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Accounting, as an information system is the process of identifying, measuring and

communicating the economic information of an organization to its users who need the
information for decision making. It identifies transactions and events of a specific entity. A
transaction is an exchange in which each participant receives or sacrifices value

“Accounting” is defined by the committee on terminology of the American Institute of Certified

Public Accounts as “Accounting is the art of recording. classifying and summarizing in a
significant manner and in terms of money. transactions and events

Steps of Accounting Preparation of Journal: Journal is called the book of original entry. It
records the effect of all transactions for the first time. Here, the job of recording takes place.
Preparation of Ledger: Ledger is the collection of all accounts used by a business. Here the
grouping of accounts is performed. Journal is posted to ledger. Trial Balance preparation:
Summarizing. It is a summary of ledger balances standing in the different ledger account.
Preparation of Final Account: At the end of the accounting period to know the achievements of
the organization and its financial state of affairs, the final accounts are prepared

Functions of Accounting Record Keeping Function Managerial Function Legal Requirement

function Language of Business

Objectives of Accounting To keeping systematic record To provide full, accurate and meaningful
financial information: To ascertain the results of the operation: To ascertain the financial position
of the business To portray the liquidity position: To protect business properties To satisfy the
requirements of law

Book-keeping Bookkeeping is the science and art of correctly recording business transactions in
books of account that result in the transfer of money or mney’s worth in such a manner that, at
any subsequent date, their nature and effect may be clearly understood, and that, when required,
a combined statement of their results may be prepared. The work of BookKeeping is generally
performed by employees who are responsible to maintain various types of books of original
records. The entries are made on the basis of original documents and are recorded in primary
books as cash book, sales book etc.

Advantages of accounting The double entry system of book-keeping has many advantages such
as: a. It provides a complete or full record of all the business transactions, as it records both the
aspects of each and every transaction. b. As the transactions are recorded in a scientific and
systematic manner under this system, it provides complete and authentic record of all the
transactions of books of accounts. c. The arithmetical accuracy of books of accounts can be
checked by preparing a trial balance, the opportunity for misappropriation and fraud are reduced
to the minimum. d. As nominal accounts are maintained, it is possible to prepare profit and loss
account and find true net profit or net loss for a particular period. f. It facilitates the comparison
of purchases, sales etc. of one year with similar items of previous years and helps the concern to
evaluate, monitor and control the deficiencies.
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The limitations of accounting are: a. It records only monetary transactions b. It is of historical

in nature – cost wise. c. It presents the picture for a limited period or at a moment of time d. It
does not provide for evaluation of business policies and plans e. It lacks precision and data are
based on conventional procedures, concept, convention and personal judgment.

three main branches of accounting are; a. Financial Accounting This is concerned with the
recording of business transactions in a set of books and the periodic presentation of the financial
data recorded in the books of account, through financial statements like the profit and loss
account and balance sheet to the stakeholders which enables them to take decisions. Cost
Accounting It relates to the classifying, recording and appropriate allocation of expenditure for
the determination of the costs of products or services; and for the presentation of suitably
arranged data for purposes of control and guidance of the management. b. Management
Accounting This is the art or technique of analysis and interpretation and presentation of facts,
results and information revealed by financial accounting, cost accounting and other books and
records kept by the business for the benefit of persons who are in charge of managing the
business.

Accounting principle As per American Institute of Certified Public Accounting (AICPA) the
term principle means. “As a guide to action, a settled ground or basis of conduct or practice.” It
refers to bringing uniformity in terminology, approach and presentation of financial data that
convey the same meaning o all people involved in using the information. The accounting
principle discussed as follows

accounting concepts a. Entity concept, Dual Aspect Concept Accounting Period concept Going
Concern concept Cost ConceptMoney Measurement Postulate Matching Concept Realization
Concept Accrual concept Rupee Value Concept

Accounting convention Convention of Full Disclosure b. Convention of Conservatism c.

