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GNDU Question Paper-2023
Bachelor of Business Administration
B.B.A 1
st
Semester
Basic Accounting
Time Allowed: Three Hours Maximum Marks: 100
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. Explain the nature and scope of Financial Accounting. What is the difference between
Accounting and Book Keeping?
2. Following are the transactions of Raman for the month of July, 2022. You are required to
journalize them.
2022
Rs.
July 1
Started business with cash
80,000
July 1
Cash paid into Bank
50,000
July 1
Bought stationery of Rs. 300
plus CGST and SGST @ 6%
each for Cash
July 2
Bought goods of Rs. 21.000
plus CGST and SGST @ 6%
each for Cash
July 5
Sold goods of Rs. 7.500
plus CGST and SGST @ 6% each for Cash
July 6
Bought Office Furniture of
Rs. 5.000 plus CGST and
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SGST @ 6% each from
Banerjee Bros
July 11
Sold goods of Rs. 10,000
plus CGST and SGST 6%
each to Mahendra
July 12
Received cheque from
Mahendra for the amount due
July 16
Sold goods of Rs. 5.000 plus
CGST and SGST @ 6% each to
Ramesh & Co.
July 20
Bought goods of Rs. 20.000
plus IGST @ 12% from S. Seth & Bros.
July 23
Bought goods of Rs. 2.250
plus IGST @ 12% for cash from S. Narain & Co.
July 26
Ramesh & Co. paid on account
2,500
July 28
Paid to S.Seth & Bros. by cheque in full settlement
22,000
July 31
Rent is due to S. Sharma but not yet paid.
1,000
SECTION-B
3. What do you mean by Depreciation, Amortization and Depletion ? Explain written down
value method and original cost method in detail.
4. From the following particulars of a trader, prepare a Bank Reconciliation Statement as
on 31st March, 2022:
(1) Bank overdraft as per Cash Book Rs. 52,100.
(2) During the month, the total amount of cheques for Rs. 94,400 were deposited into the
Bank but of these, one cheque for Rs. 11,160 has been entered into the Pass Book on 5th
April.
(3) During the month, cheques for Rs. 89,580 were drawn in favour of creditors. Of them
one creditor for Rs. 38.580 encashed his cheque on 7th April whereas another for Rs. 4,320
has not yet been encashed.
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(4) As per instructions the Bank on 28th March paid out Rs. 10,500 to a creditor but by
mistake, the same has not been entered in the Cash Book
(5) According to agreement on 25th March a debtor deposited directly into the Bank Rs.
9.000 but the same has not been recorded in the Cash Book.
(6) In the month of March the Bank without any intimation, debited his account for Rs. 120
as Bank Charges and credited the same for Rs. 180 as interest.
(7) Cash deposit of Rs. 5.780 in Bank was recorded as Rs. 7,580. The error was rectified by
the Bank before 31st March.
SECTION-C
5. Explain the meaning and objectives of Financial Statements. Who are the main users of
financial statements? Explain in detail.
6. Following is the Trial Balance of Mr. Anand a sole proprietor :
Trial Balance
As at 31st March, 2022
Particulars
Dr.(Rs.)
Cr.(Rs.)
Cash in hand
31.700
-
Purchase
4,06,750
-
Sales
-
9,87,800
Returns inward
6,800
-
Wages
1,04,800
-
Sundry Creditors
-
63,000
Sundry Debtors
1,45,000
-
Capital
-
7,10,000
Return Outward
-
5,000
Power and Fuel
47,300
-
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Drawings
52,450
-
Carriage on Sales
32,000
-
Carriage on Purchase
20,400
-
Stock on 1st April. 2021
57,600
-
Building
3,50,000
-
Car
50,000
-
Machinery
2,70,000
-
Salaries
1,60,000
-
General Exp.
30,000
-
Insurance (Annual Premium)
-
paid on 1st October, 2021)
6000
-
Salaries Outstanding
-
5000
Total
17,70,800
17,70,800
Taking into consideration the following adjustment, prepare Trading and Profit and Loss
Account for the year ended 31st March, 2022 and Balance Sheet as at that date:
(1) Closing Stock at market price as on 31st Mach, 2022 Rs. 80,000. However its cost was Rs.
70,000.
(2) Provide Depreciation on Machinery @ 10%.
(3) A fire occurred on 1st April, 2022. destroving goods costing Rs. 5,000.
(4) The cat was sold at book value on April, 2021 and the cash was used for personal need
by Mre Anand--account for this left unrecorded.
SECTION-D
7.(a) Why there is a need for computerized accounting system?
(b) "Voucher entry in computerized accounting system is the end of accounting process."
Explain.
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8. Explain the main points to be considered while going through the annual report
of a com company.
GNDU Answer Paper-2023
Bachelor of Business Administration
B.B.A 1
st
Semester
Basic Accounting
Time Allowed: Three Hours Maximum Marks: 100
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. Explain the nature and scope of Financial Accounting. What is the difference between
Accounting and Book Keeping?
Ans: A Fresh Start: A Tale of Two Friends and Their Dream Shop
Imagine two friends, Ravi and Ananya, who decided to open a small bakery called Sweet
Moments. They had big dreams — fresh bread in the morning, delicious pastries in the
evening, and a little cash in their pockets at the end of the day.
But soon they faced a problem. Sales were coming in, expenses were going out, and money
was moving here and there — yet they couldn’t clearly say how much profit they made or
whether the shop was even doing well.
That’s when Ravi’s elder brother, who was a chartered accountant, told them —
“Running a business without proper financial records is like baking a cake without measuring
the ingredients. You might end up with something, but you won’t know if it’s good, bad, or
even edible.”
And so began their journey into Financial Accounting.
Nature of Financial Accounting
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Financial Accounting is like the diary of a business’s life. It is not just about recording
numbers; it’s about telling the financial story of a business — where the money came from,
where it went, and what’s left at the end.
Here’s what makes up its nature:
1. Historical in Nature
o Financial Accounting records things that have already happened.
o For example, if Ravi and Ananya buy sugar today for ₹2,000, it will be
recorded as an expense. It doesn’t predict future sugar prices — it just tells
the fact.
2. Monetary Measurement
o Only things that can be measured in money are recorded.
o Their love for baking isn’t recorded in accounting books, but the cost of flour,
ovens, and rent is.
