller, specialised diaries. Each smaller book is
made for a specific type of transaction. These are called subsidiary books.
Meaning of Subsidiary Books
Subsidiary books are special accounting books used to record one type of transaction in one
place.
• Instead of mixing all transactions in a single journal, each type gets its own book.
• For example, all credit sales are in one book, all credit purchases in another, and so
on.
• This makes the work faster, neater, and less confusing.
In short: Subsidiary books are like different drawers in a shop counter — one for bills, one
for receipts, one for orders — so you don’t mix them up.
The Different Types of Subsidiary Books
There are several subsidiary books, each with its own purpose. Let’s explore them one by
one, like visiting different sections of a shop.
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1. Purchase Book
• Purpose: Records all credit purchases of goods meant for resale.
• Example: If you buy 50 boxes of pens on credit from a supplier, it’s recorded here.
• Note: Cash purchases don’t go here; they’re recorded in the cash book.
2. Sales Book
• Purpose: Records all credit sales of goods.
• Example: If a school buys 100 notebooks from you on credit, you write it in the sales
book.
• Why helpful? At month-end, you can quickly see your total credit sales without
searching the whole journal.
3. Purchase Return Book (Return Outward Book)
• Purpose: Records goods returned to suppliers because they were damaged, wrong
quantity, or poor quality.
• Example: If 5 boxes of pens are broken, you return them and record in this book.
4. Sales Return Book (Return Inward Book)
• Purpose: Records goods returned by customers.
• Example: If the school returns 10 notebooks because of printing errors, the entry is
here.
5. Cash Book
• Purpose: Records all cash transactions — cash sales, cash purchases, expenses paid
in cash, and cash received.
• Special Point: It acts both as a subsidiary book and a ledger for cash accounts.
• Example: Paying electricity bill in cash, or receiving payment from a customer.
6. Bills Receivable Book
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• Purpose: Records all bills of exchange or promissory notes the business receives
from customers as payment.
• Example: A customer owes you ₹5,000 and gives a bill promising to pay after 2
months — record it here.
7. Bills Payable Book
• Purpose: Records all bills of exchange or promissory notes you give to suppliers
promising future payment.
• Example: You buy goods worth ₹8,000 and issue a bill payable after 3 months.
8. Journal Proper
• Purpose: A leftover book for transactions that don’t fit into the above books.
• Examples:
o Opening entries (assets/liabilities at the start of the year)
o Closing entries (for final accounts)
o Adjusting entries (like depreciation or bad debts)
A Short Story to Bring It Alive
Think of a busy sweet shop during Diwali. The owner, Mr. Sharma, used to note everything
in one notebook. One day, a customer complained, “I returned two boxes of sweets last
week, but you’re charging me for them!” Mr. Sharma searched for the entry but couldn’t
find it quickly.
His accountant suggested, “Sir, why not keep different registers — one for credit sales, one
for returns, one for cash? That way, you can find anything in seconds.”
From that day, Mr. Sharma kept separate books. If a customer returned goods, he just
checked the Sales Return Book and found the exact date and amount. No confusion, no
arguments. This is the beauty of subsidiary books — they turn a messy diary into a well-
organised filing system.
Advantages of Having Subsidiary Books
Let’s see why this system became so popular:
1. Saves Time
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• Work can be divided among different clerks.
• Example: One clerk handles the purchase book, another the sales book — so both
can work at the same time.
2. Specialisation
• Each person becomes skilled at one type of record, so fewer mistakes happen.
3. Easy to Find Information
• Need to know total credit sales for May? Just open the sales book — no page-
flipping across a giant journal.
4. Reduces Errors
• Since similar transactions are recorded together, spotting mistakes is easier.
5. Helps in Division of Work
• Large businesses can employ multiple people, each handling one subsidiary book,
increasing efficiency.
6. Keeps Records Neat
• No jumbling of unrelated transactions.
• For example, cash payments are nowhere near credit purchases, so things look tidy.
7. Useful for Reference
• If there’s a dispute with a supplier or customer, you can quickly locate the exact
entry in the relevant book.
