Unique’s

Office Practice
& Accountancy
8
Authors
Narayan Prasad Nepal
Suman Prasad Chaudhary
Suresh Paudel Chhetri

Unique Educational Publishers Pvt. Ltd.

Mitrapark, Kathmandu, Nepal. Phone No.: 977-01-4488517, 4488518
E-mail: [email protected]
 UNIQUE’S Office
Book : Practice & Accountancy
Book - 8

Published by : UNIQUE Educational Publishers Pvt. Ltd.

Mitrapark, Kathmandu, Nepal.

Phone No.: 977-01-4488517, 4488518
E-mail: [email protected]

Authors : Narayan Prasad Nepal

Suman Prasad Chaudhary
Suresh Paudel Chhetri

Graphics : Anil Neupane, Rishi Nepal

Copyright © : Publisher

First Edition : 2072

Printed in Nepal
 Preface
This textbook Unique’s Office Practice and Accountancy (Grade VIII-X) has
been written to facilitate the learning process in a practical way through
Psychological encouragement. We have tried our best to include every content
as guided by the Curriculum Development Centre of the government of Nepal.
We have written the subject matters in a way that students can develop both their
learning and writing skills. The language used in this book is simple, lucid and
concise. Complex subject matters have been summarized in a concise language.
Some of the features of our book have made our book user-friendly and unique.
After the completion of each subject matter we have structured, very short,
short theoritical exercises into long answer questions and numerical exercises
into initial problems, self correction problems for the students assesment. We
have also provided an DLC model question and a practice set as per the CDC's
grid and guideline. We have also provided enough of illustrations so that the
learners can have a clear picture on their minds about the subject matter.
This book has been written as per the suggestions and motivation from various
of our teahcing colleagues as well as the students from various schools. Our
very long and excellent teaching experience of this subject in numerous schools
and colleges has fed into the contents of this book. With our great pleasure,
we have welcomed the comments and suggestions of teachers and students to
incorporate the concepts from the basic level to the higher level and have taken
them in our book successfully.
Our sincere thanks goes to all who have helped us in the course of introducing
this book. We express our gratitude to Unique Educational Publishers Pvt. Ltd.
for the support to publish this book.
Finally, we have paid enough effort to make the book error free. We are
always open to accept the comments and suggestions regarding the betterment
of this book. We will always consider your valuable suggestions with greatest
respect and awe.
Authors
 Table of Contents

ÂÂ Chapter 1 Office and Office Personnel 1

ÂÂ Chapter 2 Correspondence 11

ÂÂ Chapter 3 Taxation 20

ÂÂ Chapter 4 Communication 25

ÂÂ Chapter 5 Insurance 29

ÂÂ Chapter 6 Book Keeping 37

ÂÂ Chapter 7 Journal 47

ÂÂ Chapter 8 Ledger 67

ÂÂ Chapter 9 Trial Balance 89

ÂÂ Practice Set 108

 Ch apter 1 Office and
Office
Personnel
Learning Objectives: After studying this chapter, you will be able to:
♦♦ give an introduction of an office and office personnel
♦♦ tell about the features and importance of office
♦♦ learn about formation and types of an office
♦♦ talk about the types and function of office personnel

Introduction
An organization needs a place to perform
numerous clerical and administrative tasks and
meed its organizational goals. The place where
such tasks are performed, the plans and policies
are formulated and/or implemented is known
as an office. The traditional opinion of an office
was a place to perform clerical activities such
as recording, filing, communicating, etc. In the
recent days, office is considered to be the centre
where overall clerical and administrative works
are carried out, not merely a physical place. The modern concept describes office as
the nerve centre that receives, gathers, arranges, records, stores, analyzes, interprets
and communicates the information.
Some definitons are:
According to J.C. Denyear, “An office is any place where clerical operations are carried
on.”
According to Brihat Nepali Sabdakosh, “Office means a home or workplace where
some official tasks are performed.”
Hence, we can conclude an office to be a centre or a focal point that helps to meet the
goal of an organization through its administrative functions like planning, organizing,
staffing, coordinating, controlling etc, and through clerical functions like record
keeping, filing, handling mails, telephones, visitors, etc.

Unique’s Office Practice & Accountancy - 8 1

Features of Office
There are few features of an office:

1. Classification of job
An office needs to perform different kinds of activities like drafting, sending,
recording, dispatching information and handling telephone and visitors,
maintaining books of accounts etc. A single person may not be able to meet
the goals of an organization. Hence, according to people’s skills, knowledge,
qualifications and experience, they should be assigned jobs. Therefore,
classification of job means the division of different types of jobs according to
their nature.

2. Supervision of job
For the accomplishment of different types of jobs, an office requires different types
of materials, manpower, as well as the supervision as to how the organizational
goals are effectively met. For the smooth running of the office, supervision of job
and managing resources accordingly, is absolutely necessary. Job supervision sets
the manpower materials and resources in the right direction. It also brings the
effectiveness in the jobs carried out.

3. Allocation of post
In an office there are various types of posts and positions available for different
jobs. There are different departments and each department has a range of posts
and positions to offer. There are low level to high level posts available. The best
qualified, trained and experienced people are generally in high level posts whereas
relatively low qualified, untrained and unexperienced perform their duties in
the low level positions. For instance, the posts allocated in an organization are
chairman, directors, head of department, section officers, office assistants, clerks,
peons, etc.

Importance of Office
An office is the control centre of an organization. Every activity and function of an office
is carried out through the organizations office. Thus, office is the most important part
of the organization. Office is necessary to all types of institutions be it the government
office or private firm. The importance of office is mentioned below.

1. Information centre
One of the functions of the office is to collect and deliver information. It is
responsible for collecting information from different sources and delivering them
to the concerned parties at the time of need. So, office is regarded as the information
centre of the organization.
2 Unique’s Office Practice & Accountancy - 8
2. Service centre
Office offers services to the customers, employees and the other concerned
people. It provides information and other services required to them. Thus, office is
regarded as the service contre of organization.

3. Record centre
One of the functions of an office is to record all useful information systematically
for future reference. Office is also responsible to keep the records of information
in files, computers, storage devices, book of accounts, etc, and maintain them. So,
office is regarded as the record centre of the organization.

4. Public relation centre

For the smooth running of an organization, it is essential to maintain warm relations
with the public, customers, suppliers, dealers, government and other stakeholders.
The office of an organization is responsible to carry out this function. Thus, office
is the public relation centre of the organization.

5. Co-ordinating centre
To run an organization smoothly, there should be coordination among different
persons, departments and levels. The office is responsible for such co-ordination.
The office also coordinates affairs between the organization and external entities
such as customers, suppliers, government, etc. Therefore, office is an organization's
coordinating centre.

6. Communicating centre
The office collects various information and is responsible for recording, maintaining
and finally delivering it at the time of need. The office receives information from
both internal and external sources.

7. Controling centre
Most of the activities of an organization takes place in the office. It is the place from
where every personnel is directed, decisions are taken and resources are managed.
Thus, office can be considered as the nerve system of the organization.

8. Resource management centre

The office is responsible for supervising, directing office personnel and managing
the non-human resources. It has to make the human and other resources work
in a way that will optimize the organizations benefits. Thus, the office is an
organization's resource management centre.

Unique’s Office Practice & Accountancy - 8 3

9. Planning and decision making centre
The office has to make plans and make appropriate decisions for maximizing
production and systematic distribution of goods and services of the organization.
The office is also responsible for implementing all the decisions for the optimization
of the cost and the profit.

10. Proof of existence

The office is an evidence that the organization exists. Most of the organization's
activities take place in the office, thus it is also a legal and legitimate proof of the
organization's existence. The office remains since the inception of the organization
and as long as it functions.

Types of office
According to the ownership, functions, objectives and structure, offices are
categorized into different types. Some are run or operated for profit, some are run
for social services whereas others are maintained by the government. Generally,
offices can be categorized into their types based on their profit and service motives
or ownership. The flow chart below displays different office categories.

Types of office

Government office Business office Service motive office

Business office with Business office with

government investment private investment

1. Government office
Government offices are established by the government not for profit motives,
but for providing services in the country for its socio-economic development.
These offices are fully owned, maintained and run by the government. They act in
accordance with the rules and accounting system set by the government. District
Administration Office, District Land Revenue Office, District Education Office,
District Police Office etc are some government offices.

4 Unique’s Office Practice & Accountancy - 8

2. Business office
An office established with the main aim for making profit or offering services is a
business office. Business offices are of two types:

a. Government owned corporations

The business offices that are established by the government are known
as government owned corporations. These offices are not established
earning profit, but for providing services and facilities to the people. Overall
management of such office is guided by a board of directors nominated by the
government. Nepal Oil Corporation, Nepal Electricity Authority, Radio Nepal,
National Trading Ltd. etc are examples of government owned corporations.

b. Privately owned office

The business offices established by an individual or a group is called private
business or company. They are maintained and run by private investors who
fully take the risk themselves. They are operated mainly for profit making
through the goods and services they offer. Bhatbhateni supermarket, Lumbini
Finance Company, Nepal Investment Bank Ltd. etc are examples of private
companies.

c. Services Social-oriented office

Any office established to serve people is called a social service oriented office.
They are fully devoted to people’s welfare and do not take profit from them.
Their aim is to carry out humanitarian work and conduct state-wise welfare
activities. Nepal Red Cross Society, Paropakar Sanstha, Bal Bikas Samaj, Nepal
Scout, Maiti Nepal, SOS Balgram, Nepal Netrahin Sangh are examples of service-
oriented offices.

Office Personnel
In order to achieve its goals, an organization
has to perform various activities and functions.
To accomplish such goals, the office of the
organization requires various types of people to
perform their respective jobs and functions. Each
person has his/her specific nature of job, function,
duty or responsibility. Thus, office personnel can
be defined as the people working in an office at
any department or any level. No matter the nature,
type and position of the job of an employee, they
should work collectively in the office with good co-ordination. Thus, the people who

Unique’s Office Practice & Accountancy - 8 5

serve the organization collectively through any level or department can be defined as
office personnel. The progress of the organization depends on their joint performance
and co-ordination.
According to Beach, “The office personnel refer to all employees of the office
comprising the chief, sectional chief and assistants who, jointly work for the attainment
of the organizational goal.”
To sum up, office personnel can be considered as all the people from office chief to the
peons, at all departments, who are directly involved in administrative as well as clerical
jobs and strive to meet the organization's goals.

Type of office personnel

The office of the organization has to perform a variety of activities. And for the
accomplishment of each of such activities, various personnel need to be recruited.
Each personnel will be given a particular task or function on the basis of his/her
qualifications, skills acquired and experience. These personnel, based on their level or
position, can be categorized into three major groups which are as follows:

1. Office chief
The office chief of an organization is the one who has the top-most authority to
manage, direct and handle the activities in the office. It is the responsibility of the
office chief to make plans, policies, etc and direct all lower level staff to work in
a way that will enhance the organizations productivity. She/he not only has the
authority, but also the responsibility i.e. he/she will be accountable in the case
of organizations failure. The office chief therefore is the executive head of the
organization. The office chief is given different names on the basis of the type
of organization he/she is handling. Chief, Executive Officer, General Manager,
Managing Director are usually used to address the office chief.

Functions of the office chief

The functions of the office chief are as follows:
♦♦ To makes plans.
♦♦ To implement plans accordingly.
♦♦ To create good and healthy environment in an office.
♦♦ To motivate all the working staff.
♦♦ Directing and controlling the staff members by encouraging them to give their
best efforts for the effective accomplishment of jobs.
♦♦ Arranging and protecting required and necessary materials and equipments.
♦♦ Prioritize what their main ‘task’ is and retain their stand i.e. develop its
internal control system (by preventing frauds, leakages and misappropriation
of assets).

6 Unique’s Office Practice & Accountancy - 8

 ♦♦ Look after the works done by all the working staff, check everything strictly,
and give appropriate suggestions if necessary.
♦♦ Maintain healthy environment in an office i.e. make its staff well disciplined.
♦♦ Follow all the required policies of higher authority and Government of Nepal.
♦♦ Finally, make the audit of books of accounts concerned with his office.
2. Section officer
Section officer of an organization is the head of the particular department or
section of the office on the basis of the size of transactions and activities, the office
needs to establish right number of branches or different departments. Just as
the office chief has the authority over the entire organization, the office chief is
handed over the authority over a certain branch or department. The section officer
is responsible for directing other lower level personnel, making policies and
managing resources of the particular branch or department. She/he is informed
about the organizational goals by the office chief, and it is his/her responsibility
for the success or failure of the department. Head of administrative department,
head of production department and head of accounting department are some of
the examples of section officer.

Functions of a section officer

♦♦ Make plans of its department to achieve its objectives.
♦♦ Supervise every departmental plans for their successful implementation.
♦♦ Direct and control the activities that are to be done in his/her department.
♦♦ Maintain good relation between office chief and sub-ordinates.
♦♦ Circulate the necessary information to the concerned department.

3. Office Assistant
After the office chief or section officers make decisions, they are to be implemented.
The lower level staff is generally responsible to carry out different routine jobs as
per the chief's directions. Thus the office personnel who assists the office chief or
section officer to implement their decisions or to carry out daily administrative jobs is
known as an office assistant. The office assistant performs the everyday jobs sush as
record keeping, filing and communicating. Some of the examples of office assistants in
government offices are Peon, Bahidar, Mukhiya, Kharidar, Nayab Subba, etc.
The office assistants can be further categorized based on the nature of their jobs,
which are as follows:
i. Personal Assistant (PA)
The office chiefs or section officers are involved in making, formulating plans
and decisions, attending important meeting, projects, etc. But there are a few
administrative/routined jobs to be performed from the chief’s side. Therefore,
Unique’s Office Practice & Accountancy - 8 7
 the office chief or the section officer appoints an assistant who helps them
perform their routined jobs. Personal assistant is a staffs who has to sit by and
assist the chief in his/her administrative works. Generally, personal assistants
are responsible for maintaining records, handling calls, handling visitors,
handling mails, etc and assisting the executive in his/her programs. Directors,
Army Chief, Police chief, Ministers, Chief Executive Officers, General Managers
and various heads of government offices appoint personal assistants.
ii. Public Relation Assistant (Receptionist)
Numerous people visit an organization for enquiries and various other reasons.
They require detailed information about the organization or know about the
service they have come for. To effectively respond to their queries and assist
them, the office should set up a different section. The office should also appoint
special personnel who are adept at handling visitors and their concern. Such
personnel are also responsible for handling telephone calls, emails, handling
guests and making them comfortable. Therefore, the office personnel who
are responsible for handling visitors, guests, their concerns and handling
telephone calls, emails, etc is referred to be as a public relation assistant or
receptionist. Receptionists are supposed to be polite, courteous, smart and nice
looking. For this reason, usually ladies are sought for as receptionists in various
organizations.
iii. Sectional Clerk (Unit Staff)
Sectional Clerk is an office assistant appointed to perform routined jobs and
daily administrative work in a particular section or department of the office. In
a large organization there are several branches, sections and departments apart
from the head office. All such sections are operating level offices that require
performing all administrative and other routine jobs of the organization. For
this purpose, a section needs various sectional clerks. As per the direction
and supervision of the sectional chief, the clerk to operate all the daily and
routine departmental work from their respective positions. Sectional clerks in
government office are given positions such as Kharidar, Subba, Mukhiya, etc.