3. Record Keeping and Communication Tool
o It keeps systematic records of transactions and communicates them in the
form of reports like the Profit & Loss Account and Balance Sheet.
4. Based on Principles and Rules
o Just like baking has recipes, accounting has its own rules — called Accounting
Principles — to ensure accuracy and consistency.
5. Objective and Verifiable
o Entries are based on evidence like bills, receipts, and invoices, not on
guesswork.
6. Deals with External Parties
o Financial accounting prepares reports mainly for outsiders like investors,
banks, government authorities, or suppliers.
Scope of Financial Accounting
The scope tells us how wide its arms stretch in business activities. In Ravi and Ananya’s
bakery, financial accounting helped them in many areas:
1. Recording Transactions
o Every sale of cupcakes and every purchase of ingredients was recorded in the
books.
2. Classifying Data
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o Transactions were grouped into categories like sales, purchases, expenses,
etc., for better understanding.
3. Summarizing Information
o At the end of the month, all the records were summarized into reports —
making it easy to see total income and expenses.
4. Preparing Financial Statements
o The Profit & Loss Account told them if they made a profit that month.
o The Balance Sheet showed what they owned (assets) and what they owed
(liabilities).
5. Compliance with Legal Requirements
o Their accountant ensured the bakery’s records were maintained according to
legal standards, so there would be no trouble during tax season.
6. Assisting Management Decisions
o By looking at the accounts, Ravi and Ananya could decide whether to increase
prices, cut costs, or expand the bakery.
7. Communication with Stakeholders
o If they needed a bank loan to buy a new oven, they could show their financial
statements to prove the business was profitable.
The Difference Between Accounting and Bookkeeping
Here’s where many students get confused. Think of it like cooking:
• Bookkeeping is like writing down the recipe step by step as you cook — just
recording what you did.
• Accounting is like reading all your recipes at the end of the month, figuring out which
dishes were most liked, calculating costs, and planning a better menu for next
month.
In simple terms:
• Bookkeeping = Recording financial data
• Accounting = Recording + Summarizing + Analyzing + Reporting
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Detailed Comparison Table
Basis
Bookkeeping
Accounting
Meaning
Process of recording day-to-
day financial transactions.
Process of recording, summarizing,
analyzing, and interpreting financial
information.
Scope
Narrow — limited to
recording.
Broader — includes recording,
classification, summarization, and
interpretation.
Purpose
Keeping an accurate record
of transactions.
Determining financial position and
performance, and helping in decision-
making.
Stage
First stage of the accounting
process.
Second stage, which starts after
bookkeeping.
Nature of
Work
Routine, clerical.
Analytical and interpretative.
Skills Required
Basic knowledge of
accounting rules.
In-depth knowledge, analytical skills, and
understanding of principles.
Financial
Statements
Does not prepare them.
Prepares Profit & Loss Account, Balance
Sheet, etc.
Decision
Making
Not involved.
Helps management in making decisions.
Tools Used
Journals, ledgers, cash
books.
Trial balance, financial statements, ratios,
analysis reports.
Story Twist: When Bookkeeping Wasn’t Enough
In the early months, Ananya thought bookkeeping alone was enough. She neatly wrote
down every sale and expense in a register.
But one day, a bank officer visited, asking for the bakery’s profit and loss statement before
granting them a small business loan. Ananya had pages filled with transactions, but she
couldn’t tell him how much profit they made in the last six months.
Ravi’s brother stepped in, took the bookkeeping records, summarized them, prepared the
financial statements, and — voila! — the bank approved the loan.
That day they learned:
“Bookkeeping tells you what happened, but Accounting tells you what it means.”
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Why the Nature and Scope Matter in Real Life
• Without proper financial accounting, a business can look busy but be losing money.
• Investors, banks, and even government agencies rely on financial statements to trust
a business.
• For small businesses, understanding financial accounting can mean the difference
between success and failure.
Just like Ravi and Ananya’s bakery went from confusion to clarity, any business — big or
small — needs financial accounting to keep its journey smooth and its future bright.
Final Wrap-Up
Nature of Financial Accounting — It’s historical, monetary-based, systematic, principle-
driven, objective, and designed mainly for external reporting.
Scope of Financial Accounting — Recording, classifying, summarizing, preparing statements,
legal compliance, decision-making, and communication.
Difference between Accounting and Bookkeeping — Bookkeeping is the foundation;
Accounting is the complete building.
So, whether it’s a bakery, a factory, or a tech start-up, financial accounting is the language
through which businesses tell their story to the world — and bookkeeping is just the first
chapter.
2. Following are the transactions of Raman for the month of July, 2022. You are required to
journalize them.
2022
Rs.
July 1
Started business with cash
80,000
July 1
Cash paid into Bank
50,000
July 1
Bought stationery of Rs. 300
plus CGST and SGST @ 6%
each for Cash
July 2
Bought goods of Rs. 21.000
plus CGST and SGST @ 6%
each for Cash
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July 5
Sold goods of Rs. 7.500
plus CGST and SGST @ 6% each for Cash
July 6
Bought Office Furniture of
Rs. 5.000 plus CGST and
SGST @ 6% each from
Banerjee Bros
July 11
Sold goods of Rs. 10,000
plus CGST and SGST 6%
each to Mahendra
July 12
Received cheque from
Mahendra for the amount due
July 16
Sold goods of Rs. 5.000 plus
CGST and SGST @ 6% each to
Ramesh & Co.
July 20
Bought goods of Rs. 20.000
plus IGST @ 12% from S. Seth & Bros.
July 23
Bought goods of Rs. 2.250
plus IGST @ 12% for cash from S. Narain & Co.
July 26
Ramesh & Co. paid on account
2,500
July 28
Paid to S.Seth & Bros. by cheque in full settlement
22,000
July 31
Rent is due to S. Sharma but not yet paid.
1,000
Ans: Journal of Raman — July 2022
Date
Particulars (Dr. → Cr.)
Amount
(Rs.)