Convention of Consistency d. Convention of Materiality

Single Entry System In this system only one aspect is recorded for most of the transactions and
there are no rules which are generalized for recording transactions. This system is followed by
firms whose transactions are limited, maintain essential records and depends on circumstances
and necessity of the firm. Some of the features are: There is no uniformity regarding recording of
business transactions 1.7.2 All accounts are not maintained and mostly personal accounts are
recognized 1.7.3 Gives only partial information and not the full information of the business.
1.7.4 It is a simple and economical system of accounting. 1.7.5 The disadvantages of the system
are the outsiders such as Banks, I.T. authorities etc. do not rely on this system;

Day Book All transactions are recorded in the first instance in the day book, it is a book of
original entry. It contains receipts and payments sides and serves as a cash account. Transactions
involving receipts of money are entered on the “Receipts” side and those involving payments of
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money on the “Payments” side. Day book can also be with three columns meant for cash,
adjustment and total cash column. This is simpler style suits the need of smaller enterprises

Double Entry System Invented by Italian merchant named Luco Pacioli in 1494 A.D, a
business transaction involves exchange of equal values or benefits, i.e. the receiving of some
benefit (say, commodity, right or service) of some value, and the giving of some other benefit (
say some other commodity, right or service) of equal value. The receiving of some benefit called
receiving aspect or debit aspect and the giving of some other benefit called the giving aspect, the
credit aspect. The system of making two or double entries of equal value in two different
accounts on opposite sides in the books of each of the contracting parties is known as the double
entry system of book-keeping

Advantages
are recorded in a scientific a
adopted by all types of concerns, sole trading, partnership and joint-
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misappropriation and fraud are reduced to the minimum. This system can satisfy the outsiders
The records, accounts and
statements may be produced in court of law as a proof for any disputes.

factors which are common to every business: 1. The business has to enter into business
dealings with a number of persons or firms. So, an account of each firm or person, with whom
the business has business dealings, is opened. Such accounts are known as Personal Accounts,
The business must necessarily have some assets such as stock, cash, furniture, etc. with the help
of which the business may be carried on. Therefore, an account of each asset in the business is
opened. Such accounts are known as Real or Property Accounts. The examples of Real
Account are Machinery A/c, Furniture A/c etc. 1. There must be certain resources from which
the income of the business is derived. Similarly certain expenses must be incurred to earn the
income. Therefore an account of each expenses and income is opened in the books. Such
accounts are known as Nominal of Fictitious Accounts. The examples of Nominal Account are
Salary A/c, Interest A/c, Rent A/c, Dividend A/c etc

TYPES OF ACCOUNT The accounts maintained may be classified into two broad classes, i.
Personal Accounts; ii) Impersonal Accounts. The Impersonal Accounts may be subdivided into
Real, Asset or Property Accounts and Nominal or Fictitious accounts.

Accounting Rules To convey uniformity in terminology, approach and presentation of data and
results to all the stakeholders of accounting, accounting rules, principles, procedures and
standards are framed. The accounting principles are classified into Accounting
Postulates/assumptions or conditions; accounting concepts, general laws or rules; accounting
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conventions/customs or traditions are classified as Personal account; Real Account and Nominal
Account

Rules of Double Entry Book –Keeping: It means recording of both receiving and giving aspects
of each transaction. In other words, in a transaction, when one account receives a benefit of
certain value, another account provides a benefit of the same value. Thus, for every debit there is
a corresponding credit. This is the basic principle of Double entry book-keeping.

Accounts Debit Credit Personal The receiver The giver Real What comes in What goes out
Nominal Expenses and Losses Income and Gains

Common Accounting System Earlier preparation of financial statements, viz., Trading

Account, Profit and Loss Account and Balance Sheet as per the relevant provisions of the State
Co-operative Societies Acts, instructions / guidelines issued by the Registrar of Cooperative
Societies or Director of Cooperative Audit or as per the local conventions / practices etc. In order
to ensure Uniform Accounting System in PACS and preparation of common financial statements
by adopt prudential norms. NABARD has devised the common accounting system.