Functions of Office Assistant

The major functions of an office assistant are as follows:
i. Planning for daily works: To run an office smoothly, the first thing that should
be done is planning for day to day activity/tasks. To everyday’s operations going,
at first, an office assistant should make plans and implement them accordingly.
ii. Handling visitors: Visitors are like keep guests for an office. If an office
assistant fails to handle visitors, the office will lose many things. They should
be able to convince them by responding to their queries in a good manner. They

8 Unique’s Office Practice & Accountancy - 8

 should arrange the appointments to meet the chief as per visitors' demand.
They should behave properly to their visitors.
iii. Drafting and typing letters: Letters act as a means of communication. Since
there are various types of letters an offce deals with, the office assistant should
be aware of them. As per the instructions of office chief or any officer, they
should be able to draft letters. Confidential and important messages should
be typed secretly (should not be leaked). Thus, an office assistant should have
knowledge of drafting and typing the letters.
iv. Handling mails and telephones: Since, today is the age of different technical
devices, email act as a vital means of communication. Those who are from foreign
country or have no time to visit the office communicate with the office through mail
or make calls through telephones. So, it is very important for an office assistant to
handle mail and telephones. As per the priority, mails should be responded whereas
calls should be responded in a polite manner. They should satisfy the customer by
giving them the right answer.
v. Note taking and transcribing: It is very important for an office assistant to
note down the key points as per the oral directions of office chief. They should be
able to sort out and arrange the points accordingly. It helps them to remember
do their works.
vi. Filing documents: There are a huge number of documents piling up in an office.
Each and every document should be kept safely. An office assistant should have
knowledge of the proper method of filing and indexing. Filing system helps to
increase the efficiency of the office.
vii. Reminding office chief: The office chief is a very busy person and has a number
of woks to do like visiting different places, attending meetings and seminars. They
may forget their program due to a busy schedule. Therefore, it is a very important
job of an office assistant to remind the office chief time and again.
viii. Keeping financial records: Office assistants should keep each and every
financial records systematically. The records relating to day to day financial
activities should be done properly. They should be updated. Different financial
reports should be prepared by an office assistant.
ix. Using machines: To perform a certain job efficiently, different types of
machines are used in an office. So, an office assistant should know the right use
of machines like fax, mail typewriter, computer, photocopy etc. Skills of using
such machines increases pace of work and its volume as well.

Unique’s Office Practice & Accountancy - 8 9

 Exercise
A. Very short answer questions. (Answer the following questions in one sentence/
in very short)
1. What is an office?
2. Write two function of office chief.
3. What are the types of office?
4. What is section officer?
B. Short answer questions. (Answer the following questions in short)
1. What is office? Explain its features in brief.
2. Explain the importance of office.
3. Who are office assistants? Explain their types in brief.
4. Who is ofice chief? Mention his/her functions.
5. Write two similarities and three dissimilarities of government and business
office.
C. Long answer questions. (Write long answer to these questions)
1. Define office personnel. Explain its types in detail.
2. Define office assistant. Explain its function.

10 Unique’s Office Practice & Accountancy - 8

 Ch apter 2 Correspondence

Learning Objectives: After studying this chapter, you will be able to:
♦♦ give an introduction of correspondance
♦♦ tell the importance and objectives of correspondance
♦♦ learn about the types of letter
♦♦ discuss about registration and dispatch of letter

A simple, easy means of communication where news, views, ideas, suggestions, opinions
etc. are exchanged in written form is known as correspondence. Letters, notice, circulars
etc. are the examples of different forms of correspondence. For relaying information, the
written messages addressed to certain place or to people is known as correspondence.
Different means of communication are used for exchanging information of the business.
Out of the various means of communication, correspondence is a simple, easy and
effective means which helps in exchanging news, views, ideas, opinions, suggestion etc
in written form.
Some definitions are:
According to Jems Stephenson “Office correspondence is the process of exchanging
information through letters or other written ways between the individual and
organization of different places for achieving the definite objectives."
According to S.P. Arora, “Correspondence can be defined as communicating in writing
on subjects of mutual ‘interest either within the organization or with an outsider."
In conclusion, correspondence is a simple, easy and popular written means of
communication which is used for exchanging or relaying news, views, ideas, message,
etc to the individual or organization.

Importance of correspondence
It provides written evidence of the activities concerned with contract, agreements,
rules, regulations and decisions. The importance of correspondence can be summed
up in the following points:
♦♦ The legal formalities as per requirements get fulfilled.
♦♦ Since, it is in written form, disputes and misunderstanding gets settled.

Unique’s Office Practice & Accountancy - 8 11

 ♦♦ It provides reliable information to the concerned parties at right time.
♦♦ It helps to maintain good relations with the present consumer.
♦♦ Records of important matters for future use are maintained for future use.

Types of letter
Letters are classified as follows:
a. Government Letter
b. Business Letter
c. Application Letter
d. Personal Letter
a) Government Letter
Any kind of letter written on behalf of the government and dispatched to its branch,
line agencies, individual or organizations is regarded as government letter. From
central level offices, It uses such kinds of letters for circulating notices, Information,
decision, rules and regulations, plans and policies, instructions and orders to
operating level. Operating level offices relay their problem, reports, performance,
progress and achievements to the central level office.

Sample Government Letter

Government of Nepal
Ministry of Education
Department of Education
Sanothimi, Bhaktapur, Nepal
Letter No: (G.E.A. Sec) 01/071/72 Date: 2072-02-10
Dispatch No: 64-143

Subject: Regarding the expansion of contract with Accountant

To
District Education Office 75

The temporary posts of accountants which are lying vacant from 2071 till the 30th
of Shrawan should be fulfilled by expanding the same contract as per the cabinet
meeting held on 2071-09-20. The Government of Nepal requests the District
Education Office to implement it accodingly.
CC:
Regional District Directories
Central Development Region

Hari Ram Sharma

Vice Secretary

12 Unique’s Office Practice & Accountancy - 8

b) Business Letter
When the business organization drafts the letter to their clients, customers,
suppliers, government agencies about business stuffs, it uses business letter. Such
letters may contain price, means and mode of payment etc. It also includes inquiry
by customer to supplier or anyone, replying the inquiry, placing order, making
complaints etc.

Sample Business Inquiry Letter

Bhandari Enterprises Pvt. Ltd.

(Books Distributor)
Boudha, Kathmandu, Nepal

Ref: 809-071 Date: 2072-02-10

The Managing Director

Unique Educational Publishers Pvt. Ltd.
Chabahil, Kathmandu

Subject: Inquiry of goods

Dear Sir

The academic session of 2072 has begun. We are glad that you have been publishing
the best quality books. So, we have also decided to ask for your publications. Will
we be able to get the required quantity of books in time? We shall be pleased if you
generously send your latest catalouge and price list of books.
We expect to hear from you soon
Thank you!
Yours Sincerely

Ramesh Thapa
Sales Manager
Bhandari Enterprises Pvt. Ltd.

c) Employment Letter
The letter written by a candidate to apply for a job is known as employment letter.
It is also known as application letter. It aims to create a positive impact in the mind
of employer. It must be written carefully. It may also contain candidate’s personal
information, academic qualifications, experience etc.

Unique’s Office Practice & Accountancy - 8 13

Sample of Employment Letter

Kumarigal, Kathmandu
May 25, 2015
The Manager
Link Plus Pvt. Ltd.
Hattiban, Lalitpur
Subject: Application for the post of computer operator.
Dear Sir
I am writing in response to the advertisement published in the newspaper to
submit the application for the post of computer operator.
Regarding my qualifications, I have passed my +2 examination and have diploma
in computer. I have two years' experience as a computer operator in a publication
company and three years' experience at the same post in a school. All the certificates
and testimonials have been included in this letter.
I hope that my qualification and experience can meet your requirements. I look
forward to hearing from you for the interview and written exam.
Yours faithfully
Lal Bahadur Rana

d) Personal Letter
To maintain a good relations, faith, understanding among the relatives or people
in contact, an individual writes a letter to them. It has no fixed form or structure.

Sample of Personal Letter

Jorpati, Kathmandu
May 15, 2015
My dear Bikash,
I am exceedingly happy to hear that you have been selected as the captain of the
school's cricket team. Please accept my heartly congratulations on your selection.
You are both a good batsman and a bowler. I am confident that under your captaincy,
the team will win laurels for your school. I send you my best wishes and pray that
you may rise to greater heights in the field of sports.
Yours affectionately
Bhagwan Pudasaini

14 Unique’s Office Practice & Accountancy - 8

Handling Mails (Registration and Dispatch of Mail)
Handling of mails is the method of receiving, recording and dispatching the incoming
and outgoing mails. Entry books and register books are used to record all incoming
mails. Likewise, dispatch books are used to record outgoing mails after they are drafted
by the office. Therefore, handling of mails helps in the smooth operation of the business
as they offer reference and guidelines. The whole process of recording the incoming
and outgoing mails in entry/register books and dispatch books respectively is also
known as ‘Darta’ and ‘Chalani’. ‘Darta Chalani Phant’, a separate section to handle the
incoming and outgoing mails is available in large government offices.

Entry of Mails (Darta)

Entry of Mails or ‘Darta” is the process in which all the incoming mails are recorded
in the incoming mail register or record book in a systematic and methodological way.
Here are some of the procedures of handling the incoming mails in an office.
a. Receiving the mail
It is the first and foremost procedure of handling incoming mails. The postman
brings in the mail to the Darta Chalani Phant (The Mailing Department). An
office may receive mails in various other ways. For example, the mail can be
collected from the postbox by any other staff of the organization.
b. Recording the mail
It is the procedure followed after receiving the mail. In this procedure, the
received mails are recorded in the entry book. A format of an entry book to
record the incoming mails is given below.
Incoming Mails Receiving Section or Department
Entry Date of Ref Date Name Subject Name Signature Date Remarks
No. Entry no. Address in brief
of
Sender

Entry number – records the serial number of received letters.

Date of entry – records the date of entry of the letter.
Ref. No. – records the reference number of the letter.
Date – records the date in which the letter was written.
Name & address of sender – records the name and address of the sender.
Subject in brief – records the subject of the letter.
Name – records the names of the sections and
departments concerned with the letter.
Unique’s Office Practice & Accountancy - 8 15
 Signature – records the signature of the letter’s receiver.
Date – records the date of receiving the letter.
Remarks – records various other important information.

c. Stamping the mail

After the recording procedure, letters are stamped by the mailing department.
Letters are stamped on the topmost place on the first page of the letter, which
are then delivered to the concerned department.
d. Distributing the mail
In this procedure, all the letters are delivered to the related departments. It is
done after the stamping of the mail.
e. Clearance of mail
The letters, after all, must be cleared by the concerned authorities on the basis
of their essence and importance.

Dispatch of mail (Chalani)

The dispatch of mail or ‘Chalani’ is an act in which all out going mails are recorded in
a separate book. These mails should be recorded in a systematic way. Here are a few
procedures of dispatching a mail.
a. Drafting the mail
Drafting of mail is the foremost procedure in dispatching the mail where the
letter is drafted by the concerned authority. These letters should be validated
with the concerned officer’s signature. The mails are usually typed on a
computer for drafting.
b. Collecting the mail
Collecting the mail is the procedure in which the mails are gathered in the
mailing department. The mailing department may gather outgoing mails from
the concerned department, or the concerned section may itself deliver the mails
to the mailing department. In this procedure, the final dispatch of the mail takes
place.
c. Recording the mail
All the outgoing mails collected are recorded by the Darta Chalani Phant or
the mailing department in the dispatch book (Chalani Kitab). This procedure is
known as recording the mail. In this procedure, the outgoing mails are recorded
in a summarized manner. Here is a specimen of the dispatch.

16 Unique’s Office Practice & Accountancy - 8

 Serial Date of Name of Date Subject of Name of Post book Remarks
No./ dispatch sender mail receiver no. or
dispatch Peon book
No. no.

Serial no. – Used to record dispatch number of the letter

serially.
Date of dispatch – Used to record the date of dispatching the mails.
Name of Sender – Used to record the name of the sending section/
department.
Date – Used to record the date when it was drafted.
Subject – Used to record the subject of the mail.
Name of the receiver - Used to record the name of the receiving
department of the letter.
Post/peon book no. – Used to record the post book number or peon
book number.
Remarks – Used to record other important information or
missing/additional information.

d. Sampling the mail

The outgoing letters should be kept in the right sized envelope after recording
is completed. Then, proper addresses of the sender and receiver should be
written. Then stamping is very essential if post office is used as a medium of
delivery. Various postage stamps are used according to their value. And, the
weight, nature and distance of the letter decides the value of stamps to use.
e. Dispatching the mail
Ultimately, the letters are dispatched to the related person or the office by the
mailing department. Usually, the peons deliver the letters for the nearby offices.
To record this, a separate peon book is used to record information about the
letters delivered through the office peon. Here is a format of the peon book.

Peon book
Serial no. Dispatch no. Name & Date & time Receiver
address of of dispatch
receiver
Date & Signature
time

Unique’s Office Practice & Accountancy - 8 17

Official information
An office information generally refers to the message or information prepared by an
office or organization to be flashed to the public. Messages can be published for public
knowledge by various means. Some of them are as follows:

1. Notice
The process of providing knowledge, message and information to the people inside
and outside the office is known as notice. All kinds of messages such as information
of past, present and future can be published. Some of the general messages that
a notice includes are information regarding meetings, activities, office rules/
regulations and holidays. These messages may be conveyed both in oral or written
forms. Media like television, newspapers, etc. may also be used to convey notices.
Very often, written correspondence or verbal correspondence through telephone,
telegram and telex are also used.

2. Circular (Paripatra)
Circular is one of the means of transferring official information in which messages
are passed from an office to their branch offices or other offices. It is a very essential
means of official communication. The circular provides instructions whether or
not to do particular tasks.

3. Mandatory Order (Tok Aadesh)

An instruction provided by the concerned authority to his/her subordinate staff
to carry out actions as directed is known as a mandatory order or ‘Tok Aadesh”. In
an office, individuals and organizations offer application asking it to conduct some
activities or do certain jobs for them. All such applications, requests, proposals and
other documents are sent to the office chief. The office chief goes through them and
decides whether or not to allow the work to be done. He then writes a mandatory
order with instructions on the face of the document in red ink. The document is then
sent to lower level staff and they will act to the document on the basis of order given.
In conclusion, a mandatory order is an order or authority given by a top level officer to
lower level officer to do certain jobs. In Nepali, it is known as ‘Tok Aadesh’.

Differences between Entry of mail and Dispatch of mail

Entry of Mail Dispatch of Mail
1. The process of recording incoming 1. The process of recording out going
mail is entry of mail or 'darta'. mail is dispatch of mail or 'chalani'.
2. The main aim of this entry is 2. The main aim of this entry is to
to avoid the loss of incoming record the particulars of outgoing
documents. mail.
3. It is for future evidence. 3. It is for settlement of disputes.
18 Unique’s Office Practice & Accountancy - 8
 Exercise
A. Very short answer questions. (Answer the following questions in one sentence/
in very short)
1. What is correspondence?
2. What is meant by dispatch of mail?
3. What is a business letter?
4. What is meant by employent letter?
5. What is a circular?
6. What is a mandatory order?
B. Short answer questions. (Answer the following questions in short)
1. What is correspondence? Write its features.
2. Mention the importance of corresponcence.
3. What do you understand by handling mail? Explain.
4. What is meant by entry of mail? Explain the procedures of handling incoming
mail.
5. What is meant by dispatch of mail? Explain the process of dispatching mail.
6. What is entry book? Draw its specimen and explain in brief.
7. What is dispatch book? Draw its specimen and explain in brief.
C. Long answer questions. (Write long answer to these questions)
1. What is an application letter? Why is it prepared?
2. What is letter? Describe its types.

Unique’s Office Practice & Accountancy - 8 19

Ch apter 3 Taxation

Learning Objectives: After studying this chapter, you will be able to:
♦♦ give an introduction of tax
♦♦ tell about the importance of tax
♦♦ tell about the common types of Tax
♦♦ discuss about the features of direct and indirect tax

Introduction
The term tax comes from a Latin word taxo, which means 'I estimate'. It implies a
financial levy or charge imposed on a tax payer, which can be a business organization
or an individual.
The government is responsible towards the people of their country to provide
good governance and to develop the infrastructure of the country by doing various
administrative and development activities. It collects revenue from the citizen and
corporation to meet the expenditures of the government. Collected revenue is called
tax. In other word, tax is a levy or other types of a financial charge or fee imposed by
government on legal entities or individual.
Tax is principal source of revenue for a country’s government. The individuals/
corporates are levied taxes on the basis of current legal rules and regulation of the
country. Government spends collected revenue for the public welfare like education,
national and international security, health care, hospital, road, bridge etc
According to Professor Dalton,” Tax is the amount levied by the government officials
as a mandatory contribution to the state.”
In conclusion, tax is a revenue of country which is levied by the government to
individual/corporate.