July
1
Cash A/c Dr. 80,000
To Capital A/c 80,000
<small>Narration: Being business started with cash.</small>
Dr 80,000 /
Cr 80,000
July
1
Bank A/c Dr. 50,000
To Cash A/c 50,000
<small>Narration: Being cash deposited into bank.</small>
Dr 50,000 /
Cr 50,000
July
1
Stationery A/c Dr. 300
CGST Input A/c Dr. 18
SGST Input A/c Dr. 18
Dr 336 / Cr
336
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To Cash A/c 336
<small>Narration: Being stationery purchased for cash Rs.300 plus
CGST & SGST @6% each.</small>
July
2
Purchases A/c Dr. 21,000
CGST Input A/c Dr. 1,260
SGST Input A/c Dr. 1,260
To Cash A/c 23,520
<small>Narration: Being goods purchased for cash Rs.21,000 plus
CGST & SGST @6% each.</small>
Dr 23,520 /
Cr 23,520
July
5
Cash A/c Dr. 8,400
To Sales A/c 7,500
To CGST Payable A/c 450
To SGST Payable A/c 450
<small>Narration: Being goods sold for cash Rs.7,500 plus CGST &
SGST @6% each.</small>
Dr 8,400 /
Cr 8,400
July
6
Office Furniture A/c Dr. 5,000
CGST Input A/c Dr. 300
SGST Input A/c Dr. 300
To Banerjee Bros A/c (Cr.) 5,600
<small>Narration: Being office furniture purchased from Banerjee
Bros Rs.5,000 plus CGST & SGST @6% each (on credit).</small>
Dr 5,600 /
Cr 5,600
July
11
Mahendra A/c Dr. 11,200
To Sales A/c 10,000
To CGST Payable A/c 600
To SGST Payable A/c 600
<small>Narration: Being goods sold to Mahendra on credit
Rs.10,000 plus CGST & SGST @6% each.</small>
Dr 11,200 /
Cr 11,200
July
12
Bank A/c Dr. 11,200
To Mahendra A/c 11,200
<small>Narration: Being cheque received from Mahendra and
deposited to bank (settlement of amount due).</small>
Dr 11,200 /
Cr 11,200
July
16
Ramesh & Co. A/c Dr. 5,600
To Sales A/c 5,000
To CGST Payable A/c 300
To SGST Payable A/c 300
<small>Narration: Being goods sold to Ramesh & Co. on credit
Rs.5,000 plus CGST & SGST @6% each.</small>
Dr 5,600 /
Cr 5,600
July
20
Purchases A/c Dr. 20,000
IGST Input A/c Dr. 2,400
To S. Seth & Bros A/c (Cr.) 22,400
Dr 22,400 /
Cr 22,400
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<small>Narration: Being goods purchased from S. Seth & Bros
(inter-state) Rs.20,000 plus IGST @12%.</small>
July
23
Purchases A/c Dr. 2,250
IGST Input A/c Dr. 270
To Cash A/c 2,520
<small>Narration: Being goods purchased for cash from S. Narain
& Co. Rs.2,250 plus IGST @12%.</small>
Dr 2,520 /
Cr 2,520
July
26
Cash A/c Dr. 2,500
To Ramesh & Co. A/c 2,500
<small>Narration: Being part payment received from Ramesh &
Co. on account.</small>
Dr 2,500 /
Cr 2,500
July
28
S. Seth & Bros A/c Dr. 22,400
To Bank A/c 22,000
To Discount Received A/c 400
<small>Narration: Being payment made by cheque to S. Seth &
Bros in full settlement of their account (invoice Rs.22,400) and
discount allowed Rs.400.</small>
Dr 22,400 /
Cr 22,400
July
31
Rent A/c Dr. 1,000
To S. Sharma A/c (or Rent Outstanding) 1,000
<small>Narration: Being rent due to S. Sharma (accrued) but not
yet paid.</small>
Dr 1,000 /
Cr 1,000
Notes / Clarifications
1. GST calculations used:
o CGST = 6% of taxable value (when intra-state).
o SGST = 6% of taxable value (when intra-state).
o IGST = 12% of taxable value (when inter-state).
2. Input GST accounts (CGST Input / SGST Input / IGST Input) represent recoverable tax
on purchases; CGST Payable / SGST Payable are output tax on sales (liabilities).
3. July 28 (S. Seth & Bros): Invoice amount was Rs.22,400 (including IGST 2,400). Paid
Rs.22,000 by cheque in full settlement — the difference Rs.400 treated as Discount
Received (income).
4. July 26 (Ramesh & Co. payment): Treated as cash received (you may treat as bank if
the problem specifies cheque — the accounting effect is the same except the
account used).
5. Narrations are given for clarity (useful in practice and exams).
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SECTION-B
3. What do you mean by Depreciation, Amortization and Depletion ? Explain written down
value method and original cost method in detail.
Ans: A Fresh Beginning: The Tale of a Factory and Its Three Friends
Imagine you start a small chocolate factory. At the beginning, you buy a shiny new machine
for ₹10,00,000 to wrap chocolates. It’s brand new, works super-fast, and makes your work
easy.
But here’s the truth: no matter how well you maintain it, over time the machine will get
older, its speed will reduce, and one day it may need replacement. That slow “wearing out”
of the machine’s value is what we call Depreciation.
Now, while you have this machine, you also buy the patent rights to a special chocolate
recipe. Patents are not physical like machines; they are legal rights you can use for a limited
time. As the years pass, the patent’s legal life gets shorter — this is Amortization.
And one more thing — suppose you own a chocolate mine (yes, chocolate doesn’t grow in
mines, but let’s imagine it’s magical). Every time you take out a chunk of chocolate ore, the
mine’s total resource gets smaller. The decrease in the mine’s available material is
Depletion.
So in our little chocolate business story, we have three friends:
1. Depreciation – Value loss of physical/tangible assets (like machines, buildings,
vehicles).
2. Amortization – Value loss of intangible assets (like patents, trademarks, copyrights).
3. Depletion – Value loss of natural resources (like mines, oil wells, forests).
Let’s Break Down the Three Concepts Clearly
1. Depreciation
• Meaning: Depreciation is the reduction in the value of a tangible (physical) fixed
asset over time because of use, wear and tear, or obsolescence.
• Examples:
o A delivery van losing value as it gets older.
o Computers becoming outdated after a few years.
• Reason: Assets don’t last forever, and accounting rules want us to spread their cost
over their useful life instead of showing the entire cost in one year.
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2. Amortization
• Meaning: Amortization is the gradual reduction in the value of an intangible asset
over its useful life.
• Examples:
o Patents losing value as they approach expiry.
o Software licenses that you can use only for 5 years.
• Reason: Just like physical assets, intangible assets also provide benefits for a limited
time. Their cost is also spread over the period they are useful.