Major Components of CAS • A common set of vouchers in the prescribed form for different
types of transactions. • Uniform and standardized set of books of accounts. • Uniform / standard
formats for financial statements, viz., Trading Account, Profit and Loss Account and Balance
Sheet. • Uniform set of registers relating to accounting transactions

Salient Features of CAS The Common Accounting system has been developed based on a set of
assumptions (also known as Accounting Concepts), principles and rules. These are necessary to
ensure that everyone, who maintains the accounts, understands records and interpret the
transactions in the same way as they are intended to be under the accounting system. The CAS
has adopted certain universally accepted concepts and principles and rules to ensure quality and
transparency in maintenance of accounts. Training Programmes on CAS to the PACS staff
members are conducted as prescribed by NABARD. It is informed by DCCBs that there are no
practical problems in the implementation of CAS

BASIC ACCOUNTING PRINCIPLES AND POLICIES FOR CAS Accounting

Assumptions: • Going Concern – The society is viewed as a business concern that will continue
its operations in the foreseeable future. • Consistency – It is assumed, the accounting policies
adopted are consistent from one period to another. • Business Entity – It is distinct from its
members i.e., it is a separate entity even though it has been formed by its members. •
Accounting Period – Accounting transactions will be done for a specific period of time, usually
for one year periods, say from April of one year to March of next year. • Money Measurement
– The transactions can be measured in terms of money inflow or outflow. • Dual Aspect – Every
transaction recorded in the books will have two aspects viz., debit and credit for identical and
equal amount.. • Accrual – Revenues and costs are recognized as they are earned or incurred and
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not as money is received or paid, and are recorded in the accounting records and reported in the
financial statements of the periods to which they relate.

Accounting Principles followed under CAS • Double-entry book-keeping system. All

transactions to have debit and credit voucher of equal amount. • Distinctions to be drawn
between capital expenditure and revenue expenditure and capital receipts and revenue receipts. •
Financial statements must be prepared on historical cost basis and should conform to statutory
provisions and practices

Books of accounts maintained by PACS Book keeping essentially involves recording of day-
to-day business transactions in a set of books called Books of Accounts in a systematic manner.
The set of books prescribed for PACS under CAS can be classified into two categories viz.,
(1) Books of original entry or primary entry, viz., Cash Book, Bank Book and Day Book and (2)
Books of Secondary or derived entry called General Ledger. In addition to Cash Book, Bank
Book, Day Book and General Ledger, some more books and register have been prescribed under
CAS. They are Subsidiary Ledgers and Registers. Subsidiary ledger is a detailed version of
General Ledger Account. Registers are for exercising control over certain items of transactions.
The books suggested for PACS have been organized and designed for recording accounting data
pertaining to financial and non-financial activities of the PACS, mainly share capital, deposit,
investment, credit and non-credit activities. Details of important books of accounts / registers

Books and Records All of the documentation in manual or computerized form of records
relating to monetary transactions, expenses, payments, assets, liabilities, ledgers, journals and
supporting documents such as checks and invoices. The term ‘accounting book’ is used to
describe a company’s general accounting ledger, subsidiary ledgers, journals which includes
information regarding vendors, customers and materials suppliers that contain much detail of
business operations and financial reporting needs.

Journal is a ‘daily record’ of day-to-day transactions in a chronological order i.e. in the order in
which they took place. It is a book of prime, first or original entry and shows both aspects (debit
and credit) of each transaction along with a brief explanation (narration) of each entry. It is also
called a subsidiary book, i.e. subordinate to ledger

Preparation of journal 1. Firstly: Two accounting heads involved in the transaction need to be
identified. 2. Secondly: Identify the nature of two accounts involved i.e. personal, real or
nominal accounts. 3. Thirdly: Apply the relevant rules of debit and credit to decide on the
account which to be debited and which to be credited. 4. Fourth: Accounting entry should be
passed in the journal in the particulars column.

Types of Journal General Journal Purchase Book The purchase book (also called purchase day
book, purchase journal, bought book or invoice book) is used for recording only credit products
of goods Sales book This is also called sales day book, sales journal or pay book and is used for
recording only credit sales of goods. Whenever goods are sold by a concern on credit, an invoice
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is prepared in duplicate called outward invoice Purchase returns book This book records the
details of return of goods to the suppliers which may be due to goods not upto the sample, goods
received are of wrong kind, damaged, defective or goods supplied not according to the terms and
conditions agreed upon between business enterprise and the supplier, whenever goods are
returned to a supplier or an allowance is claimed from a supplier, a statement known as ‘Debit
Note’ is prepared. Sales return book (Return inward book) When a businessman is obliged to
take back from his customer some of the goods sold on account of leakage, storage or
overcharge, the recording of such activity or allowances granted to his customers, is made in
sales return book or return inward book Bill Receivable Book In case of credit sales, sometimes
a bill of exchange payable at some future time is drawn by the seller on the purchaser and it is
accepted by the purchaser. Bill of exchange is a promise to pay the amount specified therein on
the expiry of the period for which the bill is drawn. Bills payable book Bills payable book is
maintained by the acceptor of the bill to record the bills accepted by him. Bills payable book
contains details of number of bills, date of receipt, date of bill, by whom drawn, name of drawer,
due date of bill, amount in Rs. Remarks column only notes encashment or dishonor of the bill on
the date of maturity which is recorded in journal proper and entry for encashment appears in cash
book.