Importance of tax
Taxes are a part of our lives and key aspect of a nation’s existence. They are used to
fund the nation’s expenses and development. Some importances are given below.
1. Taxes are regular revenues of the government which can be utilized for the
welfare of the nation and public.

20 Unique’s Office Practice & Accountancy - 8

 2. Through revenue the government is able acquire budget which could further
use to build or improve consumption expenditures of the country, capital
outlays, national defense, education, health and other social investments.
3. Tax is also used to pay international debts.
4. By having taxes, the government could somehow gain protection for incurring
large fiscal deficit. The impacts of fiscal deficit would lead the government
print out so much money that will eventually lead to inflation.
5. Tariffs, which is an excise tax levied upon foreign goods and services, is given to
balance international balance of payment.
6. Tax controls the production and consumptions of certain products by imposing
more tax (alcoholic, tobacco).
7. Tax helps to reduce the purchasing power of rich people of the society which
helps to control price of commodities in the market.
8. Tax creates employment opportunities in the nation.

Types of tax
Government imposes many types of taxes. The common types of taxes are given below.

1. Direct tax
A direct tax is a form of tax collected directly by the government from the persons
who bear the tax burden. Taxable individuals file tax returns directly to the
government. In this type of tax the concerned parties/persons should pay from
his/her own source. A tax payer cannot collect his revenue to be paid from other
persons/parties. Examples of direct taxes are income tax( wages, social security
tax, gift tax, house/land rent tax, corporate tax, property tax.etc.

Features of direct tax

♦♦ Direct tax is transparent.
♦♦ It is levied on income.
♦♦ Paying tax is inevitable by an individual.
♦♦ It applies to the income of all individual family and organization.
♦♦ There will be proportional increase in tax with the increase income.
♦♦ It is progressive.
2. Indirect tax
The term indirect tax is contrasted with a direct tax which is collected by
government from the persons (legal or natural) on which it is imposed . In this
type of tax any other person can pay instead of the taxpayer. It is levied on goods
and services. Such taxes are collected by the organization's then repaid to the
government. Examples of indirect taxes are excise duty, value added tax, custom
duty, advertisement tax etc.
Unique’s Office Practice & Accountancy - 8 21
Features of indirect tax
♦♦ An individual must not pay. Any others can pay instead of him/her.
♦♦ It is not transparent as it is paid.
♦♦ There is mass public participation in this tax.
♦♦ There is extremely low chance to ditch the payment of this tax.
♦♦ It must be paid only when goods and services are consumed.
♦♦ The price of goods depend upon the rate of tax.
♦♦ It is regressive.

Types of tax (direct and indirect)

i) Income tax
The income tax is normally levied on the earnings of business entities as well as
individuals .Its two basic types are personal income tax and corporation income
tax. Personal income tax is levied on incomes of individual, households, partnership
and sole partnership. Certain limits are determined by the government. Individual
or families who earn more than the limit needs to pay tax as per the current
provisions. Corporate income tax levied on profits (net earnings) of incorporated
firms.

ii) Value Added Tax (VAT)

VAT is a tax related to goods and services. It is an efficient, transparent and modern
tax system which is levied on goods and services instead of the traditional sales
tax system. If there is an increase in the price of goods and consumption than
the usual price and consumption, the tax levied on the increased rate is said to be
Value Added Tax (VAT) . It is levied only in the increased rate of price. Government
of Nepal has imposed VAT rate as 13% till now. For examples, a Television house
produces a television at a cost of Rs. 20,000. and sells to the wholesaler at Rs.30,000.
, the value of television(goods) is added by Rs. 10,000. And the tax rate is imposed
for the additional value of 10,000 at a certain rate which is called VAT.
Since the start of this system from France in 1954, more than, 130 nations have
already agreed to this systems so far. It was used in Nepal 2054 BS instead of sales
tax, hotel tax and entertainment tax in (2054 Mansir 01). The system of VAT was
applied in Nepal to uplift the economy of the country by increasing the entire
revenue of the nation. VAT is applied to make tax system predictable, transparent,
prevent the leakage of tax and illegal business and to increase the collection of
internal revenue.

iii) Land revenue tax

Land tax is a tax levied on the owners of land. Taxes which are collected by the
government from the landlord are land revenue taxes. These taxes are collected by

22 Unique’s Office Practice & Accountancy - 8

 the government at the time of buying, selling and at the end of fiscal year. Rate of
these taxes are determined by the government.

iv) Excise duty tax

An excise duty tax is considered an indirect tax, meaning that the producer, or
seller who pays the tax to the government is expected to try to recover or shift the
tax by raising the price paid by the buyer. It is typically applies to a narrower range
of products.
A tax is levied on certain types of goods products or manufactured. These taxes are
imposed by the government specially in luxurious goods to discourage the consumer
in its use of its excise duties. Such goods include alcohol, tobacco, liquors etc.

v) Custom duty tax

Taxes which are collected by the government from the import and export of goods
are custom duties. The tax imposed on the import of goods is import duty tax and
the tax imposed on export of goods is export duty tax. Customs Duty is a tariff or tax
imposed on goods when transported across international boarders. The purpose
of customs Duty is to protect each country’s economy, residents, jobs, environment
etc. by controlling the flows of goods, especially restrictive and prohibited goods,
into and out of the country.

vi) Octroi duty ( Local tax)

Taxes are imposed by the local government bodies like village Development
Committee, Municipality, Metropolitan City, District Development Committee etc
are called Octroi duty tax. These tax rate is determined by local government or
state. These tax are used in local area development.

Differences between direct and indirect tax.

Direct tax Basis of difference Indirect tax
It is transparent as it is paid Transparency It is not transparent as it is
directly. paid indirectly.
Tax payer must be the Tax payer Tax payer can be any one
individual himself. instead of the individual.
It is levied on income. Area of tax It is levied on consumption
goods and services only.
Tax increases with income. Increment of tax Tax does not increase with
income.
Direct tax can be avoided. Avoidance Indirect tax cannot be
avoided.
It is progressive. Consumer’s effect It is regressive.

Unique’s Office Practice & Accountancy - 8 23

 Exercise
A. Very short answer questions. (Answer the following questions in one sentence/
in very short)
1. Who pays the tax?
2. Write two features of tax.
3. Write the full form of VAT.
4. What is excise duty tax?
5. What is Octroi duty tax?
B. Short answer questions. (Answer the following questions in short)
1. What is meant by tax? Mention its importance in brief.
2. Define direct and indirect tax.
3. Discuss about Value Added Tax (VAT) with suitable example.
4. Write Short notes on :
a) Income tax b) Custom duty tax
C. Long answer questions. (Write long answer to these questions)
1. ‘The tax is important for the development of country.’ Justify it.
2. Differentiate between direct and indirect taxes.

24 Unique’s Office Practice & Accountancy - 8

 Ch apter 4 Communication

Learning Objectives: After studying this chapter, you will be able to:
♦♦ tell the introduction of communication
♦♦ tell the importance of communication
♦♦ talk about the medium of communication

Introduction
The way of exchange of the information like news, views,
idea, thoughts etc. from one person to another is known as
communication. There are various means of communication that
help in transferring the information. Communication includes the
process of telling, listening and understanding information. The
common means of communication are radio, television, newspaper,
fax, internet, email, telephone, mobile, etc.
According to Keith Davis “Communication is the process of passing
information and understanding from one person to another.”
According to Koontz and Weihrich, “Communication is the transfer
of information from sender to receiver with information being understood by the
receiver.”
In other words, the process of exchanging the information between or among the
parties either in oral or written or symbolic form so that the receiver can respond, it is
known as communication.

Importance of communication
♦♦ Helps to maintain good relation with anyone.
♦♦ Helps in exchanging information.
♦♦ Since, informations are being exchanged; it helps in taking proper decision.
♦♦ Helps in formation of objectives, plans and policies.
♦♦ Reliable information can be circulated to the concerned parties.
♦♦ Co-ordination and controlling the activities of the people and department of
organization can be done.
Unique’s Office Practice & Accountancy - 8 25
 ♦♦ Conflicts and misunderstanding among the parties can be settled.

Medium of communication
Among various parties and every individual there are modes for transferring various
information which is known as medium of communication. The different means of
communication are telephone, e-mail, fax, telegram etc.

1. Oral Medium of communication

When the exchange of information takes place between two parties in verbal form,
it is known as oral medium of communication. In spoken form, the message is
transferred from one party to another. Since, it transmits the information quickly
with immediate feedback, it is one of the important means of communication.
Telephone, radio, television etc. are some of the means under oral medium of
communication.
i. Telephone
The quick and popular means of communication under oral
medium of communication is telephone. It is the modern
and easy means of communication. It is the two-way
communication where the sender and receiver can interact
easily and effectively with each other there are different
types of calls. If the calls are made in local to communicate
with the people near to them then it is known as local calls.
If calls are made in different districts inside the country then it is called STD
(Subscriber Trunk Dialing). Whereas if the calls are made outside the country,
it is known as ISD (International Subscriber Dialing). In Nepal, Nepal Telecom
Company started the telephone service in 1970 B.S. It has been providing
services in cell phones as well. There are some private organizations as well
who have been providing telephone services. For eg. United Telecome Limited,
NCell.
ii. Radio and Television
Radio and Television are also the means
of communication under oral medium of
communication. It is very effective means of
communication since it helps in providing
information about everything like government
information, private information and
advertisements. Radio Nepal was established
in 2007 BS, whereas Nepal Television was
established in 2042 B.S. Some of the private
sectors of radio and T.V. station are Kantipur
Television, ABC Television, Avenues Television, Sagarmatha Television etc.

26 Unique’s Office Practice & Accountancy - 8

2. Written medium of communication
When the exchange of information takes place in the written form, it is known
as written medium of communication. It includes letters, fax, transmission, email,
newspaper, memos etc. It is the formal means of communication which can be
legally valid. Some of the written means of communication are:
i. Postal Service
Postal Service is one of the oldest institutions that have been
providing services in the field of communication. It carries/
transfers letters, documents, and parcels from one place to another.
It is also the oldest, reliable and cheap means of communication.
Correspondence, documents, parcels as well as money can also be
transferred from one nation to another nation through this service.
ii. Email
The act of transferring/exchanging written messages from
one to another through computer or electronic device is
known as email. It is the abbreviation of E-mail. To send
the email the sender should know the e-mail address.
[email protected] is the example of an e-mail
address. World Link P. Ltd., HONS P. Ltd., Global Net P. Ltd. etc. are the e-mail
service providers of Nepal. Nowadays, we can communicate through various
sites like facebook.com, Hotmail.com. USA started this service in 1976 A.D.
E-mail is one of the easiest, fastest, cheapest and most common means of
communication.
iii. Fax
The mechanical process of transferring the written
information through telephone line and fax machine is known
as Fax. Under this machine, the messages are composed by
the sender. The sender keeps the paper on the fax machine
and dials the fax number of the receiver. Then, the receiver
receives the messages in the printed form. In the present
context computer and internet can also be used in transmitting
messages which is known as E-fax. Fax is the reliable,
common and speedy means of communication.

3. Symbolic medium of communication

The process of exchanging messages using
different symbols is known as symbolic medium of
communication. For example light, bells, colours etc.
Every symbols has its own meaning to take an example:
period bell, traffic lights etc.

Unique’s Office Practice & Accountancy - 8 27

Differences between oral and written communication
Oral Written
1. It is the process of exchanging 1. It is the process of exchanging
message, view, ideas, thoughts, message, views, ideas, thoughts,
etc. from one to another orally. etc from one to another in written
form.
2. It transmits the information 2. It is a formal and reliable means
quickly with immediate feedback. of communicaton which can be
legally valid.
3. It transmits the information orally. 3. It transmits the information in
written form.
4. It uses means like telephone, 4. It uses means like Postal service,
cellphone, radio, TV, etc. fax, email, etc.

Exercise
A. Very short answer questions. (Answer the following questions in one sentence/
in very short)
1. What is communication?
2. Write two advantages of telephone.
3. Write two medium of symbolic communication.
B. Short answer questions. (Answer the following questions in short)
1. What is communication? Mention its importance.
2. What do you know by oral medium of communication? Explain in brief.
3. Differentiate between oral and written communication.
C. Long answer questions. (Write long answer to these questions)
1. What to you mean by medium of communication? Explain.

28 Unique’s Office Practice & Accountancy - 8

 Ch apter 5 Insurance

Learning Objectives: After studying this chapter, you will be able to:
♦♦ tell the introduction of insurance
♦♦ tell the functions and importance of insurance
♦♦ tell the types of insurance

Introduction
Human life is surrounded by various risks and uncertainties. There is a risk at every
step of human life. It is impossible to eliminate these risks but a person can reduce
the economic losses arising from such uncertain events with the assist of insurance.
Such uncertainty may occur due to fire, theft, accident, earthquake and flood . These
threats discourage the promotion of business. Business activities are carried on daily
with uncertainty. Insurance is the way of minimizing and reducing the financial losses
arising from such threats, risks and uncertainties.
Insurance is a way, which provides security to the man and his property from any
particular risk. It is the means of shifting the risks to the insurer. Insurance is a contract
between two parties i.e. the insurer and the insured, where one party assures to give
financial compensation against mentioned loss to the next party in consideration of
premium. Thus, insurance is a contract of indentifying the losses occurred due to any
sort of risk in consideration of the premium.
Insurance can be defined as a co-operative device for dispersion of the losses. Such
losses occur due to a particular risk which is extended over to a number of persons
who are exposed to the risk and agree to insure themselves against the risk. Insurance
cannot protect our life and properties. It cannot eliminate and reduce the uncertainties
and risks. It can give financial protection against such risks and uncertainties.
Some definitons of insurance are:
According to Insurance Act 2049 BS, “Insurance business means life insurance
business and non life insurance business which also refers to the re-insurance too.”
According to Edwin W. Peterson, “Insurance is a contract by which one party, for
a compensation called premium, assurances particular risks of the other party and
promises to pay him or his nominee, a certain or ascertainable sum of money on a
specified contingency.”
Unique’s Office Practice & Accountancy - 8 29
In conclusion, insurance is a contract between two parties, i.e the insurer and the
insured, for the compensation of losses caused by an uncertain event in the future and
against the payment of amount called premium.

Functions of Insurance
Insurance plays a very significant role in the field of trade, commerce and industry. It
supports the economic development of the nation. It helps to promote, develop and
expand the size of business by reducing economic risks. Basically, insurance has two
functions: Primary function and Secondary function.

Functions of Insurance
Primary Function Secondary Function
♦♦ Provides certainity ♦♦ Mobilization of capital
♦♦ Provides protection ♦♦ Increase efficiency
♦♦ Distributes risks ♦♦ Prevent losses
♦♦ Maintain financial stability
♦♦ Support in foreign trade

1. Primary functions
The primary function of insurance is to provide financial safety against the losses
due to uncertain events. The primary function of insurance is to immediately follow
the measures to protect from loss. It includes the following functions:
a. Provides certainty : Risk arises due to uncertainty. The function of insurance is
to provide assurance against such loss which takes place in future against premium.
Insurance company promises to give financial compensation to the insured
party against the mentioned loss. This provides certainty.
b. Provides protection : It provides a sense of security to people or the community by
giving assurance against such losses. People and their properties are surrounded
by risks and may suffer from losses due to uncertainties.
c. Distributes risks: Insurance is the co-operative tool of distributing risks
among the persons who are exposed to it. Risks are distributed among insured
at the time of insurance contract in the consideration of insurance premium.
Like this, any risk is distributed in a very simple manner.