3. Depletion
• Meaning: Depletion refers to the reduction in the quantity and value of natural
resources as they are extracted or used.
• Examples:
o A coal mine losing its coal reserves.
o An oil well running out of oil.
• Reason: Natural resources are finite. Once you take them out, they can’t be
replaced, so their cost must be allocated over the amount extracted.
How Do We Calculate Depreciation?
There are many methods to calculate depreciation, but the question here focuses on
Written Down Value (WDV) Method and Original Cost Method. Let’s understand both, step
by step.
1. Written Down Value Method (WDV)
Also called: Reducing Balance Method or Declining Balance Method.
Concept
In this method, depreciation is charged on the book value (the asset’s value after deducting
previous depreciation), not on the original cost.
This means depreciation keeps getting smaller each year because the base value is
decreasing.
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Formula:
Depreciation = Book Value at the start of year × Rate of Depreciation
Example Story
Back to our chocolate machine:
• Cost: ₹1,00,000
• Rate: 10% per year
Year 1:
Depreciation = ₹1,00,000 × 10% = ₹10,000
Book Value = ₹1,00,000 − ₹10,000 = ₹90,000
Year 2:
Depreciation = ₹90,000 × 10% = ₹9,000
Book Value = ₹90,000 − ₹9,000 = ₹81,000
Notice how the depreciation amount is reducing every year — that’s why it’s called “Written
Down Value”.
Advantages
• Matches the asset’s actual usage (more loss in earlier years, less in later years).
• Suitable for assets that lose more value in initial years (like cars, machines).
• Widely accepted for tax purposes.
Disadvantages
• Calculation can be slightly more complex.
• Book value never becomes zero — a small value always remains.
2. Original Cost Method
Also called: Straight Line Method (SLM).
Concept
In this method, depreciation is charged on the original cost of the asset every year, even if
the asset’s book value decreases.
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Formula:
Example
Our chocolate machine again:
• Original Cost: ₹1,00,000
• Scrap Value: ₹10,000 (value after it becomes useless)
• Useful Life: 5 years
Depreciation per year = (₹1,00,000 − ₹10,000) ÷ 5 = ₹18,000 every year.
Advantages
• Very simple to calculate.
• Equal depreciation every year makes budgeting easier.
• Good for assets that give equal benefits each year.
Disadvantages
• Doesn’t match the real wear-and-tear pattern for some assets.
• Asset value may drop faster in real life than shown in books.
Quick Comparison Table
Feature
Written Down Value (WDV)
Original Cost (SLM)
Depreciation base
Book value each year
Original cost
Amount each
year
Decreases over time
Same every year
Suitable for
Assets losing more value in early
years
Assets with equal use over
life
Complexity
Moderate
Very simple
Why Does All This Matter in Real Life?
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Depreciation, amortization, and depletion are not just “boring accounting terms.” They
affect:
• Profit reporting – Higher depreciation in early years means lower taxable profit.
• Asset valuation – Shows true worth of assets over time.
• Investment decisions – Helps decide when to replace an asset.
One More Mini-Story to Seal the Concept
Think of your favourite pair of shoes:
• In the first year, they look brand new and lose a lot of value if you try to sell them —
like WDV method depreciation.
• If you planned from the start that you’d wear them equally for 5 years and treat each
year’s wear as the same — that’s the Original Cost Method.
• If the shoes were a special edition brand license valid only for 3 years, losing value
every year — that’s Amortization.
• And if those shoes were made from a rare natural material that gets scarcer the
more you use it — that’s Depletion.
Final Wrap-Up:
• Depreciation → Physical assets losing value with use/time.
• Amortization → Intangible assets losing value over time.
• Depletion → Natural resources reducing with extraction.
• WDV Method → Depreciation reduces each year (based on book value).
• Original Cost Method → Same depreciation amount every year (based on original
cost).
By remembering the chocolate factory and shoe stories, these terms will stick in your mind
much longer than any dry definition.
4. From the following particulars of a trader, prepare a Bank Reconciliation Statement as
on 31st March, 2022:
(1) Bank overdraft as per Cash Book Rs. 52,100.
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(2) During the month, the total amount of cheques for Rs. 94,400 were deposited into the
Bank but of these, one cheque for Rs. 11,160 has been entered into the Pass Book on 5th
April.
(3) During the month, cheques for Rs. 89,580 were drawn in favour of creditors. Of them
one creditor for Rs. 38.580 encashed his cheque on 7th April whereas another for Rs. 4,320
has not yet been encashed.
(4) As per instructions the Bank on 28th March paid out Rs. 10,500 to a creditor but by
mistake, the same has not been entered in the Cash Book
(5) According to agreement on 25th March a debtor deposited directly into the Bank Rs.
9.000 but the same has not been recorded in the Cash Book.
(6) In the month of March the Bank without any intimation, debited his account for Rs. 120
as Bank Charges and credited the same for Rs. 180 as interest.
(7) Cash deposit of Rs. 5.780 in Bank was recorded as Rs. 7,580. The error was rectified by
the Bank before 31st March.
Ans: The Scene: A Trader’s Bank Puzzle
Imagine you are a trader who keeps a Cash Book to track all your bank transactions. At the
same time, your bank maintains its own record called the Pass Book (or Bank Statement).
Now, at the end of the month — 31st March 2022 — you open your Cash Book and the
bank’s Pass Book, and you notice they don’t match.
Why?
Because transactions are not always recorded at the exact same time in both books, and
sometimes errors or unrecorded entries create differences.
This is where a Bank Reconciliation Statement (BRS) comes in — it’s like a detective’s report
where we list all these differences and figure out the actual position of our bank account.
Step 1: The starting point
The question says:
Bank overdraft as per Cash Book = ₹ 52,100
Overdraft means you owe the bank money — so your Cash Book shows a negative balance.
We will start from here and adjust this figure to match the Pass Book balance.
Step 2: Understanding the differences (the “clues”)
Let’s go clue by clue like a detective.
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Clue 1: Cheques deposited but not yet cleared
• You deposited ₹ 94,400 into the bank.
• But one cheque of ₹ 11,160 was only credited by the bank on 5th April — after our
date of reconciliation.
• This means, in your Cash Book, you have already added this ₹ 11,160, but the bank
hasn’t yet added it in the Pass Book.
• So, from the bank’s point of view, your balance will be lower than what your Cash
Book shows.