Cash Book Meaning: Many business concerns have transactions relating to cash in the form of
receiving of cash (cash receipts) and payment of cash (cash payment). The book which records
the cash receipts and cash payments in a chronological order for a particular given time period
and reflecting the position of cash balances is called a cash book. Cash book is termed as a book
of original entry as all cash transactions are first recorded in cash book. It also acts as a ‘ledger
account’, because the cash book itself a separate cash account opened in a ledger form

types of cash book are a. Simple or single column cash book b. Two column cash book with
discount and cash column c. Three column cash book with discount, cash and bank column

Single cash book: A cash book containing only on column cash for recording of cash on either
side. All cash receipts are recorded on the left hand side, i.e. receipt side and all cash payments
recorded on the right hand side, i.e. payment side.Two Column Cash Book Most of the
concerns allow discount to their customers (debtors) when they pay their dues promptly and at
the time of receipt of cash. Similarly, concerns receive discount from creditors when due are
paid promptly at the time of cash paymentThree Column Cash Book The cash book which
contain the bank column in addition to discount and cash column. Generally, a concern opens a
current account with a bank and deposits surplus money and withdraws whatever amount he
requires from time to time

Petty cash book is a subsidiary book which is used for recording all petty or small payments
incurred towards postage, printing and stationery, cartage, conveyance, advertisement, sundry
expenses etc Pety cash book is written by a separate person known as ‘Petty Cashier’ who is
given a certain sum of money known as petty cash
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Ledger is a book that contains transactions of same type classified and grouped together in the
form of an account. L.C.Cooper defines, ‘The book in which a trader’s all transactions are
recorded in a classified permanent form is called the ledger’. Ledger contains personal, real and
nominal type of accounts

Posting of Journal to Ledger

A separate account be opened for each of account head found in the journal and the transactions
pertaining to that account head should be entered in that account only. No other new account of
the same name should be opened in the ledger. 2. The account name should be written on the
‘top and in the centre’ of the account. 3. ‘Dr’ word should be written on the left had side corner
of each account and ‘Cr’ word be written at the right hand corner of each account. 4. All the
journal entries should be posted as per the order of their dates into the account. 5. Every
accounting entry on the debit side in the account should begin with the word ‘To’ and that on the
credit side begin with ‘By’ words. 6. While posting in the particulars column of the account, the
name of the account which is credited in the journal should be written on the debit side. On the
credit side of the account in the particulars column, the name of the account which is debited in
the journal should be written. 7. In the ‘J.F.’ column the page number of the Journal should be
entered. 8. The balancing of the ledger account should be done periodically.

difference between journal and the ledger.

JOURNAL LEDGER It is a book of first entry It is a book of final entry It is a subsidiary book
It is a principal book Transactions recorded daily Transactions are recorded periodically.
Recording of transactions is called journalising Recording of transactions is called posting
Explanation/narration of every transaction/entry is written. Explanation/narration of every
transaction/entry is not written. The summary information of an account is not found at one place
The summary information of an account is found at one place. Both aspects of debit and credit of
a transaction is recorded/found Only one aspect of a particular account is found at one place. It is
prepared with the help of memorandum book of vouchers, receipts, invoices, debit notes and
credit notes. It is prepared with the help of journal. It helps in preparing of ledger accounts It
helps in preparation of trial balance and final accounts. In the court of law/legal matters, journal
is treated as the main evidence. In the court of law/legal matters, ledger is treated as additional
evidence.

Trial Balance The books of accounts are prepared based on the double entry system of book-
keeping. It has already been seen in the double entry that for every transaction two entries are
made in the ledger account, a debit entry and a credit entry, and amount written on the debit side
of various accounts is always equal to the amounts entered on the credit side of accounts and
vice versa.