In Short
Subsidiary books are like having different shelves in a library instead of piling all books on
the floor. They make accounting faster, clearer, and more accurate.
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So next time you see a shopkeeper flipping through neat registers for purchases, sales, and
returns, remember — they’re using the same smart system accountants have loved for
centuries.
SECTION-C
5. From the following trial balance prepare the trading and profit and loss account for year
ending on 31st March, 2021 and balance sheet as at that date:
Particulars
Dr.(Rs.)
Cr.(Rs.)
Stock on 1
st
April 2020
22,300
-
Purchase and purchase return
2,30,000
5,200
Freehold premises
1,00,000
-
Incidental trade expenses
111,200
Insurance
1,850
Audit Free
800
Commission required
-
2 ,700
Interest
1400
Debtors and Creditors
32,400
24,830
Wages
30,200
-
Salaries
15,200
-
Capital
-
1,50,000
Drawings
12,000
-
Income Tax
3,600
-
Investments
8,000
-
Discount received and allowed
7,500
4,200
Sales return and allowed
6,400
3,17,400
B/R
5,200
-
Furniture
9,000
-
Rent
-
2,600
Cash in hand
5,080
-
Bank Balance
7,600
-
Total
5,08,330
5,08,330
Adjustments:
1. Stock on 31st March, 2021 is Rs. 70,000.
2. Write off 5% depreciation on freehold premises and 20% on office furniture.
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3. Commission earned but not received Rs. 500.
4. Interest earned but not received Rs. 600.
5. Rs. 200 for rent have been received in advance.
6. Charge interest on capital @ 6% and Rs. 500 on drawings.
Ans: A Fresh Start — The Shopkeeper’s Year
Imagine you’re the owner of a small but well-kept store. You opened your diary on 1st April
2020 and wrote down everything you had — goods in stock, your premises, furniture,
money in hand and in the bank, plus all the people who owe you (debtors).
Throughout the year, you bought and sold goods, paid wages, earned commission, and even
kept some money in investments.
Now, 31st March 2021 has come — the year is over.
Your job: prepare the Trading Account (to see the gross profit), the Profit & Loss Account (to
see net profit), and the Balance Sheet (to know the final position).
Let’s break it down, step by step — no scary jumps.
Step 1 — Understanding the Trial Balance
The trial balance is like your year-end balance sheet before adjustments. The debit side
shows what you own and what you spent, the credit side shows what you owe and what
you earned.
From the question, here’s what’s in our diary (shortened version):
Debit side (things we spent on / own):
• Opening Stock: Rs. 22,300
• Purchases: Rs. 2,30,000
• Freehold Premises: Rs. 1,00,000
• Incidental trade expenses: Rs. 1,11,200
• Insurance: Rs. 1,850
• Audit Fee: Rs. 800
• Debtors: Rs. 32,400
• Wages: Rs. 30,200
• Salaries: Rs. 15,200
• Drawings: Rs. 12,000
• Income Tax: Rs. 3,600
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• Investments: Rs. 8,000
• Discount allowed: Rs. 4,200
• Sales return: Rs. 6,400
• Bills Receivable: Rs. 5,200
• Furniture: Rs. 9,000
• Cash in hand: Rs. 5,080
• Bank balance: Rs. 7,600
Credit side (things we earned / owe):
• Purchase return: Rs. 5,200
• Commission: Rs. 2,700
• Interest: Rs. 1,400
• Creditors: Rs. 24,830
• Capital: Rs. 1,50,000
• Discount received: Rs. 7,500
• Sales: Rs. 3,17,400
• Rent: Rs. 2,600
Step 2 — Adjustments (The “Truth Filter”)
Here’s the important part — these adjustments make the books show the real picture:
1. Closing Stock: Rs. 70,000 (goes in Trading A/c & Balance Sheet).
2. Depreciation:
o Freehold premises @ 5% = Rs. 5,000
o Furniture @ 20% = Rs. 1,800
3. Commission earned but not received: Rs. 500 (add to commission income & show as
asset).