Effect on BRS: Since we are starting from the Cash Book overdraft, and the bank hasn't yet
added this amount, we add it back to the overdraft to match the Pass Book.
Clue 2: Cheques issued but not yet presented
• You issued cheques worth ₹ 89,580.
• Of these:
o One cheque for ₹ 38,580 was presented late (on 7th April).
o Another cheque for ₹ 4,320 hasn’t been presented at all.
• In your Cash Book, you’ve already subtracted the full ₹ 89,580, but the bank hasn’t
yet reduced these late cheques from your account.
• This means the bank’s balance is higher than your Cash Book by ₹ 38,580 + ₹ 4,320 =
₹ 42,900.
Effect on BRS: Since the bank still hasn’t paid these amounts, we subtract them from the
overdraft to reconcile.
Clue 3: Bank paid a creditor directly but you didn’t record it
• On 28th March, the bank paid ₹ 10,500 directly to one of your creditors on your
instructions.
• The bank has reduced its balance, but you forgot to record it in the Cash Book.
• This means your Cash Book shows more money than the bank actually has for you.
Effect on BRS: This will increase the overdraft in the Pass Book, so we add it to our overdraft
in BRS.
Clue 4: Debtor deposited directly in the bank but you didn’t record it
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• On 25th March, a debtor deposited ₹ 9,000 directly into your bank account.
• The bank has already added it, but your Cash Book doesn’t know yet.
• This means the bank’s balance is more than your Cash Book shows.
Effect on BRS: Since we’re starting from the overdraft in the Cash Book, this reduces the
overdraft, so we subtract it.
Clue 5: Bank charges and interest not recorded
• Bank charges ₹ 120 were debited (reduced) in the bank’s record, but not in your
Cash Book.
• Bank also credited (added) ₹ 180 as interest, which is also not recorded in your Cash
Book.
Effect on BRS:
• Bank charges → Overdraft in Pass Book is more, so add ₹ 120.
• Interest → Overdraft in Pass Book is less, so subtract ₹ 180.
Clue 6: Error in cash deposit recording
• You deposited ₹ 5,780 but wrote ₹ 7,580 in your Cash Book.
• The bank correctly recorded ₹ 5,780 before 31st March.
• This means your Cash Book is showing ₹ 1,800 more than the bank’s record.
Effect on BRS: This difference increases overdraft from the bank’s perspective, so we add ₹
1,800.
Step 3: Preparing the BRS table
Let’s now list all adjustments in a proper table format.
Bank Reconciliation Statement as on 31st March, 2022
(Starting from overdraft as per Cash Book)
Particulars
Amount (₹)
Amount (₹)
Overdraft as per Cash Book
52,100
Add:
Cheque deposited but not cleared
11,160
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Bank paid creditor not recorded
10,500
Bank charges not recorded
120
Error in deposit recording
1,800
Total Additions
23,580
Sub-total
75,680
Less:
Cheques issued but not presented (38,580 + 4,320)
42,900
Amount deposited by debtor directly
9,000
Interest credited by bank
180
Total Deductions
52,080
Balance as per Pass Book (Overdraft)
23,600
Final Answer:
Overdraft as per Pass Book = ₹ 23,600
Step 4: Wrapping up with a short story
Think of it like this:
You and your bank are like two friends keeping a record of the same money but in different
diaries. You both agree on the big picture but sometimes forget to tell each other about
certain entries — or note them down at different times.
At the end of March, you sat down with both diaries and compared notes. You found that
some cheques were slow to clear, some payments went out before you noted them, some
deposits sneaked in without you knowing, and even a small recording mistake made your
diary look a little too happy.
By patiently adjusting for each difference — just like we followed each “clue” — you finally
solved the mystery:
The bank says you owe them ₹ 23,600, and now your records agree.
That’s the beauty of a Bank Reconciliation Statement — it’s not just numbers, it’s about
making two different worlds match perfectly.
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SECTION-C
5. Explain the meaning and objectives of Financial Statements. Who are the main users of
financial statements? Explain in detail.
Ans: Meaning and Objectives of Financial Statements
Imagine for a moment that you are the captain of a ship sailing across the ocean. You cannot
see all the dangers or treasures just by looking at the waves. You need a map and a logbook
that tell you where you’ve been, what resources you have, and how far you can go.
In the world of business, financial statements are exactly like that map and logbook. They
tell the story of a company’s journey in terms of money — where it earned, where it spent,
and what it owns or owes.
Definition:
Financial statements are formal records of the financial activities, performance, and position
of a business, prepared in a structured manner so that they can be understood by people
who need to make decisions about the business.
They usually include:
1. Income Statement (Profit & Loss Account) – shows revenues, expenses, and profit
or loss during a period.
2. Balance Sheet – shows assets, liabilities, and owner’s equity at a specific date.
3. Cash Flow Statement – shows cash inflows and outflows during a period.
4. Notes to Accounts – additional explanations, policies, and details.
Why do we prepare financial statements?
To answer that, let’s think of a short story.
Story – “The Curious Investor”
Once there was a man named Arjun who wanted to invest in a small bakery run by his friend
Meera. Before putting in his money, Arjun asked,
“Meera, how is your bakery doing? Are you making profits? How much do you owe to
others? Do you have enough cash to buy new ovens?”
Meera could have just said, “Don’t worry, my bakery is doing fine.”
But Arjun wanted proof, not just words. So Meera showed him her financial statements —
the income statement showed a steady profit, the balance sheet revealed that debts were
small compared to assets, and the cash flow statement showed enough liquidity to expand.
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Arjun smiled and invested confidently.
This is exactly why businesses prepare financial statements — they help people make
informed decisions instead of relying on guesswork.
Objectives of Financial Statements
Financial statements are not made just for formality. They have specific goals:
1. To provide information about financial performance
o They show how much profit or loss a business has earned in a given period.
o Example: If a shop earned ₹5 lakh revenue but spent ₹4 lakh on expenses,
the net profit is ₹1 lakh.
2. To show financial position at a particular date
o The balance sheet tells us what the business owns (assets) and owes
(liabilities), along with the owner’s equity.
3. To provide information about cash flows
o Cash is the lifeblood of any business. Financial statements reveal whether the
business is generating enough cash to sustain operations and grow.
4. To help in decision-making
o Managers use them to plan budgets, investors use them to decide whether to
invest, and lenders use them to judge repayment ability.