Objectives 1. The main objective is to establish the arithmetical accuracy of transactions

recorded in books of accounts. 2. It facilitates the preparation of final accounts at the end of an
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accounting period. 3. It enables the firm to ascertain the amount receivable from customers and
amount payable to suppliers.

Methods Total Method: Under this method take the totals of the debit and credit column of
each ledger account and totals of receipts and payment of cash books showing separately cash,
bank and discount column as per cash book on to a statement Balance Method: Under this
method the debit and credit balances of ledger accounts are entered in the trial balance

Kinds of Errors Errors of omission: When a transaction has not written in journal or
subsidiary books by omission or not entered in both the debit and credit side in ledger accounts it
will be a case of errors of omission. For example, Goods sold to Ram of Rs 5000/- but not
entered in books by omission. Error of Commission: if a transaction is recorded by wrong
amount or wrong accounts in primary books or posted twice or more in the ledger account in
both sides the error is an error of commission i.e. Goods sold to Suresh Rs. 15000/- but entered
by wrong 1500/- Errors of Principle: When a transaction is recorded in the books in
contravention of double entry principles. It is an error of principles. It is an error of principle. For
example purchase of Type-writer posted of office expenses resumes revenue expense to capital
account Compensatory errors: When the errors are compensated one another these errors are
saying as compensating errors. For example a sale of Rs. 960 is entered in purchase books as Rs.
360.

Steps to locate errors: The debit and credit columns of trial balance should be totaled again. 2.
All the balances appearing the trial balance must be checked and compared with the ledger
balances. 3. The exact difference in trial balance should be ascertained and item equal to the
amount of difference should be searched out in the ledger All the ledger accounts should be
totaled and balanced again. 7. Casting in the journal. Cash book and all other subsidiary books
should be checked again

Rectification of Errors One Sided errors: An error may have been committed on the debit
side or on the credit of an account. It may be some examples of one side errors: i. Under or over
casting of any subsidiary book by mistake. ii. Wrong side posing by wrong amount iii. Mistake
in carry forward of amount iv. Errors in balancing of accounts

Two sided errors: These are the errors which have taken place in two account simultaneously
some examples are given below of two sided errors. 1. Entered in wrong subsidiary books, goods
sold to Rakesh of Rs. 500 but entered in purchase book. 2. Omission is not entered in primary
books of any transaction. 3. Errors of principle i.e. expense of establishment of Machinery
debited in establishment expenses a/c in place of machinery a/c.

Objectives of preparing Receipts & Disbursement Statement

nsure that accounting principles have been adhered to.

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Manufacturing Account This account, also known as “Production Account is prepared to

ascertain the cost of goods purchased. Procedure of preparing this account is as under: (a)
Opening and Closing of raw materials are adjusted on the debit side of the account. (b) Item of
prime cost and factory cost are charged here. (c) Unfinished work (work-in-progress) both at the
beginning and at the end of the year are shown in the debit of the account

Trading Account Trading account is one of the financial statements which show the result of
buying and selling of goods and/or services during an accounting period. This account is
prepared to find out the difference between the selling price and cost price. Cost price is derived
from direct expenditures or expenditures at factory level.

Need/Importance and Purpose of Trading Account Ascertaining ratio of direct expenses to gross
profit: Ascertaining ratio between purchases and direct expenses: - 3. Calculation of cost of
goods sold Comparing the actual performance with desired performance Comparing actual
performance with previous performance

To Opening Stock To Purchases Less: Purchases Return/Returns Outwards To All Direct

Expenses (Wages, freight, carriage, inward etc) To Gross Profit (to be transferred to profit
and loss account / By Sales Less: Sales Return/ Returns inward By Closing stock By Gross
loss(to be transferred to P&L Account)

Profit and Loss Account The profit and loss account is one of the financial statements which
show the financial performance of business during an accounting period. The profit and loss
account is prepared with the items of expenses, losses, income and gain with a view to ascertain
the amount of Net profit or Net loss in a business for a particular trading period

Indirect expenses Selling Expenses: All expenses relating to sales such as carriage outwards,
travelling expenses, advertisement etc., Office Expenses: Expenses incurred on running an office
such as official salaries, rent, tax, postage, stationery etc., Maintenance Expenses: Maintenance
expenses of assets. It includes repairs and renewals, depreciation etc., Financial Expenses:
Interest paid on loan, discount allowed etc., and are few examples of Financial Expenses.