4. Interest earned but not received: Rs. 600 (add to interest income & show as asset).
5. Rent received in advance: Rs. 200 (reduce from rent income & show as liability).
6. Interest on capital @ 6%: Capital = Rs. 1,50,000 → Interest = Rs. 9,000 (expense in
P&L, add to capital).
Interest on drawings: Rs. 500 (income in P&L, reduce from drawings).
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Step 3 — Trading Account (Gross Profit Calculation)
The Trading Account compares sales with cost of goods sold.
Trading Account for the year ended 31 March 2021
Dr. side:
• Opening Stock = 22,300
• Purchases = 2,30,000 – Purchase Returns (5,200) = 2,24,800
• Wages = 30,200
• Incidental trade expenses = 1,11,200
Total = Rs. 3,88,500
Cr. side:
• Sales = 3,17,400 – Sales Returns (6,400) = 3,11,000
• Closing Stock = 70,000
Total = Rs. 3,81,000
Now, compare:
Gross Profit = Rs. 3,81,000 – Rs. 3,88,500 = Loss of Rs. 7,500.
This means we sold goods for slightly less than what they cost — not great news.
Step 4 — Profit & Loss Account
This shows other incomes and expenses to find Net Profit or Net Loss.
Dr. side (expenses):
• Gross Loss: Rs. 7,500
• Salaries: Rs. 15,200
• Insurance: Rs. 1,850
• Audit fee: Rs. 800
• Discount allowed: Rs. 4,200
• Depreciation on premises: Rs. 5,000
• Depreciation on furniture: Rs. 1,800
• Interest on capital: Rs. 9,000
Total expenses = Rs. 45,350
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Cr. side (incomes):
• Commission: Rs. 2,700 + Accrued Rs. 500 = 3,200
• Interest: Rs. 1,400 + Accrued Rs. 600 = 2,000
• Rent: Rs. 2,600 – Advance Rs. 200 = 2,400
• Discount received: Rs. 7,500
• Interest on drawings: Rs. 500
Total incomes = Rs. 15,600
Net Loss = Rs. 45,350 – Rs. 15,600 = Rs. 29,750
Step 5 — Balance Sheet
Think of the balance sheet as your shop’s “family photo” on 31 March 2021 — it shows what
you have and what you owe.
Assets:
• Freehold Premises: Rs. 95,000 (after depreciation)
• Furniture: Rs. 7,200 (after depreciation)
• Investments: Rs. 8,000
• Closing Stock: Rs. 70,000
• Debtors: Rs. 32,400
• Bills Receivable: Rs. 5,200
• Accrued Commission: Rs. 500
• Accrued Interest: Rs. 600
• Cash in hand: Rs. 5,080
• Bank balance: Rs. 7,600
Liabilities:
• Creditors: Rs. 24,830
• Rent received in advance: Rs. 200
• Capital: Rs. 1,50,000 + Interest on Capital Rs. 9,000 – Drawings Rs. 12,000 – Interest
on Drawings Rs. 500 – Net Loss Rs. 29,750 = Rs. 1,16,750
Total Liabilities = Total Assets = Rs. 1,41,780
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Step 6 — A Short Story to Remember the Flow
Imagine Ramesh, a shopkeeper. He starts the year with some stock and a tidy little shop. He
buys more goods, sells them, pays his staff, and even earns some side income from
commission and interest.
But when the year ends, he realises something — his sales weren’t high enough to cover the
cost of the goods and expenses. The depreciation on his shop and furniture adds to the load.
Still, his accounts are neat, and his balance sheet shows exactly what he owns and owes.
Though it’s a loss this year, Ramesh now knows where to cut costs and how to improve sales
for next year.
Step 7 — How to Approach Such Problems
1. Write down the Trading A/c first — only include sales, purchases, direct expenses,
and stock.
2. Move to Profit & Loss A/c — add other incomes, subtract other expenses.
3. Apply adjustments carefully — these often change both the P&L and Balance Sheet.
4. Prepare the Balance Sheet last — using the adjusted capital and other
assets/liabilities.