5. To meet legal and regulatory requirements
o In many countries, companies are legally required to prepare and publish
financial statements annually.
6. To enable comparison
o We can compare performance over time (this year vs. last year) and with
other companies in the same industry.
7. To communicate with stakeholders
o Financial statements are a common language between the business and its
stakeholders — they translate business activities into numbers that everyone
can understand.
Main Users of Financial Statements
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Different people look at financial statements for different reasons. Let’s divide them into
two broad groups:
1. Internal Users
These are people inside the business who need information to manage day-to-day activities.
• Owners/Shareholders
o They have invested their money and want to know if the business is
profitable and growing.
o They check profits, dividends, and overall worth of the business.
• Management
o They use financial statements to plan strategies, control costs, set prices, and
decide on expansion.
• Employees
o They are interested in the stability and profitability of the company because it
affects their job security, salaries, and bonuses.
2. External Users
These are people outside the business who are affected by its financial health.
• Investors & Potential Investors
o They study the statements before buying shares or investing in the company.
They look at profit trends, growth potential, and risk levels.
• Creditors & Suppliers
o They want to know if the company can pay its debts on time before
extending credit.
• Banks & Lenders
o They examine financial health before approving loans.
• Government & Regulatory Authorities
o They use statements to ensure tax compliance and check if the business
follows laws.
• Customers
o Large clients may check the stability of a supplier to ensure they can deliver
long-term contracts.
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• Public & Researchers
o Economists, analysts, and even the general public may study them to
understand industry trends.
Why are financial statements important for each user?
Let’s connect the dots with another small example:
Story – “The Expanding Factory”
A garment factory wanted to open a new branch. The owners checked last year’s financial
statements to confirm they had enough profit to invest. The bank examined the balance
sheet to ensure the company was capable of repaying a loan. The employees felt more
secure knowing the cash flow was healthy. The suppliers were willing to provide raw
materials on credit because the statements showed strong payment history.
One set of financial statements — and so many decisions became easier!
Conclusion
Financial statements are not just about numbers on paper — they are the heartbeat of a
business. They tell the story of how the business has been performing, where it stands
today, and where it might go tomorrow.
Their objectives are clear:
• Show performance
• Reveal financial position
• Help decision-making
• Maintain transparency
• Fulfil legal requirements
And their users are many — from owners and managers to investors, lenders, and even the
public.
In simple words, if business is a machine, then financial statements are the dashboard —
without them, you might keep moving but have no idea whether you’re heading toward
success or disaster.
6. Following is the Trial Balance of Mr. Anand a sole proprietor :
Trial Balance
As at 31st March, 2022
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Particulars
Dr.(Rs.)
Cr.(Rs.)
Cash in hand
31.700
-
Purchase
4,06,750
-
Sales
-
9,87,800
Returns inward
6,800
-
Wages
1,04,800
-
Sundry Creditors
-
63,000
Sundry Debtors
1,45,000
-
Capital
-
7,10,000
Return Outward
-
5,000
Power and Fuel
47,300
-
Drawings
52,450
-
Carriage on Sales
32,000
-
Carriage on Purchase
20,400
-
Stock on 1st April. 2021
57,600
-
Building
3,50,000
-
Car
50,000
-
Machinery
2,70,000
-
Salaries
1,60,000
-
General Exp.
30,000
-
Insurance (Annual Premium)
-
paid on 1st October, 2021)
6000
-
Salaries Outstanding
-
5000
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Total
17,70,800
17,70,800
Taking into consideration the following adjustment, prepare Trading and Profit and Loss
Account for the year ended 31st March, 2022 and Balance Sheet as at that date:
(1) Closing Stock at market price as on 31st Mach, 2022 Rs. 80,000. However its cost was Rs.
70,000.
(2) Provide Depreciation on Machinery @ 10%.
(3) A fire occurred on 1st April, 2022. destroving goods costing Rs. 5,000.
(4) The cat was sold at book value on April, 2021 and the cash was used for personal need
by Mre Anand--account for this left unrecorded.
Ans: The Story Begins
Imagine Mr. Anand, a hardworking shop owner, who has been running his business for
years. On the night of 31st March 2022, he sits down to prepare his financial statements. His
trial balance is ready — it’s like a giant grocery bill showing all the money he spent and
earned.
But before finalizing, there are a few adjustments. It’s like when you cook a dish — even
after it’s cooked, you taste it and add some salt, garnish, or a squeeze of lemon to make it
just right. These adjustments are our “final seasoning” before we prepare the Trading
Account, Profit & Loss Account, and Balance Sheet.
Step 1 – Understanding the Trial Balance
A trial balance is a list showing debit (Dr.) balances and credit (Cr.) balances. Debit side
mostly shows assets and expenses, while credit side mostly shows liabilities, incomes, and
capital.
From the trial balance, we have:
• Debit: Purchases, wages, assets like building/machinery, salaries, expenses, etc.
• Credit: Sales, creditors, capital, etc.
Step 2 – Understanding Adjustments
The problem gives us 4 adjustments. Let’s unpack them one by one.
1. Closing Stock at Market Price Rs. 80,000; Cost Rs. 70,000
o In accounting, we follow cost or market price whichever is lower for stock
valuation.
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o Here, cost = Rs. 70,000, market price = Rs. 80,000, so we take Rs. 70,000 in
the accounts.
2. Depreciation on Machinery @ 10%
o Machinery value = Rs. 2,70,000.
o Depreciation = 10% of 2,70,000 = Rs. 27,000.
3. Fire destroyed goods costing Rs. 5,000 on 1 April 2022
o This event happened after the financial year ended.
o Since it’s after 31 March, we do not adjust it in the current year’s accounts —
but it can be mentioned in notes if needed.
4. Car was sold on 1 April 2021 at book value, but not recorded; cash used for
personal need
o Book value of car = Rs. 50,000 (from trial balance).
o Sale at book value = Rs. 50,000.
o Since the money was used for personal use, it’s treated as drawings.
o We remove the car from the assets and add Rs. 50,000 to drawings.
Step 3 – Preparing the Trading Account
The Trading Account tells us the gross profit — basically how much profit we made from
buying and selling goods before paying for other expenses.