Need/Importance and Purpose of Profit and Loss Ascertaining ratio between net profit and
net sales, Comparison of actual performance with desired performance: Maintaining provision
and reserves: Determining future line of action:

To Gross Loss b/d To Salaries To Rent & Taxes To Stationeries To Postage Expenses To
Insurance To Repairs To Trading Expenses To Office Expenses To Interest To Bank Charges To
.Establishment Expenses To Sundry Expenses To Commission To Discount To
Advertisement To Carriage Outward To Travelling Expenses To. Distribution expenses
To Bad Debts To Depreciation To Bad Debt Provision To Net Profit (transferred to Capital A/c /
By Gross profit b/d By Commission Earned By Rent Received By Interest Received By
Discount Received By Net Loss (Capital A/c
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Balance Sheet Balance sheet is mirror which reflects the true position of assets and liabilities of
a firm and which serves to ascertain the financial position of the same on any particular date. The
balance sheet has two sides. The left side shows the liabilities and capital. All the assets are
shown on the right hand side.

Objectives of Balance Sheet

assets to r
Classification of Assets Liquid assets - 2. Current assets or floating or circulating assets Fixed
assets. - 4. Wasting assets. -. 5. Fictitious assets. - 6. Intangible assets.

Classification of Capital, fixed floating working

Classification of Liabilities Liabilities means outsiders' claim against the business. The firm
will be liable to make payment to outsiders. Fixed, current, contigent

Difference between a trial balance and balance sheet Sl.No Trial Balance Balance Sheet 1.
It shows the balance of all ledger accounts It shows the balance of personal and real accounts
only 2. It is prepared after the completion of the ledger accounts or on arrival of the balances It is
prepared after the completion of trading and profit and loss account 3. Its object is to check the
arithmetical accuracy Its object is to reveal the financial position of the business 4. Items shown
in the Trial balance are not in order Items shown in the Balance Sheet are in order 5. It shows the
opening stock It shows the closing stock 6. It has the heading of debit and credit It has the
heading of Assets and Liabilities

The following have to be noted while preparing the final accounts: Opening Stock and
Closing Stock, Carriage Inwards and Carriage Outward, Manufacturing Expenses, salaries and
wages, depreciation, outstanding expenses

Sundry Debtors (Debtors or book debts) & Sundry Creditors (Creditors or book creditors)
Sundry debtors represent the total of all debit balances of the customers to whom goods have
been sold on credit. Ledger accounts as usual will be prepared for various customers and the year
end balances are extracted in a schedule. This schedule is called schedule of sundry debtors and
it is attached to the balance sheet. The totals of credit balances are taken to a schedule, which is
called schedule of sundry creditors. In the balance sheet only sundry debtor’s account and sundry
creditors account appears, so that the length of the balance sheet is reduced. Both are personal
accounts.

Bad Debts If the trader finds it difficult to collect money from the customers, (the where-about
of the customer is not known, the customer is not at all traceable or the customer is dead), then
he transfers the balance in the customer’s account to bad debts account, bad debt is a loss to the
business. It is a nominal account.
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Adjusting Entries Trial Balance discloses only the information connected with transactions
actually transacted. It does not include the information connected with pending transactions. The
true profit or loss cannot be known if we fail to include such pending items.

Income Receivable/Outstanding Income Certain incomes like interest, rent, etc., which is
receivable or arising in an accounting year, are not received in the accounting year. It is received
in the form of cash or cheque in the beginning of the next accounting year.

Depreciation is the shrinkage in the value of an asset due to frequent use for the purpose of
earning profits. It may be described as “loss or diminution in the value of assets consequent on
wear and tear, obsolescence, effluxion of time or permanent fall in the value of the assets.