6. What do you mean by financial statements ? Explain the various elements of financial
statements. What is the usefulness of financial statements ?
Ans: A New Beginning – The Shop That Told a Story
Imagine a small shop in your neighborhood called “Meena’s Magic Mart.”
Meena is famous for selling almost everything—snacks, clothes, stationery, even umbrellas
in the monsoon. Her shop is always busy, but one day her cousin Raju asks,
“Meena, you keep saying business is going well… but how do you know for sure?”
Meena smiles and says,
“Because my financial statements tell me the story.”
Just like Meena, every business—big or small—needs a clear way to tell the story of its
money:
• How much it owns
• How much it owes
• How much it earns
• How much it spends
This “story” is written in a special language called financial statements.
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What Do We Mean by Financial Statements?
In simple words:
Financial statements are formal reports that show the financial activities and position of a
business in a structured way.
They are like the report card of a business—showing how well it has performed and where it
stands at a certain date.
A good financial statement answers three big questions:
1. What does the business own and owe? (Its financial position)
2. Is it making a profit or loss? (Its performance)
3. How is money flowing in and out? (Its cash movement)
The Various Elements of Financial Statements
Think of the elements as the ingredients in a recipe. Without them, the report wouldn’t
make sense. Accounting standards (like IFRS) generally talk about five main elements.
1. Assets – What the Business Owns
• Definition: Resources that the business controls and expects to get benefits from in
the future.
• Examples: Cash, buildings, machines, furniture, stock of goods, patents.
• In Meena’s shop: Shelves, stock of chocolates, cash in the counter, and even the
delivery scooter.
Assets can be:
• Current Assets: Easily turned into cash within a year (cash, debtors, stock).
• Non-current Assets: Used for a long time (land, buildings, machines).
Tip for remembering: Assets are like seeds a farmer plants—they will give benefits later.
2. Liabilities – What the Business Owes
• Definition: Obligations the business has to pay in the future.
• Examples: Bank loans, unpaid electricity bills, money owed to suppliers.
• In Meena’s shop: She owes ₹10,000 to her wholesaler and has an unpaid rent bill.
Liabilities can be:
• Current Liabilities: Payable within a year (creditors, short-term loans).
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• Non-current Liabilities: Payable after more than a year (long-term loans).
Easy way to remember: Liabilities are like promises you’ve made to give someone money or
goods later.
3. Equity – The Owner’s Share
• Definition: The amount left for the owners after all liabilities are subtracted from
assets.
• Formula: Equity = Assets – Liabilities
• In Meena’s shop: After paying off all debts, the value of what remains in the shop is
Meena’s own share.
Equity can include:
• Capital invested by the owner.
• Retained profits (past earnings kept in the business).
4. Income – Money Coming In
• Definition: The increase in economic benefits during the period, in the form of
inflows (cash, receivables) or decrease in liabilities.
• Examples: Sales revenue, interest received, rent income.
• In Meena’s shop: The money she earns from selling goods and the interest on her
savings.
Income increases profit and therefore increases equity.
5. Expenses – Money Going Out
• Definition: The decrease in economic benefits during the period, in the form of
outflows or depletion of assets, or incurrence of liabilities.
• Examples: Salaries, rent, electricity bills, raw material costs.
• In Meena’s shop: Paying the helper’s salary, electricity, rent, and cost of goods
purchased.
Expenses reduce profit and therefore reduce equity.
How These Elements Come Together
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To see the big picture, these elements are arranged in three main financial statements:
1. Balance Sheet (Statement of Financial Position) – Shows assets, liabilities, and
equity at a specific date.
o Like a snapshot of the shop’s worth.
2. Profit and Loss Statement (Income Statement) – Shows income and expenses over
a period to find out profit or loss.
o Like a movie of the shop’s performance.
3. Cash Flow Statement – Shows how cash is moving in and out (from operations,
investing, and financing).
o Like tracking the heartbeat of the business.
The Usefulness of Financial Statements
Financial statements are not just for accountants—they are valuable for many people.