Trading Account for the year ended 31 March 2022
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
Opening Stock
57,600
Sales
9,87,800
Purchases
4,06,750
Less: Returns Inward
(6,800)
Less: Returns Outward
(5,000)
Net Sales
9,81,000
Net Purchases
4,01,750
Closing Stock
70,000
Wages
1,04,800
Power & Fuel
47,300
Carriage on Purchases
20,400
Total
6,31,850
Total
10,51,000
Gross Profit c/d
4,19,150
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Grand Total
10,51,000
Grand Total
10,51,000
So, Gross Profit = Rs. 4,19,150.
Step 4 – Preparing the Profit & Loss Account
Now we calculate net profit after deducting all expenses and adding other incomes.
Profit & Loss Account for the year ended 31 March 2022
Particulars
Amount (Rs.)
Particulars
Amount (Rs.)
Salaries
1,60,000
Gross Profit b/d
4,19,150
Add: Salaries Outstanding
5,000
Total Salaries
1,65,000
Carriage on Sales
32,000
General Expenses
30,000
Insurance
6,000
Depreciation on Machinery
27,000
Total Expenses
2,60,000
Net Profit
1,59,150
Grand Total
4,19,150
Grand Total
4,19,150
So, Net Profit = Rs. 1,59,150.
Step 5 – Preparing the Balance Sheet
This is the final picture of Mr. Anand’s financial position.
Balance Sheet as at 31 March 2022
Liabilities
Amount (Rs.)
Assets
Amount (Rs.)
Capital
7,10,000
Building
3,50,000
Add: Net Profit
1,59,150
Machinery
2,70,000
Add: Drawings (car sale)
(50,000)
Less: Depreciation
(27,000)
Less: Drawings (cash)
(52,450)
Machinery (Net)
2,43,000
Adjusted Capital
7,66,700
Closing Stock
70,000
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Sundry Creditors
63,000
Sundry Debtors
1,45,000
Salaries Outstanding
5,000
Cash in Hand
31,700
Total
8,34,700
Total
8,34,700
Step 6 – Story Twist & Moral
When Mr. Anand looked at his final Balance Sheet, he smiled. Last year, he had been
worried about expenses eating into his profits. But this year, with careful planning, he made
a neat profit of Rs. 1,59,150.
The unrecorded car sale was a reminder that every single transaction matters — just like in
life, where even small habits affect your overall health, in accounting even one missed entry
can change the final picture.
Key Takeaways (For Students)
1. Adjustments are like final spices in cooking — they make the statements correct and
complete.
2. Always follow cost or market value whichever is lower for stock.
3. Depreciation is not optional — it’s like wear and tear that happens no matter what.
4. If an asset is sold and money is used for personal needs, treat it as drawings.
5. Separate Trading Account (gross profit) and Profit & Loss Account (net profit) before
preparing the Balance Sheet.
SECTION-D
7.(a) Why there is a need for computerized accounting system?
(b) "Voucher entry in computerized accounting system is the end of accounting process."
Explain.
Ans: The shopkeeper’s new register
When Ramesh, a small-town shopkeeper, first kept his accounts, it was with a thick ledger,
sharpened pencils, and neat handwriting. But as his shop grew—more suppliers, daily
customers, GST returns, multiple bank transactions—he found himself spending hours just
adding, cross-checking, and flipping pages to find one figure. One evening, his nephew
installed a simple accounting software on the shop computer. Suddenly, Ramesh could see
profit summaries, stock levels, and pending payments in seconds. That change—shifting
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from paper to program—is the story of why computerized accounting systems have become
a necessity.
(a) Why there is a need for a computerized accounting system
A computerized accounting system (CAS) is essentially software that records, stores,
processes, and reports an organization’s financial data with the help of computers. The need
for such systems arises from the changing nature of business, regulatory requirements, and
the limitations of manual bookkeeping.
1. Speed and efficiency
• Computers can process transactions and generate reports almost instantly.
• What takes hours manually—like preparing a trial balance or GST return—can be
done in seconds.
• Example: Monthly closing in a supermarket chain can shift from a 3-day manual task
to a few hours with CAS.
2. Accuracy
• Minimizes human arithmetic errors through automated calculations.
• Built-in checks (e.g., voucher totals must match) help prevent data entry mistakes.
3. Real-time information
• CAS updates ledgers instantly when a transaction is entered.
• Managers can make decisions based on current data, such as today’s cash position or
receivable aging.
4. Data storage and retrieval
• Years of records can be stored without bulky ledgers.
• Search functions retrieve a specific invoice or payment in seconds.
5. Regulatory compliance
• Easily generates statutory reports like GST returns, TDS statements, balance sheets
in prescribed formats.
• Keeps up with changes in tax rates or formats via software updates.
6. Security and control
• User access levels protect sensitive information.
• Audit trails record who entered or modified each transaction.
7. Integration
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• Links accounting with inventory, payroll, CRM, and bank feeds—reducing
duplication.
• Example: Selling an item automatically updates stock and records the sale in
accounts.
8. Cost effectiveness over time
• Though initial setup costs exist, CAS reduces staffing needs for routine tasks, lowers
audit costs, and saves on paper/storage.
9. Scalability
• Handles large transaction volumes without extra complexity.
• Multiple branches can be consolidated in real time.
10. Analysis and decision-making
• Offers built-in financial ratios, trend charts, and customizable reports.
• Supports budgeting and forecasting.
In short: CAS meets the modern need for speed, accuracy, compliance, and insight in
financial management—things manual systems struggle to match.
(b) "Voucher entry in computerized accounting system is the end of accounting process."
Explain.
On the surface, it might sound odd to call “voucher entry” the end—isn’t entering the
voucher just data entry? In a manual system, it certainly isn’t the end; after writing a
voucher, you still post it to ledgers, balance accounts, prepare trial balances, and finally
compile financial statements. But in a computerized system, the act of entering a voucher
often completes the chain automatically.
Understanding voucher entry
A voucher in accounting is the primary record of a transaction—sales, purchases, receipts,
payments, journal adjustments. In CAS:
1. Select voucher type (sales, purchase, payment, receipt, contra, journal, etc.).
2. Enter details: date, accounts involved, amounts, narration.
3. Save/post the voucher into the system.
Why voucher entry is considered the end
In CAS, the moment you save a voucher, the software:
• Posts to all relevant ledgers automatically:
o Debit and credit entries are made in respective accounts.
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o The double-entry principle is enforced by design.