Objectives To show the correct profit earned during any particular period, To show the correct
value of assets in the balance sheet, To make provision for replacement of a wasting asset. To
keep the original capital intact

Factors affecting Depreciation Wear and tear, obsolescence, Effluxion of time, Fluctuation in
market value, Exhaustion or depletion, accidents, The effect of weather and other Elements

Methods of charging depreciation Fixed installment method or straight line method: -

Every year a fixed amount is written off as depreciation by charging to the profit and loss
account. The amount to be written off would be determined by estimating the working life of the
asset and distributing the cost of the asset less any scrap-value, over the working life. Reducing
installment or diminishing balance method:- The system is adopted with a view that every
year the profit and loss account would be charged with depreciation. A fixed percentage is
written off every year on the diminishing book value of the asset till reduced to scarp value.
Annuity method Under this method, amount spent on the purchases of an asset is regarded as
investment. Such investment is assumed to earn interest at a certain rate. Therefore, under the
annuity system the amount of total depreciation is determined by adding the cost of the asset and
interest thereon at an expected rate Sinking Fund Investment Method or Depreciation Fund
Method Under this method the amount of depreciation is not charged to the asset account but
credited to a separate account called Sinking Fund Account. The amount written off every year
as depreciation is invested outside the business in a separate account called Sinking Fund
Investment Account at a certain rate. Revaluation method Under this method, the assets are
revalued at the end of the accounting year and this value is compared with the value of the asset
at the beginning of the year. The difference is treated as depreciation Insurance Policy Method
The basic difference between the depreciation fund method and Insurance policy method is that
whereas under the depreciation fund method, fund is kept aside for investments under an
insurance policy method the required some of policy is taken, the required premium is paid every
year Depletion Method This method is used in case of mines, quarries etc. where an estimate of
total quality of output likely to be available
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Books and Registers to be maintained by cooperatives: - It is statutory that Co-operatives

should maintain various types of books and registers for the purpose of record and providing
information. It is the registrar of Co-operative Societies (RCS) of the respective state who gives
instruction to all types of co-operative societies to maintain uniformity in books, registers, forms
etc. in the entire state.

Register of applications for membership – In a cooperative society this register contains the
name and address of applicant, date of receipt of application, number of shares applied and date
of communication of the decision about admission /refusal etc. 2) Admission book: This is the
2nd important book in a cooperative society which includes the name and address of each
member admitted, date of admission, shares purchased by the member and the amount of share
capital paid by the member. 3) Nomination register – This register contains the name and
address of the person nominated by the member as successor. In the event of any causality of the
member, the society can pass on all the benefits to the successor. 4) Minute Book: - This is a
very important document where the proceeding of the managing committee and also the general
body are recorded. 5) Day Book: It is the main book of original entry under the cooperative
account keeping system wherein all the transactions taken place in a cooperative society are
recorded then and there.

Voucher files Borrowing ledger: This is an important document which records the details of
deposits and other borrowings of the society General Ledger: This book is maintained to
show the receipt disbursement and the outstanding under various heads of accounts

Monthly Register: Dividend Register: All the details relating to divided and its payment to
members are recorded in this register. Rectification Register: some objections, defects are
indicated during the case of inspection and audit. Associate Members Register: If the society
admits associate members then it is required that a separate register indicating the name and
address of each associate member, the date of admission,

In Addition, Membership Book 2. Admission Ledger 3. Deposit Ledger 1) Recurring Deposit

Ledgers 2) Savings Deposit Ledger 3) Fixed Deposit Ledger 4) Share Capital Register 5) Loan
Register

General 1) Minutes Book 2) Investment register 3) Dead Stock register 4) Receipt Book 5)
Reserve fund ledger 6) Dividend Register 7) Salary register 8) DCB register 9) OD register 10)
Postage register 11) Dispatch register Accounts 1) Day Book 2) Rough Chitta 3) Sub-Day
Book 4) General Ledger 5) Voucher File 6) RD Statement 7) Creditors register 8) Petty Cash
Book

cooperative marketing societies 1. Accounts Section (General) (a) Cash Book/Day

Book/Journal (b) General Ledger – Loan Ledger, Pledge Loan Register - Advance Register –
Depositers Ledger. (c) Arhat Register – Commodity Register Member Wise A/c – Wages
Payment Register (Loading and unloading of commodities). (d) Bill book pertaining to sales of
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members produce (e) Branch Reconciliation Registers. (f) Functional Accounts, Branch,
Tradewise. 2. Purchase Section (a) Purchases Register Commodity wise controlled and non
controlled – sugar – cloth – K-oil – Groceries. (b) Railway Road Transport Bill Register (c)
Stock Registers Godown Wise (d) Tender/Quotations and Order Register

Importance of Accounting Standards 1. They lay down uniform accounting policies, which are
to be followed by all entities in respect of a particular subject or peculiar events/transaction. 2.
Financial statements of various entities become comparable because of uniform accounting
standards followed in their presentation. 3. Reliability of the financial statements increases when
they are prepared in compliance with the accounting standards as they are more accurate
compared to custom-based practices. 4. They are more rational and scientific as they are issued
by the apex accountancy body rather than the custom-based accounting practices.