1. For Owners and Management
• To know if the business is profitable.
• To plan future growth.
• To check if expenses are under control.
2. For Investors
• To decide whether to invest money in the business.
• To see if the company is financially healthy.
3. For Lenders (Banks)
• To check if the business can repay loans.
• To judge the creditworthiness.
4. For Government
• To calculate taxes.
• To see if laws and regulations are followed.
5. For Employees
• To know if their jobs are secure and if there’s potential for salary hikes.
6. For the Public
• To judge the company’s contribution to the economy and society.
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A Second Short Story – The Two Friends
Two friends, Arjun and Kabir, started the same type of bakery in different towns. After a
year:
• Arjun kept proper financial statements.
• Kabir relied only on memory.
When the market slowed down:
• Arjun could see exactly which products were selling and where to cut costs.
• Kabir had no clue why his money was disappearing.
Result? Arjun survived; Kabir shut down.
The moral: Numbers don’t lie—if you keep them well.
Why They’re Like a GPS for Business
A GPS tells you where you are, where you’ve been, and where you’re going.
Financial statements do the same:
• They locate the current financial position.
• They track past performance.
• They guide future decisions.
Without them, a business is like a car without a dashboard—you’re just guessing your speed
and fuel.
Conclusion
Financial statements are much more than pages filled with numbers—they are the language
of business.
They show assets, liabilities, equity, income, and expenses in a clear structure, helping
everyone from owners to investors understand the health and future of a business.
Whether it’s a multinational company or Meena’s little shop, financial statements are the
true storytellers of success or failure.
As the saying goes:
"In God we trust; all others must bring data."
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SECTION-D
7. "Computerized Accounting Systems are best form of accounting system". Do you agree?
Comment.
Ans: The New Shop in Town
Imagine a small stationery shop in your neighbourhood. For years, the shop owner, Mr.
Sharma, kept all his sales records in a big, heavy register. Every evening, he’d sit with a cup
of tea, adding numbers by hand, checking bills, and trying to find out how much profit he
made that day.
One day, his nephew Rohan suggested:
“Uncle, why don’t you try a computerised accounting software? You can finish in 10 minutes
what you take two hours to do now!”
At first, Mr. Sharma was doubtful. “I’ve done it by hand all my life. Computers are too
complicated.” But after a week of struggling with errors and missing bills, he finally gave it a
try. Within a month, he realised something shocking — not only was he saving time, but he
also had accurate reports, instant calculations, and no more sleepless nights over lost
records.
This is exactly why people say:
“Computerized Accounting Systems are the best form of accounting system.”
Now let’s break it down and see why this statement makes so much sense.
What is a Computerized Accounting System?
In simple words, it’s an accounting system where all the financial data — purchases, sales,
expenses, incomes, profits — is recorded, processed, and stored using computers with
special software (like Tally, QuickBooks, Zoho Books, etc.).
Instead of writing in registers, accountants enter data into a program. The software then
automatically organises, calculates, and prepares reports.
Why Many Consider it the “Best” System
1. Speed and Efficiency
Think about Mr. Sharma’s case — what took him hours by hand was done in minutes by the
computer.
• Entries can be made quickly.
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• Reports like profit & loss, balance sheets, and cash flow statements are generated
instantly.
If a customer suddenly asks, “How much do I still owe you?” — it takes seconds to find the
answer.
2. Accuracy and Error Reduction
Manual accounting depends heavily on the person’s calculations. One wrong addition and
the entire balance sheet might be off.
Computerised systems automatically check calculations. If you enter ₹500 instead of ₹50,
you can immediately spot it.
This reduces human error, which in business can save not just money but reputation.
3. Easy Storage and Backup
In manual systems, losing the register means losing all data forever.
Computerised systems store data digitally. You can take backups on cloud storage, pen
drives, or external hard disks. Even if the computer crashes, the data is safe in the backup.
4. Better Analysis and Decision-Making
One of the biggest advantages is that you don’t just “record” transactions — you can also
“analyse” them.
For example:
• Which month had the highest sales?