• Updates subsidiary records:
o Sales voucher updates customer ledger and inventory.
o Payment voucher updates bank ledger and reduces outstanding payables.
• Recalculates balances:
o Trial balance, profit/loss, and balance sheet are instantly updated.
• Generates reports:
o The entered data is now part of GST returns, receivable/payable lists, cash
flow statements, etc.
Example flow: Payment voucher in CAS
Let’s say Ramesh pays ₹50,000 to Supplier A via bank transfer:
1. Voucher entry: Payment voucher → Bank A/c (Credit ₹50,000), Supplier A/c (Debit
₹50,000), narration added.
2. Behind the scenes:
o Supplier ledger balance reduces.
o Bank account balance reduces.
o Cash flow statement shows the outflow.
o If linked, the system marks the related purchase invoice as paid.
No further posting or balancing is needed; the CAS has updated everything in real time.
The automation factor
In manual accounting:
1. Prepare voucher.
2. Post to journal.
3. Post to ledger.
4. Prepare trial balance.
5. Compile final accounts.
In CAS:
• Step 1 triggers steps 2–5 automatically.
• That’s why the voucher entry is effectively the end of the accounting process—it’s
the single point of input from which the system handles all subsequent stages.
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But there’s still review and control
While voucher entry completes the processing, the accountant’s role includes:
• Verifying the source documents (invoice, receipt).
• Ensuring correct accounts and amounts are chosen.
• Reviewing reports for anomalies.
• Handling period-end adjustments and audit requirements.
So, “end” here means end of the mechanical posting process, not the end of all professional
judgment.
Linking the two parts
• Need for CAS: To handle modern transaction volumes accurately, quickly, and in
compliance with regulations.
• Voucher entry as the end: In CAS, the single act of entering the voucher cascades
through all books, updating and producing the outputs that, in manual systems,
require many subsequent steps.
A short story to tie it together
Think of a traditional kitchen versus a smart kitchen. In the old kitchen, to make tea you’d
fetch water, light the stove, watch the boil, add leaves, strain, and pour. In the smart
kitchen, you fill the kettle, press a button, and it boils, steeps, and pours for you—
consistently every time. In accounting, the manual system is that old kitchen: each stage is
separate. CAS is the smart kitchen: voucher entry is that single button, and the rest happens
automatically. But just as a smart kettle still needs good water and tea leaves, CAS still relies
on accurate, verified inputs.
8. Explain the main points to be considered while going through the annual report
of a company.
Ans: The curious case of Meera and the mystery report
One rainy afternoon, Meera, a commerce student, decided to help her father—who owned
a small trading firm—by reading the annual report of a listed company he wanted to invest
in. At first glance, the report looked like a maze of numbers, charts, and formal statements.
But as she read, she began to see it not as a dull pile of pages, but as the company’s yearly
diary—telling the story of where it had been, how it had fared, and where it was heading.
Let’s follow Meera’s journey and see the main points she discovered one should check while
going through any annual report.
1. Company Profile and Chairman’s Message
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• Why it matters: This section introduces the company—its history, products, markets,
and goals. The Chairman’s or CEO’s message provides a high-level overview of
achievements, challenges, and the company’s vision.
• What to look for: Any major changes in direction, mention of new ventures, or how
the company plans to tackle challenges.
• Story link: Meera realised that a confident, realistic message—not overly rosy—
tends to signal good governance.
2. Director’s Report
• Why it matters: This is the board’s formal account of the company’s activities over
the year.
• What to look for:
o Financial performance summary.
o Dividends declared.
o Major projects undertaken or dropped.
o Changes in directors or top management.
o Corporate social responsibility (CSR) activities.
• Tip: Meera learned that sudden resignations in leadership or repeated delays in
projects could be red flags.
3. Auditor’s Report
• Why it matters: This is an independent opinion on the accuracy and fairness of the
financial statements.
• What to look for:
o Clean opinion: Means the financials comply with accounting standards.
o Qualified opinion: Signals some issues.
o Emphasis of matter: Draws attention to specific concerns (e.g., pending legal
cases).
• Meera’s observation: Even a healthy profit means little if the auditor warns about
“going concern” issues.
4. Financial Statements
• The heart of the annual report—like a health report card.
a) Balance Sheet
• Shows the company’s assets, liabilities, and shareholder equity at year-end.
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• Look for trends: rising debt, shrinking cash, or growing fixed assets.
b) Profit & Loss Account
• Reveals income, expenses, and net profit.
• Compare with previous years for growth or decline.
c) Cash Flow Statement
• Tracks actual inflow and outflow of cash—sometimes profits look good, but cash is
tight.
• Operating cash flow should ideally be positive and stable.
5. Notes to Accounts
• Why it matters: They hide in the back pages, but often contain vital details—
accounting policies, contingent liabilities, related party transactions.
• Example: Meera found that a company with great profits also had a huge pending
tax dispute disclosed here.
6. Management Discussion and Analysis (MD&A)
• Why it matters: Explains why the numbers look the way they do.
• Covers industry trends, risks, opportunities, business strategies, and future outlook.
• Tip: Consistency between MD&A optimism and actual results builds credibility.
7. Corporate Governance Report
• Why it matters: Shows how the company is run—board composition, committees,
ethics policies.
• Transparent governance often means lower risk of fraud.
8. Shareholder Information
• Includes shareholding pattern, dividend policies, stock exchange listings, key contact
information.
• Investors check if promoters are increasing or decreasing their stake.
Another story — The detective mindset
After a month, Meera compared two companies’ reports. One had flashy photos and
inspirational quotes but vague numbers; the other was modest in style but detailed in
disclosures. Her father chose the second—and later avoided losses when the first was fined
for hiding debts. Moral: An annual report is part art, part truth—your job is to read between
the lines.
Key Takeaways for Exam and Real Life
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1. Don’t just look at profit—check cash flow and debt levels.
2. Read the auditor’s report carefully—it’s like a truth serum.
3. Compare year-on-year numbers for trends, not just one year’s performance.
4. Check governance and ethics—bad governance can sink a company despite profits.
5. Use notes and MD&A to understand the story behind the numbers.
Final thought: An annual report is like a novel where the main characters are facts and
figures, and the plot is the company’s journey through a financial year. Just as a good reader
can sense the twist in a story before it happens, a smart investor—or student—can pick up
the signals in an annual report before the market reacts.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