2. Secondary functions
Insurance performs various functions to facilitate people which are known as
secondary functions. Different types of opportunities and financial benefits can be
grabbed with the help of insurance. They are as follows:
a. Mobilization of capital : Insurance business collects a large amount of money
as premium from its customers. The entire fund is not used at once for providing
30 Unique’s Office Practice & Accountancy - 8
 compensation. Insurance company mobilizes the remaining fund or the capital
into different productive sectors for the economic development of a country.
b. Increase efficiency : Insurance provides assurance and security against
the financial losses due to uncertainties. It helps the individual, business and
professional people to get relief from worries of losses and uncertainties. When
people are free from tension or unexpected losses, they can devote their time
for better success.
c. Prevent losses : Insurance company identifies the way of reducing the risk of
life and property using different statistical tools scientifically. They make their
customers aware of such risks or events. Hence, insurance helps to decrease
loss by forecasting future losses.
d. Maintain financial stability : Insurance provides assurance to the insured
person or firm to compensate the financial loss caused by uncertain difficulty. It
helps to make better working environment ensuring to compensate the economic
losses arising due to unexpected events. The assurance and compensation of loss
contribute to the stability of business, and therefore, develop a positive concept
about insurance.
e. Support in foreign trade : Generally, the goods are transported through
waterway and airways in foreign trade. While transporting goods through the
means of water transportation, the importer might be exposed to a number
of risks. The insurance helps in minimizing all such risks of economic losses
assuring him/her to make financial compensation in consideration of insurance
premium. As a result, import and export trade becomes riskless and convenient.

Importance of Insurance
Insurance is important for a family, business, society as well as individuals. The
importance of insurance are listed below.

1. It helps to minimize risks.

2. It helps to encourage saving.
3. It helps to eliminate dependency.
4. It helps to promote business.
5. It helps to provide financial protection.
6. It helps to grant loans.
7. It helps to create employment opportunity.
8. It helps to develop economy.
Types of Insurance
Human life and the properties are surrounded by risks as well. People want to secure
future of their children and themselves. So, they become a part of contract of insurance
for financial stability of the business and individual properties against the risk and
uncertainties. Insurance can be classified into three categories: life insurance, non-life
Unique’s Office Practice & Accountancy - 8 31
insurance and re-insurance. Among them, we discuss life and non-life insurance.

Types of Insurance
Life Insurance Non-Life Insurance
♦♦ Whole life insurance ♦♦ Fire insurance
♦♦ Endowment life insurance ♦♦ Marine insurance
♦♦ Anticipated endowment life ♦♦ Motor insurance
insurance ♦♦ Employees liability insurance
♦♦ Childern's education and marriage ♦♦ Fidelity gurantee insurance
endowment life insurance ♦♦ Aviation insurance

Life Insurance
Life insurance is one of the most familiar forms of insurance. It is more popular than
others. Under it the insurer agrees to pay or compensate sum of money either after
the end of policy period or death of insured to the insured or his/her nominee. Life
insurance provides financial protection. On the other it encourages to save money for the
future. It supports for childrens marriage, economic protection in old age and to run
any industry in the future.
Some definitions of Life Insurance are:
According to Insurance Act 2049 BS, “Life insurance should be taken as a business relating
to contract in which after having paid a specified amount, a specified amount is paid in the
event of the person’s death or by paying a specified amount periodically on the basis of age,
a specified amount is received by the person or her/his nominee”.
According to M.N Mishra, “Life insurance may be defined as the contract whereby the
insurer in consideration of a premium undertakes to pay certain sum of money either
on the death of the insured or on the expiry of the fixed period.”
In conclusion, it is clear that life insurance is a contract, which provides economic
safety to the insured or his/her nominee. It includes the elements of investment as
well as its protection.

Types of Life Insurance

1. Whole life insurance
The insurance covering the whole life of the insured with a purpose of providing
economic support or relief to the dependents of insured after her/his death is
known as Whole Life Insurance. The insured does not get direct advantage from it.
It provides economic safety to the insured family member. According to insurance
policy, the premium amount is paid by the insured for the agreed period.

32 Unique’s Office Practice & Accountancy - 8

2. Endowment life insurance
The insurance policy which is done for a fixed period of time is Endowment Life
Insurance. Time period of this insurance fixed for 5 years, 10 years, 15 years, 20
years and on. The premium is payable during the insured period only. When the
insured dies within the specific period, his/her nominee will get policy amount.
The sum assured is payable to the policy holder on the maturity. Endowment policy
is very popular because it provides long term economic safety to the family as well
as livelihood to the insured in his old age.

3. Children education and marriage endowment life insurance

Education and marriage of the children are expensive affairs for every guardian.
Such economic load can be minimized by taking children’s education and marriage
endowment life insurance policy. Under this policy, the parents pay the premium
amount regularly for a specific period of time. The child becomes the nominee of the
policy holder. At the end of the policy period, insurance company pays the assured
amount to the insured as a financial support on children’s marriage or higher education.

4. Anticipated endowment life insurance

It is issued for 15, 20 and 25 years and a part of the sum assured is paid at certain
intervals during the endowment period. Under this policy, the insured gets certain
percentage of policy, amount after interval. If the policy is issued for 15 years, 25
% of the insured amount is paid after the first 5 years; again 25% after 10 years and
50% along with the bonus is paid upon maturity of the policy, i.e. after 15 years. In case
of death of the insured before the maturity of the policy, the whole assured amount
is payable to the nominee with a bonus at once.

5. Term life insurance

Term life insurance policy is issued for a short period of time. Generally, it is issued 3
to 7 years until and unless the amount of loan is repaid. The main objective of this
insurance is to facilitate the payment to the creditors or lenders by the debtors or
borrowers if the insured dies before paying the debt.

Non-Life Insurance
Non-life insurance is a contract between the insurer and the insured for a short term.
It refers to the insurance of goods and properties. In other words, all the insurance
policies except life insurance policy is non-life insurance. It is taken for the indemnity
of the loss of goods and properties on account of a specified cause. Non-life insurance
provides economic safety for building, machinery, equipments, furniture, vehicles
and product items against the risk of fire, earthquake, accident and theft. Non-Life
insurance includes fire insurance, marine insurance, aviation insurances. Burglary and
house breaking, medical aid, cash in transit, personal accidental insurance also come
under non-life insurance.
Unique’s Office Practice & Accountancy - 8 33
Types of Non-Life Insurance
1. Fire insurance
The insurance that is done against the risk caused by fire to vehicles, buildings,
industrial or business supplies is called fire insurance. Loss or damage of assets caused
by fire is called fire waste. Fire insurance is a measure which provides protection
against the risk of fire. The objective of fire insurance is to make the financial return
of losses caused by fire. Fire insurance is a contract between the insured and the
insurer in which the insurer agrees to compensate the insured against a loss or
damage caused to a particular property by fire in consideration of premium.
Important definition of fire insurance is:
According to Bill Weipers, “The basic intention of the fire policy is to provide
compensation to the insured person in the event of there being damage to the
property insured.”

2. Marine insurance
Marine insurance is taken for getting the economic compensation against the
losses due to perils of the sea in course of sea voyage. It is a contract between
the insurer and the insured in which the insurer promises to indemnify. Marine
insurance covers the risks of collision with rock or another ship, attack from enemies,
fire, hijack, sinking ship, capture by pirates, detention by the government.
Important definition of marine insurance is:
According to M. N. Mishra, “Marine insurance has been defined as a contract
between insurer and insured whereby the insurer under takes to idemnify the
insured in a manner and to the interest thereby agreed against marine losses
incident to marine adventure.”

3. Miscellaneous insurance
Some types of miscellneous insurance are:
a. Motor insurance : The insurance, which compensates the financial losses of the
private, public and commercial vehicles, such as, car, jeep, bus, truck, etc is called a motor
insurance. If the vehicle is damaged due to an accident or other similar causes,
the insurer compensates the economic losses to the owner of the vehicles. This
insurance includes the insurance of passengers, vehicles and goods.
b. Employer’s liability insurance : This insurance policy is taken for the workers
of factories or institutions by the employer to compensate the claim of the
employees on the event of injury, accident, death and disability while they are
at work. The workers may lose their life or become physically disabled at work. The
insurance that compensates the workers’ dependents in case of death or the workers
themselves in case of injuries is employer’s liability insurance.

34 Unique’s Office Practice & Accountancy - 8

 c. Fidelity guarantee insurance : This insurance is human beings character risk
insurance. The organization should bear some losses that occurs in the office due
to mistake of the staff knowingly or unknowingly. To compensate the loss due
to such bad attitude, fidelity guarantee insurance is made in the organization.
It also reduces the losses due to the activities of honest staff as well.
d. Aviation insurance : Insurance that provides security against losses due to the
accident of aircraft is called aviation insurance. Aviation insurance policy is
taken for getting economic return against the losses in air service. It contains
the losses of aircraft, goods and life of air travelers as well as of the life and
properties surrounding the place of an accident.

Difference between Life Insurance and Non-life Insurance

Bases of difference Life Insurance Non-life Insurance

Meaning The insurance of human All the insurance policies

being is called life insurance. except life insurance policy
are non life insurance.
Subject Life of the human being is Properties are the subject
the subject matter of this matter of this insurance.
insurance
Period of contract Time period of this insurance A non life insurance is a
is fixed for 5 years, 10 years, short term contract which is
15 years, 20 years and so on. taken generally for one year.
Expenditure An amount of premium An amount of premium paid
paid for life insurance is a for non-life insurance may
personal expense. be business expenses or
personal expenses.
Compensation Insurance company pays The sum of money is to be
the predetermined sum of compensated to the owner
money to the insured on the of properties holder against
expiry of the policy or to the the loss of property.
nominee in case of death of
the insured.
Indemnify Life insurance is not the Non life insurance is the
contract of indemnity contract of indemnity under
because the life of human which the loss of properties
being cannot be indemnified is indemnified in monetary
in terms of money. value.

Unique’s Office Practice & Accountancy - 8 35

 Exercise
A. Very short answer questions (Answer the following questions in one
sentence/ in very short)
1. What is insurance?
2. What is insured?
3. What is fire insurance?
4. Write about two non-life insurance.
5. What do you mean by employer's liability insurance?
B. Short answer questions (Answer the following questions in short)
1. What do you mean by insurance? Mention its importance.
2. What is non-life insurance? Describe about fire insurance and fidelity guarentee
insurance.
3. Mention any three similarities and any three differences between life insurance
and non-life insuranced.
4. What is life insurance? Explain its types.
C. Long answer questions (Write long answer to these questions)
1. What is insurance? Explain its functions.
2. “Insurance is a device for promoting trade and industry in the country,” justify.

36 Unique’s Office Practice & Accountancy - 8

 Ch apter 6 Book Keeping

Learning Objectives: After studying this chapter, you will be able to:
♦♦ give an account of Book Keeping and Accounting
♦♦ tell the objectives of Book Keeping
♦♦ tell about the Accounting System: Single Entry System and Double Entry System

Introduction
Many financial transactions take place in business organizations. Financial transactions
are those transactions that involve monetary value. Purchase and sale of goods; receipts
of incomes and payments of expenses; borrowing and payment of loans; owner’s
investments etc. are some of the examples of financial transactions. These transactions
must be recorded in a proper way so that the required financial data and information
can be obtained as and when needed. Since, human memory has limitations, we
cannot remember a large number of transactions for a longer period of time. So, there
is the need of a system and knowledge to make the records of financial transactions
permanent. Book keeping is such a branch of knowledge that educates us how to keep
the recording of financial transactions in systematic and scientific ways. So, the act of
keeping permanent records of all the day to day financial transactions systematically
and scientifically in a set of books is called book-keeping. It is the process by which
a record of financial transactions is maintained. It is a part of accounting which is
concerned with: i) identifying financial transactions and events, ii) measuring them
in terms of money, iii) recording the financial transactions and events in the books of
accounts, and iv) classifying recorded transactions and events (i.e. posting them into
ledger accounts).
Some definitions of Book Keeping are:
According to J. R. Batliboi, “Book keeping is an art of recording business dealings in
a set of books.”
According to R. N. Carter, “Book keeping is the science and art of recording correctly
in the books of accounts all those business transactions that result in the transfer of
money or money’s worth.”
According to L.C. Croper, “Book keeping is the science of recording transactions in

Unique’s Office Practice & Accountancy - 8 37

money or money’s worth in such a manner that, at any subsequent day, the nature and
effect of each transaction, and the combined effect of the transactions may be clearly
understood so that the accounts prepared at any time from the records thus kept may
show the owner of the books this true financial positions.”
In conclusion, book-keeping is a branch of knowledge that educates us to keep the
records of financial transactions in a set of books systematically and scientifically.

Objectives of Book Keeping

The major objectives of book-keeping are as follows:

1. To identify final transactions

Various transactions may occur in business organizations. Some of them may be of
financial character and some may not. Book keeping identifies financial transactions
from among a large number of business transactions for their systematic records.

2. To keep systematic and permanent records

Book-keeping is the science and art of recording the identified financial transactions
systematically in the books of primary entry. It keeps the permanent records of all
financial transactions so that, they can be used in future as and when required.

3. To classify the transactions

Book keeping classifies all financial transactions into personal, real and nominal
accounts as per their nature and keeps their records accordingly.

4. To help in preparation of financial statements

Business organizations prepare financial statements such as profit and loss
account, balance sheets, and statement of changes in financial position to know
the operating results and financial position of business. Book keeping provides
all the required financial data and information to prepare financial statements
periodically.

5. To help in prevention of errors and frauds

Book keeping keeps the records of all financial transactions in a systematic and
scientific way on the basis of double entry book keeping system. Thus, it prevents
the errors and frauds that may happen in coming days.

Accounting
Based on the basic features of accounting, it can be said that accounting is broader
than book keeping. It is said that accounting begins when book keeping ends. Book
keeping is the part of accounting. Book keeping is primarily concerned with systematic

38 Unique’s Office Practice & Accountancy - 8

and scientific recording of all financial transactions along with their classifications.
But, accounting refers to summarizing, analyzing, and interpretation of all the financial
transactions which are systematically and scientifically recorded by book-keeping. So,
accounting can be defined as a process of identifying, measuring, recording the financial
transactions, summarizing, analyzing and interpreting them and communicating the
financial information to the users, such as proprietors, creditors, investors, government
agencies etc. It is because of these features that accounting is called the ‘language of
the business.’ Accounting is not only useful for business organization but in fact for any
kinds of organizations.
Some definitions of accounting are:
According to - Committee on terminology of the American Institute of certified
public accountants, “Accounting is the art of recording, classifying and summarizing
in a significant manner and in term of money; transactions; and events which are, in
part at least, of a financial character, and interpreting the result thereof.”
According to Smith and Ashbourne, “Accounting is the science of recording and
classifying business transactions and events, primarily of a financial character, and the
art of significant summarizes, analyzes and interpretations of those transactions and
events and communicating the results to person who must make decisions or form
judgment.”
According to American Accounting Association, “Accounting is the process of
identifying, measuring and communicating economic information to permit informed
judgments and decisions by users of the information.”
In conclusion, accounting is the process of collecting, recording, summarizing, interpreting
and communicating the financial information to the persons or parties interested in such
information so as to make effective decisions for the success of the organizations.

Objectives of Accounting
The major objectives of accounting are as follows:

1. To maintain records
Accounting records the financial transactions and events of the organizations in
the books of accounts in a systematic manner. It also classifies the recorded data
under appropriate accounts and summarizes them into financial statements.

2. To ascertain profit or loss

A business is set up with a motive of earning profit. Another objective of accounting
is to ascertain operating results i.e. profit earned or loss suffered during a particular
period of time. For this purpose, a statement or the trading, profit and loss account
is prepared.

Unique’s Office Practice & Accountancy - 8 39

3. To ascertain financial position
Accounting does not only ascertain profit or loss. it also ascertains the financial
position of organization. For this purpose, it prepares a statement called Balance
Sheet. This statement contains the list of assets, liabilities and owner’s capital. This
statement shows the resources available in the organization and claims (internal
and external) on those resources on the particular date.

4. To provide financial information

Accounting provides information about the operating results and financial position
of the business to the various users who analyze them as per their requirements
and make effective decisions based on their analysis

5. To facilitate management
The management often requires financial information for decision making, effective
control, budgeting and forecasting. Accounting provides financial information to
assist the management in this regard.

6. To determine tax amount

Accounting provides financial data and information to the tax office and based on
such information, the amount of the liability is determined logically.