• Which product is giving the least profit?
• Are expenses growing too fast?
Such reports help business owners make smart decisions and improve profits.
5. Cost-Effective in the Long Run
Initially, you spend money on buying a computer and software. But in the long run:
• You save hours of work.
• You need fewer employees for bookkeeping.
• Mistakes and losses due to errors are reduced.
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6. Easy Compliance with Laws
Today, businesses must follow GST rules, file tax returns, and maintain legal records.
Computerised accounting software can:
• Automatically calculate GST.
• Prepare tax reports.
• Generate invoices in the correct format.
This saves the headache of legal penalties.
But is it Always the Best?
Like every coin has two sides, computerised systems also have some drawbacks. Let’s be fair
and look at them.
1. Initial Cost and Setup
A small business may find the cost of a computer, software, and training to be high at first.
2. Dependence on Technology
If there’s a power cut or the computer crashes, work may stop temporarily.
3. Risk of Hacking and Data Theft
If not properly protected with passwords and security software, sensitive financial data can
be stolen.
4. Training Required
People who have never used a computer may feel it’s too complicated initially — like Mr.
Sharma did.
Balancing the View
If we compare manual and computerised systems:
Feature
Manual Accounting
Computerised Accounting
Speed
Slow
Very Fast
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Accuracy
Prone to errors
Highly accurate
Storage
Bulky registers
Digital, easy backup
Analysis
Difficult
Instant and detailed
Cost in Long Run
Higher (more labour)
Lower after setup
Legal Compliance
Manual effort
Automatic
Clearly, the computerised system wins in most areas.
Another Quick Story — The School Treasurer
At a small school, the treasurer, Mrs. Gupta, used manual ledgers to keep track of student
fee payments. Every year, parents complained about errors in fee records. Then the school
switched to a computerised system. Parents started getting printed receipts instantly, and
any fee balance could be checked in seconds. The school’s reputation improved, and Mrs.
Gupta’s stress reduced.
This shows that computerised accounting isn’t just for big businesses — it’s equally helpful
for schools, hospitals, NGOs, and even individuals.
My Take
I agree with the statement. In today’s fast-moving world, where businesses need quick
decisions, accurate records, and compliance with rules, manual systems are simply too slow
and risky. Computerised systems are not perfect, but their benefits far outweigh their
limitations.
The key is to:
• Choose the right software.
• Keep proper backups.
• Maintain good cybersecurity.
• Train staff to use it effectively.
Conclusion
Computerised Accounting Systems are like upgrading from a bullock cart to a car. The cart
may still get you to your destination, but the car will do it faster, more comfortably, and
with less effort.
Just like Mr. Sharma and Mrs. Gupta discovered, once you shift to computerised accounting,
it’s hard to imagine going back to registers and calculators. In a competitive business
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environment, the “best” system is the one that saves time, reduces errors, and gives
valuable insights — and that’s exactly what computerised accounting does.
8. Prepare the format of balance sheet with imaginary figures as per Companies Act, 2013.
Ans: A Different Beginning – A Little Office Drama
Imagine you’re working in a brand-new company called DreamTech Pvt. Ltd.. The company
is doing well — you’re selling products, paying employees, and even expanding. One day,
your boss, Mr. Mehta, calls you into his cabin. He’s smiling, which usually means something
big is coming.
“Priya,” he says, “we have to present our Balance Sheet for the year. And remember — it
must follow the Companies Act, 2013 format. The Board Meeting is in two days!”
You nod confidently… but inside, your mind is racing: What exactly is the Companies Act
format again?
And that’s where our journey begins. By the end of this explanation, you’ll not only know
the format, but you’ll also see how to fill it with imaginary figures in a neat, story-like way
that would impress any examiner.
1. What is a Balance Sheet?
Think of a balance sheet like a photograph of your company’s financial health taken on the
last day of the year. It tells you:
• What the company owns (Assets)
• What the company owes (Liabilities)
• The owner’s share in the business (Equity)
The word balance is important because the total assets must equal the sum of liabilities and
equity.