Accounting Standards in India The Council of the Institute of Chartered Accountants of India
(ICAI) constituted the Accounting Standards Board (ASB) in April 1977, recognizing the need to
harmonies the diverse accounting policies and practice in India and keeping in view the
international development in the field of accounting

A bank reconciliation statement is a summary of banking and business activity that

reconciles an entity's bank account with its financial records. The statement outlines the
deposits, withdrawals, and other activities affecting a bank account for a specific period.

Bank reconciliation statement is an important technique by which the accuracy of the bank
balance shown by the pass book and cash book is ensured. The need and importance of bank
reconciliation statement can be summarized in the following points.
* Bank reconciliation statement ensures the accuracy of the balances shown by the pass book and
cash book.* Bank reconciliation statement provides a check on the accuracy of entries made in
both the books.* Bank reconciliation statement helps to detect and rectify any error committed in
both the books.* Bank reconciliation statement helps to update the cash book by discovering
some entries not yet recorded.* Bank reconciliation statement indicates any undue delay in the
collection and clearance of some cheques.

Benefits of Reserves in Accounting Reserves of a company help to improve its financial

position.They serve as sources of internal financing and facilitate the expansion of a firm’s scale
of operation.They help to pay timely dividends to shareholders. Reserves prove effective in
meeting financial obligations and losses. With the help of reserves, business owners can
replenish their working capital and maintain the firm’s everyday operations smoothly.
Types of control 1. Detective control It is designed to look for errors or irregularities in the
books and records of the company. 2. Corrective control It is designed to correct errors or
irregularities detected in the company's financial operation. 3. Preventive control It is designed
to prevent errors or irregularities from occurring in the company's financial operation.
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Objectives of routine checking (i) Checking of primary books (ii) Examining arithmetical
accuracy (iii) Examination of pointing (iv) Helps to detect errors and frauds (v) Prevent to alter
errors and frauds (vi) Accuracy of trail balance (vii) Reliability of Final Accounts

Subsidiary Books Most of the big companies are recording the business transactions in one
journal and the posting of the same to the concerned ledger accounts are very difficult tasks and
which require more clerical labour also.

Kinds of Subsidiary Books There are different kinds of subsidiary books which includes
purchase day book, Sales day book, purchase returns book, Sales returns book, Bills receivable
books, Bills payable books, Cash book.

Purchase day book Purchase day book is used for recording credit purchase of goods only. This
will not record any cash purchase or credit purchase of any assets. Sales day book Sales day
book is mainly used for recording credit sales of goods and services in an organization. This will
not record any cash sales or assets sales. Purchase returns book When the goods are returned to
the seller being not according to the sample or of inferior quality, or damaged a credit note
should be obtained, if the price is paid already. Sales returns book Goods sent out on sale or
return cannot be treated as actual sales until the customers have approved the goods. The auditor
should examine the details of this book and the check the posting from the sales column in to the
sold ledger. Bills receivable books The particulars of all bills and drafts upon which the business
is entitled receive money are entered in this book. Bills payable books All bills accepted by the
business in favour of its creditors are passed through this book. Cash book The cash book is
used to record all the receipts and payments of cash. For the preparation of cash book there are
different rules are available according to the nature of business.

Bad and Doubtful Debts Losses in the values of current assets must be made good out of the
profits before they can be distributed. Therefore, it is an important duty of the auditor to check
the adequacy of the provisions for bad and doubtful debts and to see that necessary provisions
must be made for all expected losses in the value of debtors.

Classification of different Audit: i. Concurrent Audit – Statutory Audit ii. Cost Audit iii.
Management Audit iv. Performance and Efficiency Audit v. Proprietary Audit vi. Human
Resource Audit vii. Social Audit viii. System Auditing etc.