Accounting System
The systems of recording transactions in the books of account are classified into two
types. They are:
♦♦ Single Entry System
♦♦ Double Entry System

Single Entry System

The accounting system under which only one aspect of financial transactions is
recorded in the books of account is called single entry system. It ignores the two
fold aspects of any financial transaction. Commonly, it maintains cash and personal
accounts of debtors and creditors. It ignores impersonal account like purchase account,
sales account, wages account, rent account. It also ignores real account except cash.
So, it is not a complete system of accounting. It fails to present complete information
required by management. It fails to disclose true profit or loss and financial position of
a business organization.

40 Unique’s Office Practice & Accountancy - 8

Some definitions of Single Entry System are:
According to Eric Kohler, “Single entry system is a system of book-keeping in which,
as a rule, the records of only cash and personal accounts are maintained. It is always
incomplete double entry system varying with circumstances.”
According to R.N. Carter, “Single entry is a method employed for recording transactions,
which ignores the two fold aspects and consequently fails to provide the business with
the information necessary for him to be able to ascertain the position.”
In conclusion, the system which is incomplete, unscientific and unsystematic process
of recording financial transactions, ignores the dual aspects of financial transactions is
called single entry system.

Features of single entry system

The main features of single entry system are as below:
1. Incomplete system: It is an incomplete system of accounting because it ignores
dual aspects of all financial transactions. It focuses only on personal accounts and
ignores impersonal accounts and real accounts except cash.
2. Personal accounts: It maintains the records of personal accounts of all the debtors
and creditors to determine the account of credit sales and credit purchases.
3. Cash bank: It maintains the record of cash transactions for cash receipts and cash
payments of the business organization for a given period of time.
4. Unscientific: It does not follow the fixed set of principles for recording financial
transactions and preparing financial statements. So, it is an unscientific system of
accounting.
5. Economical: It does not require a highly skilled employee to maintain the records
of financial transactions. Similarly, it doesn’t require a large number of materials,
books, and sophisticated computerized system for recording the transactions.

Double Entry Book keeping system

The system of book keeping under which two aspects of transactions are recognized
and recorded systematically and in orderly manner is called double entry book keeping
system. It is a systematic and complete system for recording financial transactions.
According to Yuji Ijiri, “Double entry book keeping is seen as predominately a set
of rules by which an increment in net assets is connected with its corresponding
decrement or with the balancing increment and/a decrement in equity”.
According to William Pickles, “The double entry system seeks to record every
transaction in money or money's worth in its double aspects-the receipt of benefit by
one account and a surrender of a benefit by another account, the former entry being

Unique’s Office Practice & Accountancy - 8 41

made to the debit of the account that receives it and the later to the credit of the account
that surrenders it."
In conclusion, double entry system is a method and technique of book keeping which
recognizes the two fold aspects of every financial transaction. One aspect should be
debited and another aspect should be credited.

Features of Double Entry system

The following are the main features of double entry system.
1. Double effect: Double entry system records the double effect of every financial
transaction. One aspect is debited while another aspect is credited simultaneously.
2. Equal effect: Under this system, it is assumed that debit amount should always be
equal to credit amount. This means for every debit amount there is a corresponding
credit amount for every financial transaction.
3. Debit and credit: This system assumes that one aspect of financial transactions
should be given the name ‘debit’ (the benefit receiver) and another aspect should
be given the name ‘credit’ (the benefit giver).
4. Complete record: This system records all the aspects of every transaction and
thus, becomes able to give complete picture of whole financial transaction of an
organization.
5. Scientific: This system is based on certain principles, conventions, assumptions, and
thus makes the records of all financial transactions systematic and scientific.
6. Arithmetical accuracy: It records the dual aspects of every transaction: in debit
side one aspect, and in credit side another aspect but with equal amount. Thus, this
system ensures arithmetical accuracy because the total of debit amount must be
equal to the total of credit amount.

Advantages of Double Entry Book keeping

The main objectives of double entry book-keeping system are as follows:
1. Keeps complete record of each transaction: This system records both the
aspects of financial transactions. It divides the whole transactions into three
accounts-personal, real and nominal accounts. This system does not leave any
aspects unrecorded.
2. Keeps all the records systematically and scientifically: This system has its
own sets of principles and rules to keep the records of all financial transactions
systematically and scientifically.
3. Ascertains profit or loss: This system prepares profit and loss accounts for a
given period of time. Thus, this system helps to ascertain the true profit or loss of
a business.

42 Unique’s Office Practice & Accountancy - 8

4. Presents the financial position: This system prepares balance sheet which
provides details of assets and liabilities of the business. Thus, this system helps to
present the financial position of business.

Differences between Book keeping and Accounting

Basis Book keeping Accounting
1. Scope It is concerned with identifying, It is concerned with
measuring, recording and summarizing, analyzing,
classifying the financial interpreting and communicating
transactions. the financial information.
2. Stage It is a primary stage. It is a secondary stage.
It ends before accounting It begins where book keeping
begins. ends.
3. Performance Junior staff performs this A senior staff performs this
functions. functions.
4. Nature. It is clerical and routined in It is analytical and dynamic in
nature. nature.
5. Objective Its objective is to maintain Its main objective is to ascertain
systematic records of financial net results of operation and
transaction. financial position and to
communicate information to the
interested parties.
6. Knowledge It is mechanical in nature and It requires special skills and
thus, does not require special ability to analyze and interpret.
skills.

Basic Accounting Terms

1. Assets
Assets are economic resources which are owned and controlled by a firm or
an individual. Assets will enable the firm to get benefits in the future. Land and
building, plant and machineries, furniture and factory, investment, cash in bank,
cash at bank, debtors, bills receivable etc are the examples of assets. Assets can be
classified into two types. They are:
a. Fixed Assets
Fixed assets are those assets which are purchased for the purpose of operating
the business, not for reserve purpose. These assets are also known as long term
or non-current assets because their benefits are realized for more than one
year. These assets have life for more than one year. Land and building, furniture

Unique’s Office Practice & Accountancy - 8 43

 and fixture, plant and machinery etc are the examples of fixed assets. They are
also classified into following types:
i. Tangible fixed assets: The fixed assets which have physical existence and can be
seen and touched are called tangible fixed assets. Land and building, plant and
machinery, equipments, vehicle etc are the examples of tangible fixed assets.
ii. Intangible fixed assets: The assets which have no physical existence, cannot
be seen and touched, are called intangible fixed assets. Goodwill, trademarks,
patents, copyright, design etc are the examples of intangible fixed assets.

b. Investments
These assets refer to the investment in shares, debentures and securities of
government and other companies. Investment can be made in long term
securities and short term securities (marketable securities). Investment in long
term securities can be called fixed assets whereas short term securities can be
called as current assets.

c. Current assets
The assets which can be converted into cash or cash equivalent within an
accounting period(say one year) are called current assets. Cash in hand, cash at
bank, debtor, bills receivable, marketable securities, prepaid expenses, accrued
income, are the examples of current assets.

2. Liabilities
Liabilities refer to the amount of money payable by the business to the outsiders.
In other words, it is the amount of money which the business owes to outsiders. It
can be classified into long term liabilities.
i. Long term liabilities: They are those liabilities which are payable after one
year period. Long term loans, debentures, bonds are the examples of long term
liabilities.
ii. Current liabilities: They are those liabilities which are payable within a year.
Creditors, bank overdrafts, bills payable, short term loans etc. are the examples
of current liabilities.

3. Capital
The amount (in term of money or assets having money value) which is invested by
the owner or proprietor is called capital. This is the amount on which the owner
has a claim. So, it is also known as owners’ equity. It will always be equal to assets
less liabilities. It can be expressed as:
Capital=Assets-liabilities

44 Unique’s Office Practice & Accountancy - 8

4. Drawings
It is the amount of money or the value of goods which the owner withdraws from the
business for personal or private or domestic use. It reduces the capital of owners.

5. Expenses
An expense is the cost incurred for using or consuming the things or services for
the purpose of generating revenue. Examples of expenses are payment of salaries,
wages, rent, etc.

6. Revenue
Revenue refers to the amount generated from sales of goods or services. It is
the result of business operation. Examples of revenues are sales, rent received,
commission received etc.

7. Profit
It is the surplus of revenues of a business over its costs.

8. Loss
A loss is an excess of expenses over revenues which arise from normal operation
of business.

9. Debtors
The person or party to whom the goods or services are sold on credit is called a
debtor. The debtors owe the amount to enterprise.

10. Creditor
A person from whom an enterprise buys goods or services on credit is called a
creditor. A creditor is a person to whom an enterprise owes amount because of
credit purchase.

11. Stock
It refers to the tangible goods or materials which remain unsold or unused in the
business. Stock may be opening stock or closing stock.

12. Bills receivable

It means a bill of exchange drawn by the seller and accepted by the debtor to pay
the mentioned sum of money on specified date.

13.Bill payable
It means a bill of exchange accepted by a buyer to pay for credit purchase to the
seller on a particular date.

Unique’s Office Practice & Accountancy - 8 45

14. Discount
When customers are allowed any types of reduction in the prices of goods by the
business, it is called discount. When the discount is allowed in the prices of goods
on sales, it is called a trade discount. When debtors are allowed some discount in
prices of the goods for timely payment, it is called a Cash Discount.

15. Financial transactions

The business transactions which carry monetary value are called financial
transaction. Goods purchased for Rs.100, 000 is the example of a transaction.

Exercise
A. Very short answer questions. (Answer the following questions in one
sentence/ in very short)
1. What is an asset?
2. What is capital?
3. Give any two examples of current assets.
4. Write any two examples of liabilities.
5. What is closing stock?
B. Short answer questions. (Answer the following questions in short)
1. What do you mean by book keeping? What are its objectives?
2. What do you mean by accounting? What are its advantages?
3. What is meant by single entry system? What are its features?
4. What are the differences between single and double entry system?
C. Long answer questions. (Write long answer to this question)
1. What is double entry system of book keeping? Explain its advantages.

46 Unique’s Office Practice & Accountancy - 8

 Ch apter 7 Journal

Learning Objectives: After studying this chapter, you will be able to:
♦♦ explain the meaning and objectives of Journal
♦♦ explain the methods of Journalizing
♦♦ explain the rules of Debit and Credit
♦♦ explain the Journal Entries: Simple and Compound

Introduction
The objective of book keeping is to keep the record of business transactions
systematically and scientifically. To achieve this objective, all the financial transactions
of business are first recorded in a book of original entry in a chronological order. Such a
book of original entry is known as ‘Journal‘. It is also known as ‘Book of Primary Entry’
because all the financial transactions are recorded at the first instance in this book.
The process of recording financial transactions in the journal is called Journalizing and
the entries made in the journal books are called Journal Entries. The transactions are
recorded in journal chronologically i.e. in the order of dates.
Some definitions of Journal are:
According to R.N. Carter, “The ‘journal’ or ‘daily record’ as used originally, was a book
of prime entry in which transactions were copied in order of date from a memorandum
or waste book. The entries, as they were copied, were classified into debits and credits,
so as to facilitate their being correctly posted afterwards in the ledger.”
According to L. C. Cropper, “A journal is a book, employed to classify or sort out
transactions in a form convenient for their subsequent entry in the ledger.” In other
words, the journal is a book of original entry in which all the financial transactions of
a business are recorded systematically at first, as and when they occur, with a view to
make permanent records of all financial transactions.

Unique’s Office Practice & Accountancy - 8 47

Objectives of Journal
The the main objectives of a journal are as below:
♦♦ To keep the permanent records of all the financial transactions of business
systematically.
♦♦ To provide chronological records of all the financial transactions of business.
♦♦ To ensure the application of the principles of double entry book keeping
system.
♦♦ To facilitate the preparation of ledger.
♦♦ To provide the legal evidence concerned with financial transactions.

Methods of Journalizing
The process of recording a transaction in a journal is known as Journalizing.
The following steps are involved in journalizing:
1 Identify what accounts are affected by a transaction.
st
:

2 : Identify the nature of the account affected.

nd

3 Identify which account is to be debited and which account is to be credited by

rd
:
applying the rules of debit and credit.
4 Ascertain the amount by which the accounts are to be debited and credited.
th
:

5 Make the entry of transaction in journal in a chronological order.

th
:

6 Give a brief description of transactions. The brief transaction is called a narration.

th
:

Meaning of an Account
An account is a summary of the relevant transactions at one place concerned with
a particular head. It records the amount of transactions as well as their effect and
direction.

Classification of Accounts
a. Traditional Approach
According to this approach, the accounts are classified into the following groups:
Types of Meaning Examples
Accounts
1. Personal These accounts are concerned Natural- Shiva’s A/c
Accounts with natural persons,
artificial persons, and Artificial- Shree & Co. A/c
representative persons Representative- Outstanding
Wages A/c

48 Unique’s Office Practice & Accountancy - 8

 2. Real Accounts These accounts are concerned Tangible- Machinery A/c
with tangible and intangible
real assets Intangible- Goodwill A/c
3. Nominal These accounts are concerned Expenses- Purchase A/c,
Accounts with expenses, losses, profits, Salary A/c
and gains
Loss- Loss by fire A/c

Income and Gains- Sales A/c,

Rent Received A/c

b. Modern Approach/Accounting Equation Approach

According to this approach, the accounts are classified into the following groups:
Types of Meaning Examples
Accounts
1. Assets accounts These accounts are concerned Machinery A/c, Furniture A/c,
with tangible or intangible real Cash A/c, Goodwill A/c, Trade
assets. Mark A/c
2. Liabilities These accounts are concerned Long Term Loan A/c, Trade
accounts with the financial obligations. Creditors A/c, Bank Overdraft
A/c, Outstanding Expenses
A/c
3. Capital accounts These accounts are concerned Capital A/c, Drawings A/c
with owners of an enterprise
4. Revenue These accounts are related Sales A/c, Discount Allowed
accounts with the amount charged A/c, Dividend Received A/c,
for goods sold or services Interest Received A/c
rendered or allowing others
to use enterprise resources
yielding interest, royalty,
dividend etc.
5. Expenses These accounts are related Purchase A/c, Salary A/c,
accounts with the amount incurred or Interest A/c, Discount Allowed
lost in the process of earning A/c, Bad debt A/c, Loss by Fire
revenue. A/c

Unique’s Office Practice & Accountancy - 8 49

Rules of Journalizing/ Rules of Debit and Credit
Under Double Entry System of book keeping, each transaction has two aspects. One
aspect of the transaction is debited and another is credited. The debiting and crediting
of the accounts are based on certain rules. These rules are called rules of journalizing
or rules of debit and credit. There are two approaches for the rules of debit and credit.
They are as below:

a. On the basis of Types of Accounts (Traditional Approach)

On the basis of types of accounts, rules for debit and credit are given below:
Types of Accounts Rules for Debit Rules for Credit
1. Personal Accounts Debit the receiver Credit the giver
2. Real Accounts Debit what comes in Credit what goes out
3. Nominal Accounts Debit all expenses and loses Credit all gains and profits

b. On the basis of Accounting Equation (Modern Approach)

On the basis of accounting equation, rules of debit and credit are given below:
Types of Accounts Rules for Debit Rules for Credit
1. Assets Accounts Debit the increase Credit the decrease
2. Liabilities Accounts Debit the decrease Credit the increase
3. Capital Accounts Debit the decrease Credit the increase
4. Revenues Accounts Debit the decrease Credit the increase
5. Expenses Accounts Debit the increase Credit the decrease

Specimen of a Journal
The specimen of a journal is shown below:
Journal entries in the books of …
Date Particulars L.F. Debit Amount Credit Amount
(Rs.) (Rs.)
1 2 3 4 5

1. Date: Under this column, the date on which the transactions occur is recorded
accordingly.
2. Particulars: Under this column, the names of the accounts involved are written.
First the names of the accounts to be debited, then the names of the accounts to
be credited and lastly, the narration (i.e. a brief explanation of the transactions)
are entered.

50 Unique’s Office Practice & Accountancy - 8

 3. Ledger Folio (L.F.): Under this column, the number of the page in the ledger on
which the account is written up is entered.
4. Debit Amount: Under this column, the amount to be debited is entered.
5. Credit Amount: Under this column, the amount to be credited is entered.