2. Why Companies Act, 2013 Format Matters
Before 2013, companies in India used slightly different formats. The Companies Act, 2013
standardized it so all companies present their financial position in a clear, uniform, and
comparable way.
The format is given in Schedule III of the Act, and it divides the balance sheet into two main
parts:
1. Equity and Liabilities
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2. Assets
3. Standard Format of Balance Sheet as per Companies Act, 2013
The balance sheet is structured like this:
Part A – Equity and Liabilities
1. Shareholders’ Funds
o Share Capital
o Reserves and Surplus
o Money received against share warrants
2. Share Application Money Pending Allotment
3. Non-Current Liabilities
o Long-Term Borrowings
o Deferred Tax Liabilities (Net)
o Other Long-Term Liabilities
o Long-Term Provisions
4. Current Liabilities
o Short-Term Borrowings
o Trade Payables
o Other Current Liabilities
o Short-Term Provisions
Part B – Assets
1. Non-Current Assets
o Property, Plant, and Equipment (Fixed Assets)
o Intangible Assets
o Capital Work-in-Progress
o Non-Current Investments
o Deferred Tax Assets (Net)
o Long-Term Loans and Advances
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o Other Non-Current Assets
2. Current Assets
o Current Investments
o Inventories
o Trade Receivables
o Cash and Cash Equivalents
o Short-Term Loans and Advances
o Other Current Assets
4. Let’s Fill This with Imaginary Figures
Now, let’s make it come alive using DreamTech Pvt. Ltd.’s numbers. We’ll pretend this is for
the financial year ending 31st March 2025.
Balance Sheet of DreamTech Pvt. Ltd.
As at 31st March 2025
(in ₹ ‘000)
A. Equity and Liabilities
1. Shareholders’ Funds
o Share Capital: 2,500
o Reserves & Surplus: 1,200
o Money received against share warrants: —
Total Shareholders’ Funds = 3,700
2. Share Application Money Pending Allotment = —
3. Non-Current Liabilities
o Long-Term Borrowings: 1,800
o Deferred Tax Liability (Net): 200
o Other Long-Term Liabilities: 100
o Long-Term Provisions: 150
Total Non-Current Liabilities = 2,250
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4. Current Liabilities
o Short-Term Borrowings: 800
o Trade Payables: 600
o Other Current Liabilities: 300
o Short-Term Provisions: 150
Total Current Liabilities = 1,850
Total Equity and Liabilities = 7,800
B. Assets
1. Non-Current Assets
o Property, Plant & Equipment: 3,500
o Intangible Assets (Goodwill, Patents, etc.): 500
o Capital Work-in-Progress: 200
o Non-Current Investments: 300
o Deferred Tax Asset (Net): —
o Long-Term Loans & Advances: 150
o Other Non-Current Assets: 50
Total Non-Current Assets = 4,700
2. Current Assets
o Current Investments: 100
o Inventories: 1,200
o Trade Receivables: 900
o Cash & Cash Equivalents: 600
o Short-Term Loans & Advances: 200
o Other Current Assets: 100
Total Current Assets = 3,100
Total Assets = 7,800
5. The Balancing Act
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Notice something? Total Assets = Total Equity & Liabilities (₹ 7,800).
That’s the beauty of the balance sheet — everything is connected.
6. Quick Story to Understand Why It Balances
Think of it like this: You decide to start a café. You put in ₹50,000 of your own money (that’s
equity), borrow ₹20,000 from a bank (that’s liability), and now you have ₹70,000 in total
resources (assets) to buy furniture, coffee machines, and stock.
Your assets (furniture, machines, stock) are simply the result of the money that came from
you and your lenders. That’s why assets will always equal equity plus liabilities.
7. Tips for Remembering the Format
Here’s a small mnemonic: “Smart Students Never Cry”
• S = Shareholders’ Funds
• S = Share Application Money Pending Allotment
• N = Non-Current Liabilities
• C = Current Liabilities
And for assets: “Nice Cats Can Travel Comfortably”
• N = Non-Current Assets
• C = Current Assets
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