Journal Entries
Recordings of transactions made in the journal are called journal entries. In journal,
some accounts should be debited while some accounts should be credited, but the debit
amounts should always be equal to the credit amounts. Journal entries are categorized
as: simple journal entries and compound journal entries. They are:

Simple Journal Entries

The journal entries in which only one item is debited and another item is credited is
called simple journal entries.
Illustration 1
Pass the journal entries for the following transactions:
Dec 1 A business commenced with cash of Rs. 50,000
Dec 15 Purchased goods for Rs. 10,000.
Dec 25 Sold goods for Rs. 12,000.
Dec 30 Paid salary for the month Rs. 15,000.

Journal Entries in the books of ...

Date Particulars J.F. Dr. Amount Cr. Amount
(Rs.) (Rs.)
Dec 1 Cash A/c Dr. 50000

To Capital A/c 50000

(Being business started with cash)

Dec 15 Purchase A/c Dr. 10000

To Cash A/c 10000

(Being goods purchased for cash)

Dec 25 Cash A/c Dr. 12000

To Sales A/c 12000

(Being goods sold for cash)

Unique’s Office Practice & Accountancy - 8 51

 Dec 30 Salaries A/c Dr. 15000

To Cash A/c 15000

(Being salaries for the month paid)

Some financial transactions are given below for simple journal entries:

1. Starting Business
When a business is started with cash, cash is brought (increases) into the business,
so cash account is debited and the proprietor is the giver (capital increases), so
capital account is credited.
Transaction: Gita started a business with cash Rs.300,000.
Date Particulars L.F. Dr. Cr. (Rs.)
(Rs.)
Cash A/c Dr. 300000
To Capital A/c 300000
(Being business started with cash)

2. Purchase of assets
When an asset is purchased, asset is brought (increases) to the business and so
asset account is debited. Cash goes out (decreases) from the business and so cash
account is credited.
Transaction: Furniture purchased for Rs.12,000.
Date Particulars L.F. Dr. Cr. (Rs.)
(Rs.)
Furniture A/c Dr. 12000
To Cash A/c 12000
(Being furniture purchased for cash)

3. Sale of assets:
When an asset is sold for cash, cash is brought (increases) to the business and so
cash account is debited. When an asset goes out (decreases) and so asset account
is credited.
Transaction: Furniture sold for Rs.12,000.

52 Unique’s Office Practice & Accountancy - 8

 Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Cash A/c Dr. 12000
To Furniture A/c 12000
(Being furniture sold for cash)

4. Cash Purchase
When goods are purchased for cash, goods are brought (increases) to the business
and so goods or purchase account is debited. The cash goes out (decreases) and so
cash account is credited.
Transaction: Goods purchased for Rs.15,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Purchase A/c Dr. 15000
To Cash A/c 15000
(Being goods purchased for cash)

5. Credit Purchase
When goods are purchased on credit, goods are brought (increased) to the business.
So, goods or purchase account is debited. A creditor is the giver (increased). So, the
creditor is credited.
Transaction: Goods of Rs.25,000 purchased from Yakha.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Purchase A/c Dr. 25000
To Yakha’s A/c 25000
(Being purchased goods on credit)

6. Cash Sales
When goods are sold for cash, cash comes (increases) in business. So, cash account
should be debited. The goods goes (decreases) out from the business. So, goods or
sales account should be credited.
Transaction: Goods sold for Rs.50,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Cash A/c Dr. 50000
To Sales A/c 50000
(Being goods sold for cash)
Unique’s Office Practice & Accountancy - 8 53
7. Credit Sales
When goods are sold on credit, debtor receives (increases) the goods on condition
to pay in future. So, debtor or customer account should be debited. Goods go out
(decreases) from the business. So, goods or sales account should be credited.
Transaction: Goods of Rs.40,000 sold to Satya on credit.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Satya’s A/c Dr. 40000
To Sales A/c 40000
(Being goods sold on credit to Satya)

8. Payment made to creditors/suppliers

When payment is made to creditors, the creditor is the receiver (decrease), so
creditor account is debited. Cash goes (decrease) out from the business, so cash
account is credited.
Transaction: Creditor was paid Rs. 5,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Creditor's A/c Dr 5000
To Cash A/c 5000
(Being cash paid to creditors)

9. Payment received from customers/debtors

When payment is received from debtors, cash comes (increase) into business, so
cash account is debited. Debtor is the giver (decrease) and so debtor account is
credited.
Transaction: Cash received from debtor Rs.6, 000
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Cash A/c Dr 6000
To Debtor's A/c 6000
(Being cash received from debtor)

10. Payment for expenses:

If payment is made for expenses, expenses incurred (increase) in the business, so
expenses account should be debited. The cash goes (decrease) out from business,
so cash account should be credited.
Transaction: Salary for the month paid Rs.20, 000

54 Unique’s Office Practice & Accountancy - 8

 Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Salary A/c Dr 20000
To cash A/c 20000
(Being salary for the month paid)

11. Income received

When income is received, cash comes (increase) into the business, so cash account
is debited. Income is earned (increase) by the business, so income is credited.
Transaction: Dividend received amounting Rs 10,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Cash A/c Dr 10000
To Dividend received A/c 10000
(Being dividend received)

12. Return outward (purchase return)

When purchased goods are returned to the suppliers, stock of goods goes out
(decreases) from the business and the creditors or suppliers receive (decrease)
the goods. So creditors account is debited and purchase return account or goods
account should be credited.
Transaction: Goods of Rs 3,000 returned to Ram.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Ram’s A/c Dr 3000
To Purchase return A/c 3000
(Being goods returned to Ram)

13. Returned Inward (sales return):

When goods are returned from debtors or customers, goods comes (increase) into
the business, and debtor is the giver (decrease). So, goods or sales return account
is debited and debtor or customer account is credited.
Transaction: Goods returned from Hari amounting Rs. 2,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Sales return A/c Dr 2000
To Hari's A/c 2000
(Being goods returned from debtor)
Unique’s Office Practice & Accountancy - 8 55
14. Deposited into bank
When cash or cheque is deposited into bank, bank is the receiver (bank balance
increases), and cash goes (decreases) out from the business. So, bank account is
debited and cash account is credited.
Transaction: Cash Rs. 9,000 deposited into bank.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Bank A/c Dr 9000
To Cash A/c 9000
(Being cash deposited into bank)

15. Cash withdrawn from bank for office use

When cash is withdrawn from the bank for office use, cash comes (increases) in
business and banker is the giver (decreases). So, cash account is debited and bank
account is credited.
Transaction: Cash Rs. 1,500 withdraw from bank for office use.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Cash A/c Dr 1500
To Bank A/c 1500
(Being cash withdrawn from bank for
office use)

16. Cash withdrawn from bank for private/personal use

When cash is withdrawn from bank for owner’s personal use, owner is the receiver
(capital decreases), and bank is the giver (decreases). So, Drawings account is
debited and bank account is credited.
Transaction: Cash Rs.2000 withdrawn from bank for personal/private use of owner.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Drawings A/c Dr 2000
To Bank A/c 2000
(Being cash withdrawn from bank for
personal use)

56 Unique’s Office Practice & Accountancy - 8

17. Drawings
When cash or goods or asset is withdrawn from business by the owner for personal
use, owner is the receiver (capital decreases) and cash or goods or assets goes
(decreases) out from the business. So, drawings account is debited and cash or
goods/purchase or assets account is credited.
Transaction: Cash Rs.1,500 is withdrawn from the business for personal/private
use of owner.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Drawings A/c Dr 1500
To Cash A/c 1500
(Being cash withdrawn from business
for personal use)

18. Taking Loan

When loan is taken from any shares, cash comes (increases) in business and
somebody is giver (liability increases). So, cash account is debited and the giver’s
account is credited.
Transaction: Borrowed a loan of Rs. 30,000 from bank.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Cash A/c Dr 30000
To Loan of Bank A/c 30000
(Being loan borrowed from bank)

19. Repayment of Loan

When loan amount is repaid to the party from where the loan is borrowed, the
concerned party receives (liabilities decrease) the amount, and cash or bank
balance goes (decreases) out from the business. So, loan account is debited and
cash account or bank account is credited.
Transaction: Paid Rs.3,000 to the bank as a repayment of the part of loan.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Loan of Bank A/c Dr 3000
To Cash A/c 3000
(Being loan borrowed from bank)

Unique’s Office Practice & Accountancy - 8 57

20. Interest on Capital
At the end of the accounting period, an organization may pay interest on the capital
that is invested by the owner. It is an expense. When an expense occurs (increases)
in the business, it should be debited. It increases the capital and so capital should
be credited.
Transaction: Provide interest @ 5% on the capital amounting Rs.5,00,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Interest on Capital A/c Dr 25000
To Capital A/c 25000
(Being interest on capital provided )

21. Interest on Drawings

When interest on drawing is charged on the drawings made by the owner, it is
a kind of income to the business, so interest on drawing should be credited and
drawing should be debited.
Transaction: Interest on drawing amount charged @ 5% on the drawing amounting
Rs.30,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Drawings A/c Dr 15000
To Interest on Drawing A/c 15000
(Being interest on drawings charged)

22. Depreciation on fixed assets

Depreciation is a reduction in the value of fixed assets due to wear and tear or
other reasons. It is a non-cash expense. When depreciation is charged on any
assets, expense occurs (increases), so it should be debited. Since value of assets
decreases due to depreciation, assets should be credited.
Transaction: Charge @ 10% depreciation on Furniture value of Rs.5,00,000.

Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)

Depreciation on Furniture A/c Dr 50000
To Furniture A/c 50000
(Being depreciation charged on furniture)

58 Unique’s Office Practice & Accountancy - 8

23. Intangible assets written off/amortized
The reduction in the value of intangible assets is called amortization of intangible
assets. These assets are goodwill, patent, copyright, trademarks etc. Amortization is
also a non-cash expense and it decreases the value of intangible assets. So, written
off or amortization should be debited and intangible assets should be credited.
Transaction: Goodwill written off @ 10% on goodwill value of Rs.2,00,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Amortization on Goodwil A/c Dr 20000
To Goodwill A/c 20000
(Being amortization charged on goodwill)

24. Appreciation on Fixed

Sometimes the value of fixed assets may increase because of various economic and
social factors, such increased value fixed assets is called as appreciation in fixed
asset. It is treated as income and thus appreciation account is credited. Since the
value of assets increases, the asset account is debited.
Transaction: The value of land is appreciated by Rs.50,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Land A/c Dr 50000
To Appreciation on Land A/c 50000
(Being the value of land is appreciated)

25. Bad debts

The due amount which cannot be collected from debtors because of insolvency
or bankruptcy of debtors can be called as bad debts. It is considered as loss to the
business. Since it is a loss, bad debt account is debited. It causes reduction in the
debtors, so debtors account is credited.
Transaction: A debtor owing Rs.5,000 has become insolvent.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Bad debts A/c Dr 5000
To Debtor’s A/c 5000
(Being debtor could not pay the debt
amount becoming insolvent)

Unique’s Office Practice & Accountancy - 8 59

26. Bad debts recovered
Sometimes the due amount, which was recorded as bad debt in the book, may be
paid by the debtors. Such received amount can be called as bad debts recovered. It
is treated as income and so bad debt recovered account is credited. It is received
either in the form of cash or cheque, so cash account is debited since cash comes
(increases) in business.
Transaction: A debtor who was considered as insolvent could pay the due amount
Rs.5,000.
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Cash A/c Dr 5000
To Bad debts recovered A/c 5000
(Being the amount previously
declared bad debt now recovered)

COMPOUND JOURNAL ENTRIES

The Journal entries, in which one debit and two or more credits or two or more
debits and one credit or two or more debits and credits items are involved in any
one transaction, are called compound journal entries. Generally, when two or more
transactions of same nature take place on the same day compound journal entries may
occur.
A compound journal entry can be made in either of the following three ways:
i. By debiting two or more accounts and crediting only one account.
ii. By debiting only one account but crediting two or more accounts.
iii. By debiting and crediting two or more accounts.
Illustration-3: Journalize the following transactions of Radha.
a. Radha started a business with cash Rs. 2,00,000 bank balance Rs. 1,50,000 and
stock of goods Rs. 1,00,000.
b. Paid electricity charges Rs. 5,000, Telephone charges Rs.2,500 and wages
Rs.1,500.
c. Interest Rs.1,000, Commission Rs. 1,200 and Rent Rs. 7,000 were received.
d. Goods of Rs. 50,000 were purchased from Krishna and partial payment of Rs.
30,000 was made.
e. Goods of Rs. 60,000 were sold to Ganesh and only partial payment of Rs. 40,000
was received.
f. Payment made to Krishna Rs. 19,000 in full settlement of his account
g. Rs.19,500 was received from Ganesh and his account was settled.
60 Unique’s Office Practice & Accountancy - 8
 h. Bansi become insolvent and out of due amount Rs. 50,000 he could pay
Rs. 45,000 only.

Journal Entries
In the Books of Radha
Date Particulars L.F. Debit Credit
Amount (Rs.) Amount (Rs.)
a) Cash A/c Dr. 200000
Bank A/c Dr. 150000
Purchase A/c Dr. 100000
To Capital A/c 450000
(Being business started with cash,
bank balance and stock of goods)
b) Electricity Charges A/c Dr. 5000
Telephone Charges A/c Dr. 2500
Wages A/c Dr. 1500
To Cash A/c 9000
(Being electricity charges, telephone
charges and wages paid)
c) Cash A/c 9200
To Interest A/c 1000
To Commission A/c 1200
To Rent A/c 7000
(Being interest, commission and
rent as received)
d) Purchase A/c 50000
To Cash A/c 30000
To Krishna’s A/c 20000
(Being goods purchased from
Krishna and only partial payment
made)
e) Cash A/c Dr. 40000
Ganesh’s A/c Dr. 20000
To Sales A/c 60000
(Being goods sold to Ganesh and
only partial payment is received)

Unique’s Office Practice & Accountancy - 8 61

 f) Krishna’s A/c Dr. 20000
To Cash A/c 19000
To Discount A/c 1000
(Being payment made to Krishna
and discount received)
g) Cash A/c Dr. 19500
Discount A/c Dr. 500
To Ganesh’s A/c 20000
(Being payment received from
Ganesh and discount allowed to
him)
h) Cash A/c Dr. 45000
Bad debts A/c Dr. 5000
To Bansi’s A/c 50000
(Bansi became insolvent, he could
not pay some amount)

Exercise
Theoretical Questions
A. Short answer questions. (Answer the following questions in one sentence/ in
very short)
1. Give the meaning of journal.
2. What do you mean by journalizing?
3. What are the types of account based traditional approach?
4. Mention the rules of debit and credit of personal account.
5. What is meant by real account?
6. What is meant by journal entry?
7. What is narration in journal?
B. Short answer questions. (Answer the following questions in one sentence/ in
very short)
1. What is journal? Mention its objectives.

62 Unique’s Office Practice & Accountancy - 8

C. Long answer questions. (Write long answer to these questions)
1. Explain the rules of journalizing based on traditional and modern approach.
2. Give the meaning of simple and compound journal entry. Give four examples of
each of them.

Numerical Problems
Simple Journal Entries
IP-1: Following transactions are provided to you:
Jan 1 Started a business with cash Rs.50, 000
Jan 5 A computer costing Rs. 20,000 was brought into business as additional capital.
Jan 10 Rs. 1,000 cash is withdrawn from business for private use.
Required: Journal entries

IP- 2: Following transactions are provided to you:

Shrawan 1 Goods purchased for Rs. 10, 000
Shrawan 3 Goods purchased from Shiwani on credit Rs.25, 000
Shrawan 7 Goods sold for Rs. 40,000
Shrawan 7 Goods sold to Maiya Shrestha on credit Rs.30, 000
Required: Journal entries

IP-3: Following transactions are provided to you:

June 1 Purchased goods for Rs.30, 000
June 7 Purchased goods from Mr. Ashok Maharjan Rs.60, 000
June 12 Goods sold for Rs.50, 000
June 14 Goods sold to Mrs. Dolma Sherpa Rs.25, 000
June 16 Goods returned to Mr. Maharjan of Rs.10, 000
June 18 Goods returned from Mrs. Sherpa of Rs.5, 000
Required: Journal entries

IP 4: Following transactions are provided to you:

01-05 Purchased furniture for Rs. 20,000
01-09 Purchased furniture of Rs. 15,000 from Sabnam.
01-11 Sold an old computer for Rs. 12,000.

Unique’s Office Practice & Accountancy - 8 63

 01-15 Sold an old machine for Rs.40,000.
Required: Journal entries

IP-5: Following transactions given to you:

August 10 Wages paid Rs.2, 000
August 15 Rent paid Rs.20, 000
August 20 Commission received Rs.9, 000
August 25 Interest received Rs.7, 000
August 30 Salary paid to staff. 50, 000
Required: Journal Entries

IP-6: Following transactions are given to you:

2070 Baisakh 1 Started business with cash Rs. 200,000.
2070 Baisakh 6 Deposited into bank Rs. 100,000.
2070 Baisakh 16 Goods sold to Sarita Rs. 25,000.
2070 Baisakh 18 Sold goods for cash Rs.30,000.
2070 Baisakh 26 Paid for Rent Rs.5,000.
2070 Baisakh 28 Commission received of Rs.2,000.
2070 Baisakh 31 Salary for the month paid Rs. 20,000.
Required: Journal Entries

Compound Journal Entries

IP-7: The following transactions are provided to you:
Magh 1 Mr. Ram Thapa started a business with cash Rs. 20, 000
and bank balance Rs.500,000.
Magh 3 Purchased goods of Rs.70, 000 and paid partially by
cash Rs.20, 000 and remaining by cheque
Magh 5 Purchase goods Mrs. Sita Gurung for Rs.30, 000 and
paid 50% by cheque
Magh 9 Sold goods for Rs.100, 000 and payment received 50%
by cheque and remaining by cash.
Magh 12 Sold goods to Mr. Mahabir Shah for Rs.70, 000 and
partially 70% payment received.
Magh 18 Payment made to Mrs. Gurung Rs.14, 500 in full
settlement of her account
Magh 24 Received from Mr. Shah in full settlement of his account.

64 Unique’s Office Practice & Accountancy - 8

Self Correction Problems
SCP -1: Following transactions are provided to you:
Baisakh 1 Commencement of a business with cash Rs.500,000
Baisakh 5 A vehicle of Rs.2,00,000 brought into business as
additional capital.
Baisakh 10 Cash withdrawn from business Rs. 2000 for private use.
Baisakh 15 Cash withdrawn from bank Rs. 900 for domestic purpose.
Required: Journal entries

SCP- 2: Following transactions are provided to you:

Jestha 1 Goods purchased for Rs. 30, 000
Jestha 3 Goods purchased from Sabitra on credit Rs.40, 000
Jestha 7 Goods sold for Rs. 60,000
Jestha 7 Goods sold to Pabitra on credit Rs.40, 000
Required: Journal entries

SCP-3: Following transactions are provided to you:

Ashadh 1 Purchased goods for Rs.30, 000
Ashadh 7 Purchased goods from Mr. Sandip Karki Rs.80, 000
Ashadh 12 Goods sold for Rs100, 000
Ashadh 14 Goods sold to Mr. Gajendra Rai Rs.90, 000
Ashadh 16 Goods returned to Mr. Sandip Karki of Rs.20, 000
Ashadh 18 Goods returned from Mr. Gajendra Rai of Rs.15, 000
Required: Journal entries

SCP 4: Following transaction, pass the journal entries:

01-05 Purchased Motorcycle for Rs. 180,000
01-09 Purchased photocopy machine of Rs. 15,000 from Mercantile.
01-11 Sold an old laptop for Rs. 52,000.
01-15 Sold an old equipment for Rs.25,000.
Required: Journal entries

SCP-5: Transactions of Dinesh for March are given below. Journalize them.
March 1 Commission received Rs.25,000
Unique’s Office Practice & Accountancy - 8 65
 March 5 Dividend received Rs.60,000
March 28 Paid Rent Rs 1,600.
March 30 Paid Salary Rs.10,000.

SCP-6: Following transactions are given:

2071 Magh 1 Started business with cash Rs. 5,00,000.
2071 Magh 3 Deposited into bank Rs. 1,50,000.
2071 Magh 5 Goods purchased from Rajbanshi on credit Rs.50,000.
2071 Magh 1 Goods sold to Nagarkoti on credit Rs. 25,000.
2071 Magh 18 Sold goods for cash Rs.70,000.
2071 Magh 26 Paid for Rent Rs.15,000.
2070 Magh 28 Dividend received of Rs.22,000.
2070 Magh 31 Salary for the month paid Rs. 30,000.
Required: Journal Entries

Compound Journal Entries

SCP-7: Following transactions are provided to you:
March 2 Business started with cash Rs. 2,00,000 , bank balance
Rs. 1,00,000 and stock of goods Rs.75,000.
March 5 Purchased goods worth Rs. 50,000 from Yadav
Enterprises and partial payment of Rs. 35,000 made by
cheque.
March 7 Furniture of Rs. 25,000 and Machinery of Rs. 75,000
purchased for cash.
March 8 Goods sold to Paswan & Co. for Rs. 1,00,000 and partial
payment only Rs. 60,000 received.
March 10 Paid Rs. 14,500 to Yadav Enterprises in full settlement
its account.
March 12 Payment received Rs.39,000 from Paswan & Co. in full
settlement its account.
March 15 Telephone charges Rs.5,000, electricity charges Rs.6,000 paid.
March 25 Wages Rs. 10,000 and salary Rs. 40,000 paid through cheque.
March 27 Interest Rs. 500 and commission Rs. 1,500 received.
Required: Journal Entries

66 Unique’s Office Practice & Accountancy - 8

 Ch apter 8 Ledger

Learning Objectives: After studying this chapter, you will be able to:
♦♦ introduce ledger and ledger accounts
♦♦ state the objectives of ledger accounts
♦♦ understand the methods/procedures of posting journal into ledger
♦♦ learn and tell about methods of balancing and closing the ledger
♦♦ tell the difference between journal and ledger

Introduction
After recording transactions in the journal, the next stage is the transfer of transactions
in the respective accounts opened in the ledger. A ledger is a principal book which
contains all the accounts (viz. personal, real and nominal accounts) to which the
transactions recorded in the books of original entry (Journal) are transferred. It is
the ultimate destination of all the transactions. So, it is also called the ‘Books of Final
Entry’. Since it contains the various accounts of assets, liabilities, capital revenues and
expenses, it is also called as the ‘books of accounts’. It provides detailed information of
financial transactions in a classified manner.
Some definitions are:
According to F. G. William, “The ledger is a book of accounts which contains, in
classified form, the final and permanent records of a trader’s transactions”.
According to William Pickles, “A ledger is the most important book of accounts and is
the final destinations of the entries made in the subsidiary books”.
In conclusion, a ledger is the most important book of accounts which contain detail and
permanent records of all the financial transactions of business in a classified manner. It
is a summary of all financial transactions concerned with a particular account collected
in one place on the basis of their nature to ascertain profit or loss and financial position
of a business for a particular period of time.

Unique’s Office Practice & Accountancy - 8 67

Objectives of Ledger
The following are the important objectives of ledger accounts:

1. To classify the financial transactions

A ledger is prepared to classify the transactions into different heads of accounts
according to their relevant nature. It gives the summarized picture of financial
transactions related with a particular account in one place.

2. To help in preparing trial balance

Trial balance is prepared with the help of ending balances or total of ledger
accounts on a particular date. In fact, trial balance is a summary of ledger accounts.

3. To help in ascertaining profit or loss

Ledger contains all the accounts related with incomes and expenses. With the help
of their balances, a business can ascertain profit or loss occurred by preparing
income statement for a particular period of time.

4. To help in presenting the financial position

Ledger contains the accounts of assets as well as liabilities. With the help of their
balances, balance sheet can be prepared on a particular date. The balance sheet
depicts the financial position of a business. Thus, ledger helps in presenting the
financial position of business.

Format/Specimen of Ledger Accounts

The ledger accounts can be prepared by using either of the following two formats:

a. ‘T’ Shaped Form

It is the ledger format which has the shape like the English alphabet ‘T’. It has two
sides- the debit side (left hand side) and the credit side (right hand side). Each of
the debit and credit side has four columns of dates, particulars, journal folio and
amount. The ‘T’ shaped format of ledger account is as follows:
In the books of …
Dr. Name/Head of Ledger Account Cr
Date Particulars J.F. Amount Date Particulars J.F. Amount

(1) (2) (3) (4) (1) (2) (3) (4)

To …(Name of By…(Name of
Accounts) Accounts)

68 Unique’s Office Practice & Accountancy - 8

Explanation of the above format/specimen:
1. This column is used to record the date of the transactions when they take place.
2. This column records the name of the accounts other than the account which
is being prepared. The debit particular starts with word ‘To’ and the credit
particulars start with word ‘By’. Record the name of the account credited in
the Journal on the debit side as ‘To…(name of the account)…’. Record the name
of the account debited in the Journal on the credit side as ‘By…(name of the
account)…’.
3. This column records the page number of Journal/Subsidiary Books from where
the entry is posted to the accounts.
4. This column records amount of the transactions.

b. Balancing Form:
This is the ledger account format which has the seven columns of date, particulars,
journal folio, debit amount, credit amount, Dr/Cr, and balance. Generally, this type
of ledger format is used in banking organization where prompt ledger balances are
required to be ascertained after posting every transaction. The balancing form of
ledger account is as follows:
Date Particulars J.F. Debit Credit Dr/Cr Balance
Amount Amount
(1) (2) (3) (4) (5) (6) (7)

Explanation of the above format/specimen:
1. This column records the date of transactions.
2. This column records name/heads of the accounts other than the account which
is being prepared using the word ‘To’ or ‘By’ for debit and credit respectively.
3. This column records the page number of Journal/Subsidiary Books from where
the entry is posted to the accounts.
4. This column records the debit amount.
5. This column records the credit amount.
6. This column is used to show debit or credit balances.
7. This column is used to show balance of amount.

POSTING
The process of transferring the debit and credit items from the journal to classified
accounts in the ledger is known as posting.

Unique’s Office Practice & Accountancy - 8 69

Rules and Principles of Posting
While posting into the ledgers, the following rules and procedures should be considered:
1. A separate account is opened in the ledger book for each account found in
journal.
2. Name of account is mentioned on the top of the account.
3. After opening an account, all transactions relating to account are recorded in
the same account.
4. The name of the account should not be mentioned either in the debit or credit
side of the same account.
5. The following steps should be followed while posting for an account debited in
Journal.
Step 1: Identify in the ledger the account to be debited.
Step 2: Enter the date of transaction, in the ‘Date column’ on debit side.
Step 3: Record the name of the account credited in the Journal, in the
‘Particular column on the debit side as ‘To…(name of the account)…’
Step 4: Record the page no. of the Journal in the ‘Folio column’ on the debit side.
Step 5: Enter the relevant amount in the ‘Amount column’ on the debit side.
6. The following steps should be followed while posting for an account credited in
Journal.
Step 1: Identify the account to be credited in the Ledger.
Step 2: Enter the date of the transaction in the ‘Date column’ on the credit side.
Step 3: Record the name of the account debited in the Journal in the ‘Particular
column’ on the credit side as ‘By…(name of the account)…’
Step 4: Record the page number of the Journal in the ‘Folio column’ on the credit
side.
Step 5: Enter the relevant amount in the ‘Amount column’ on the credit side.

Ledger Accounts Preparation

Ledger accounts can be prepared from either of the following cases.
a. Ledger accounts from simple journal entry.
b. Ledger accounts from compound journal entry.
c. Ledger accounts without journal entry.
d. Ledger accounts from subsidiary books.

70 Unique’s Office Practice & Accountancy - 8

a. Ledger Accounts from Simple Journal Entry
The Journal entry which consists of only two accounts, one is debited and another
is credited, is called simple journal entry. While posting from the simple journal
entries into the ledger, one ledger account is debited and another ledger account
is credited.
Illustration 1:
On Jan 1, 2015: Purchased goods for cash Rs.18, 000. Journalize and post into
the ledger.
Solution:
Journal Entry
Date Particulars L.F. Dr. Amount Cr. Amount
(Rs.) (Rs.)
2015 Purchase A/c Dr. 18000
Jan 5 To Cash A/c 18000
(Being purchased goods for cash)

Ledger Accounts
Dr. Purchase Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
2015 To Cash A/c 18000
Jan 1

Dr. Cash Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
2015 2015 By Purchase A/c
Jan 1 Jan 1

b. Ledger Accounts from Compound Journal Entry

When more than two accounts are involved in a transaction and the transaction
is recorded by passing a single journal entry instead of passing several journal
entries, such journal is called ‘Compound Journal Entry’. It may be passed if there
are more transactions of the same nature taking place on the same date. It may be

Unique’s Office Practice & Accountancy - 8 71

 recorded in the following three ways:
♦♦ By debiting one account and crediting two or more accounts; or
♦♦ By debiting two or more accounts and crediting one account; or
♦♦ By debiting two or more accounts and crediting two or more accounts.

Illustration 2:
On Jan-5, 2015 Sold goods to Panthi for Rs. 36,000, only 50% partial payment
is received on the date. Journalize the transaction and post it
into the ledger.
Solution:
Journal Entry
Date Particulars L.F. Debit Amount Credit Amount
(Rs.) (Rs.)
2015 Cash A/c Dr. 18000
Jan 1 Panthi’s A/c Dr. 18000
To Sales A/c 36000
(Being goods sold to Panthi but
partial payment received on the
date)

Ledger Accounts
Dr. Cash Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
2015 To Sales A/c 18,000
Jan 5

Dr. Panthi’s Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
2015 To Sales A/c 18,000 18000
Jan 5

72 Unique’s Office Practice & Accountancy - 8

Dr. Sales Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
2015 By Cash A/c 18000
Jan 5 By Panthi’s A/c 18000

c. Ledger Accounts without Journal Entry

Ledger accounts can also be prepared without passing journal entries. In this case,
the opening balances of such accounts are given; these balances should be brought
down at first. With regard to assets, expenditures and losses, opening balances
should be shown on the debit side whereas opening balances of capital, liabilities,
incomes and profits should be shown on credit side in the concern accounts.

Illustration 3: Following transactions are given to you:

Chaitra 1: Opening balances:
Cash Rs.25, 000
Bank Balance Rs.50, 000
Capital Account Rs.1,00,000
Chaitra 9: Purchased goods from Sabina Rs.9,000.
Chaitra 15: Sold goods to Arati Rs.27,000.
Chaitra 25: Paid to Sabina Rs.5,000 through cheque.
Chaitra 27: Received from Arati Rs.18,000 through cheque.
Requred:
a) Bank Account
b) Sabina’s Account
c) Arati’s Account
Solution:
Dr. Bank Account Cr.
Date Particulars J.F. Amount Date ParticularsJ.F. Amount
(Rs.) (Rs.)
Chaitra 1 To Balance b/d 50000 Chaitra 25 By Sabina’s A/c 5000
Chaitra 27 To Arati's A/c 18000

Unique’s Office Practice & Accountancy - 8 73

Dr. Sabina’s Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Chaitra To Bank A/c 5000 Chaitra 9 By Purchase A/c 9000
25

Dr. Arati’s Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Chaitra 15 To Sales A/c 27000 Chaitra 27 By Bank A/c 18000

d. Ledger Accounts from Subsidiary Books

Subsidiary books are books of original entries in which financial transaction are
first recorded systematically. They are the sub-division of Journal. Subsidiary
books, generally, consist of Purchase Book, Sales Book, Purchase Return Book, Sales
Return Book and Cash Book. After preparation of subsidiary books, concerned
ledger accounts are prepared. Ledger accounts from subsidiary books will be
discussed in class -9.

Balancing and Closing of Ledger Accounts

The process of ascertaining the difference between the total of debits and total of
credits appearing in an account is known as ‘Balancing of An Account’. It ascertains
the net effect of all the transactions posted to an account during a given period of time.
It may be a debit balance or credit balance or a nil balance depending upon whether
the debit or the credit total is higher. If debit total becomes higher than credit totals;
the balance is called debit balance. If credit total becomes higher than debit total, the
balance is called credit balance. If debit and credit total becomes equal to each other,
there is nil balance. Normally, Personal Accounts and Real Accounts are balanced.
Nominal Accounts are usually not balanced but are closed by transferring to Trading
and Profit & Loss Account.

Procedure for Balancing and Closing a Ledger Account

The procedure for balancing a ledger account is given below:
Step 1: Make a total of both the ‘Debit Amount column’ and ‘Credit Amount
column’ separately and ascertain the difference in two totals.

74 Unique’s Office Practice & Accountancy - 8

 Step 2: If the debit side total exceeds credit side total, put the differences on
the credit side in ‘Credit Amount column’. Write the date on which
balancing is done in the ‘Date column’ and the words ‘By Balance c/d’ in
‘Particular column’. If the credit side total exceeds debit side total, put
the difference on the debit side in ‘Debit Amount column’. Write the date
on which balancing is done in the ‘Date column’ and word ‘To Balance
c/d’ in ‘Particular column’.
Step 3: Make a total of both the ‘Debit Amount column’ and ‘Credit Amount
column’ and put the total on both the sides and draw a double line just
beneath the totals.
Step 4: Enter the date of beginning of next period in ‘Date column’ and bring
down the debit balance on the debit side along with the words ‘To
Balance b/d’ in ‘Particular column’ and the credit balance on the credit
side along with the words ‘By Balance b/d’ in ‘Particular column’.

Illustration 4: Journalize the following transactions and prepare necessary ledger

accounts.
Baishakh 1 Started business with cash Rs.5,00,000.
Baishakh 3 Cash deposited in bank Rs. 3,00,000.
Baishakh 5 Purchased goods for Rs. 80,000.
Baishakh 9 Sold goods for Rs.1,00,000.
Baishakh 18 Purchased goods from Saru Shrestha for Rs.50,000.
Baishakh 19 Sold goods to Minu Amatya for Rs.70,000.
Baishakh 27 Paid to Saru Rs. 20,000 through cheque.
Baishakh 29 A cheque of Rs. 50,000 received from Minu.
Biashakh 30 Paid salary for the month Rs.45,000 through cheque.

Solution:
Journal Entries
Date Particulars J.F. Debit Amount Credit
(Rs.) Amount (Rs.)
Baishakh Cash A/c Dr. 500000
1 To Capital A/c 500000
(Being business started with
cash)

Unique’s Office Practice & Accountancy - 8 75

 Baishakh Bank A/c Dr. 300000
3 To Cash A/c 300000
(Being cash deposited into
bank)
Baishakh Purchase A/c Dr. 80000
5 To Cash A/c 80000
(Being goods purchased for
cash)
Baishakh Cash A/c Dr. 100000
9 To Sales A/c 100000
(Being goods sold for cash)
Baishakh Purchase A/c Dr. 50000
18 To Saru Shrestha’s A/c 50000
(Being goods purchased from
Saru Shrestha on credit)
Baishakh Minu Amatya’s A/c 70000
19 To Sales A/c 70.000
(Being goods sold to Minu
Amatya on credit)
Baishakh Saru Shrestha’s A/c Dr. 20000
27 To Bank A/c 20000
(Being payment made to Saru
Shrestha through cheque)
Baishakh Bank A/c Dr. 50000
29 To Minu Amatya’s A/c 50000
(Being cheque received from
Minu Amatya)
Baishakh Salary A/c Dr. 45000
30 To Bank A/c 45000
(Being salary for the month
paid through cheque)

76 Unique’s Office Practice & Accountancy - 8

Ledger Accounts
Dr. Cash Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Baishakh 1 To Capital A/c 500000 Baishakh 3 By Bank A/c 300000
Baishakh 9 To Sales A/c 100000 Baishakh 5 By Purchase A/c 80000
Baishakh 30 By Balance c/d 220000
600000 600000
Jestha 01 To Balance b/d 220000

Dr. Bank Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Baishakh 3 To Cash A/c 300000 Baishakh 27 By Saru
Baishakh 28 To Minu Amatya’s A/c 50000 Shretha’s A/c 20000
Baishakh 30 By Salary A/c 45000
Baishakh 30 By Balance c/d 285000
350000 350000
Jestha 01 To Balance b/d 285000

Dr. Capital Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Baishakh 30 To Balance c/d 500000 Baishakh 01 By Cash A/c 500000
500000 500000
Jestha 01 By Balance b/d 500000

Dr Purchase Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Baishakh 5 To Cash A/c 80000 Baishakh 30 By Balance c/d 130000
Baishakh 18 To Saru Shresth’s A/c 50000
130000 130000
Jestha 01 To Balance b/d 130000

Unique’s Office Practice & Accountancy - 8 77

Dr. Sales Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Baishakh 30 To Balance c/d 170000 Baishakh 9 By Cash A/c 100000
Baishakh 19 By Minu Amatya's A/c 70000
170000 170000
Jestha 01 By Balance b/d 170000

Dr. Saru Shrestha’s Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Baishakh 27 To Bank A/c 20000 Baishakh 18 By Purchase A/c 50000
Baishakh 30 To Balance c/d 30000
50000 50000
Jestha 01 By Balance b/d 30000

Dr Minu Amatya’s Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Baishakh 19 To Sales A/c 70000 Baishakh 29 By Bank A/c 50000
Baishakh 30 By Balance c/d 20000
70000 70000
Jestha 01 To Balance b/d 20000

Dr Salary Account Cr.

Date Particulars J.F. Amount Date Particulars
J.F. Amount
(Rs.) (Rs.)
Baishakh 30 To Bank A/c 45000 Baishakh 30 By Balance c/d 45000
45000 45000
Jestha 01 To Balance b/d 45000

78 Unique’s Office Practice & Accountancy - 8

Illustration 5
Journalize the following transactions and post them into necessary ledger accounts.
Jan 1 Started business with cash Rs. 3,00,000, and bank balance Rs. 5,00,000.
Jan 3 Purchased goods from Dicki Sherpa for Rs. 60,000 and paid Rs.40,000
by cheque as partial payment
Jan 5 Sold goods to Shikhar Nepal for Rs. 80,000 and received Rs. 50,000 by
cheque as partial payment.
Jan 15 Paid Rs. 19,500 to Dicki Sherpa through cheque in full settlement of
her account.
Jan 18 Received a cheque of Rs. 29,000 from Shikhar Nepal in full settlement
of his account.
Jan 31 Paid salary Rs. 27,000 and Rent Rs. 9,000 through cheque.
Journal Entries
Date Particulars J.F. Debit Credit
Amount (Rs.) Amount (Rs.)
Jan 1 Cash A/c Dr. 300000
Bank A/c Dr. 500000
To Capital A/c 800000
(Being business started with cash and
bank balance)
Jan 3 Purchase A/c Dr. 60000
To Bank A/c 40000
To Dicki Sherpa’s A/c 20000
(Being purchased goods from Dicki
Sherpa but partial payment was only
made)
Jan 5 Bank A/c Dr. 50000
Shikhar Nepal’s A/c 30000
To Sales A/c 80000
(Being goods sold to Shikhar Nepal
but partial payment only received)
Jan 15 Dicki Sherpa’s A/c Dr. 20000
To Bank A/c 19500
To Discount A/c 500
(Being paid to Dicki Sherpa in full
settlement of her account)

Unique’s Office Practice & Accountancy - 8 79

Jan 18 Bank A/c Dr. 29000
Discount A/c Dr. 1000
To Shikhar Nepal’s A/c 30000
(Being payment received from
Shikhar Nepal in full settlement of his
account)
Jan 31 Salary A/c Dr. 27000
Rent A/c Dr. 9000
To Bank A/c 36000
(Being salary for the month paid
through cheque)

Ledger Accounts
Dr. Cash Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 01 To Capital A/c 300000 Jan 31 By Balance c/d 300000
300000 300000
Feb 01 To Balance b/d 300000

Dr. Bank Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 01 To Capital A/c 500000 Jan 03 By Purchase A/c 40000
Jan 05 To Sales A/c 50000 Jan 15 By Dicki Sherpa’s A/c 19500
Jan 18 To Shikhar Nepal’s A/c 29000 Jan 31 By Salary A/c 27000
Jan 31 By Rent A/c 9000
By Balance c/d 483500
579000 579000
Jestha 01 To Balance b/d 483500

80 Unique’s Office Practice & Accountancy - 8

Dr. Capital Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 31 To Balance c/d 800000 Jan 01 By Cash A/c 300000
Jan 01 By Bank A/c 500000
800000 800000
Feb 01 By Balance b/d 500000

Dr Purchase Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 03 To Bank A/c 40000 Jan 31 By Balance c/d 60000
Jan 03 To Dicki Sherpa’s A/c 20000
60000 60000
Feb 01 To Balance b/d 60000

Dr Dicki Sherpa’s Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 15 To Bank A/c 19500 Baishakh 9 By Purchase A/c 20000
To Discount A/c 5000
20000 20000

Dr. Shikhar Nepal’s Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 5 To Sales A/c 30000 Jan 18 By Bank A/c 29000
Jan 18 By Discount A/c 1000
30000 30000

Unique’s Office Practice & Accountancy - 8 81

Dr. Sales Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 31 To Balance c/d 80000 Jan 05 By Bank A/c 50000
Jan 05 By Shikhar Nepal’s A/c 30000
80000 80000
Feb 01 By Balance b/d 80000

Dr. Discount Received Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 31 To Balance c/d 500 Jan 15 By Dick Sherpa’s A/c 500
500 500
Feb 01 By Balance b/d 500

Dr. Salary Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 31 To Bank A/c 27000 Jan 31 By Balance C/d 27000
27000 27000
Feb 01 By Balance b/d

Dr. Rent Account Cr.

Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 31 To Bank A/c 9000 Jan 31 By Balance C/d 9000
9000 9000
Feb 01 By Balance b/d 9000

82 Unique’s Office Practice & Accountancy - 8

Dr. Discount Allowed Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
(Rs.) (Rs.)
Jan 18 To Shikhar 1000 Jan 31 By Balance C/d 1000
Nepal's A/c
Feb 01 To Balance b/d 1000

Difference between Journal and Ledger

Journal differs from the ledger on the following grounds:
Basis Journal Ledger
1. Nature It is a book of original or prime It is a book of final entry.
entry.
2. Basis It is prepared on the basis of a It is prepared on the basis of
source document. Journal.
3. Stages It is a recording of first stage. It is a recording of final stage.
4. Recording It is prepared chronologically i.e. It may be recorded daily, weekly,
order date of occurance. fortnightly, or monthly as per the
need of a business.
5. Narration Narration is written for each No narration is required in ledger.
entry.
6. Balancing It is not balanced. All ledger accounts are balanced
except nominal account.
7. Name The process of recording in The process of recording in the
of the journal is called ‘Journalizing’. ledger is called ‘posting’.
process

Exercise
A. Very Short Answer Questions
1. Give the meaning of ledger.
2. What is posting?

Unique’s Office Practice & Accountancy - 8 83

 3. Mention any one difference between journal and ledger.
4. What is the balancing of ledger?
5. What to do you mean by balance c/d?
6. What do you mean by balance b/d?
B. Short Answer Questions
1. What are the objectives of ledger? Describe them in brief.
2. State the importance of ledger.
3. Differentiate between journal and ledger.
4. Mention the procedures of posting journal entries into the ledger accounts.
5. How the ledger accounts are balanced?
C. Long Answer Questions
1. What is ledger? Describe its objectives.
2. Prepare the format of ledger and explain its contents.
3. State the rules of posting.

Initial Problems
Ledger Accounts from Simple Journal Entries
IP 1
Journalize the following transactions and post them into necessary ledger
accounts:
Jan 1 Commencement of business by cash Rs. 1,50,000.
Jan 5 Purchased goods for Rs.30,000.
Jan 10 Sold goods for Rs.35,000.
(Capital A/c Rs.1,50,000 (Cr), Cash A/c Rs.1,55,000 (Dr), Purchase A/c Rs.
30,000(Dr), Sales A/c Rs. 35,000(Cr))

IP 2
The following transactions are given to you:
Baishakh 01 Started business with cash Rs. 50,000.
Baishakh 03 Purchased goods for Rs.9,000.
Baishakh 05 Purchased goods from Mingma for Rs.18,000.
Baishakh 09 Bought furniture for Rs.7,000.

84 Unique’s Office Practice & Accountancy - 8

 Baishakh 18 Sold goods for Rs.14,000.
Baishakh 21 Sold goods to Srijan for Rs. 21,000.
Baishakh 30 Paid salary for the month Rs. 10,000.
Required: a) Journal Entries
b) Ledger Accounts
(Ans: Cash A/c Rs.38,000 (Dr), Purchase A/c 27,000 (Dr),Capital A/c Rs.50,000
(Cr), Furniture A/c Rs.7,000 (Dr), Sales A/c 35,000 (Cr), Mingma A/c Rs.18,000
(Cr), Srijan A/c Rs. 21,000 (Dr), Salary A/c Rs.10,000 (Dr))

IP 3
Following transactions are provided to you:
Feb 01 Bought furniture for Rs.9,000.
Feb 05 Sold on old equipment for Rs.15,000.
Feb 09 Wages paid Rs. 500.
Feb 11 Rent paid Rs. 7,000.
Feb 27 Depreciation charged on furniture @Rs. 5%.
Required:
a) Journal entries
b) Furniture A/c
c) Wages A/c
d) Rent A/c
(Furniture A/c Rs. 9,000 (Dr), Wages A/c Rs.500 (Dr), Rent A/c Rs. 7,000 (Dr))

Ledger accounts from Compound Journal Entries.

IP 4
Following transactions are provided to you:
March 1 Started business with bank balance Rs. 2, 50,000 and stock of goods
Rs.50, 000.
March 3 Purchased goods from Dharma for Rs. 1,00,000 and paid by cheque
partially Rs. 70,000.
March 9 Sold goods to Karma Rs.1,25,000 and received a cheque of Rs. 1,00,000
as partial payment.
March 12 Paid Rs.28,500 to Dharma through cheque in full settlement.
March 15 Received a cheque of Rs.24,000 from Karma in full settlement.
Unique’s Office Practice & Accountancy - 8 85
 Required:
a. Journal Entries
b. Dharma’s Account
c. Karma’s Account
d. Bank A/c (Bank A/c 2,75,500 (Dr)

IP 5
Following transactions of Nandi’s are provided to you:
April 1 Furniture for Rs.18, 000 and equipment for Rs.45,000 were bought and
paid through cheque.
April 5 Furniture costing Rs. 9,000 sold for Rs. 10,000.
April 9 Goods Rs.2, 000 and cash Rs.3, 000 were withdrawn from business for
personal use.
April 15 Cash received from the debtor Rs.5, 800 and allowed discount Rs. 200.
Required:
a) Journal Entries
b) Furniture Account
c) Drawings Account
(Ans: Furniture A/c 9,000 (Dr), Drawing A/c 5,000 (Dr))

Ledger Accounts without Journal Entries

IP 6
Following transactions are provided to you:
a. Opening balance of cash Rs. 80,000.
b. Purchased goods for cash Rs. 40,000.
c. Purchased goods from Dinesh Rs. 5,000.
d. Sold goods for Rs. 5,000.
e. Cash withdrawn from business for personal use Rs.2,000.
(Ans: Purchase A/c 45,000, Cash A/c 43,000) (Dr))
Required:
i) Purchase Account
ii) Cash Account

86 Unique’s Office Practice & Accountancy - 8

Self Correction Problem
Ledger Accounts from Simple Journal Entries.
SCP 1
Following transactions are given to you:
a. Purchased goods from Ramu Rs. 40000.
b. Sold goods to Nilu Rs. 30,000.
c. Goods returned from Nilu Rs. 3000.
d. Cheque received from Nilu Rs. 22,000.
Required:
i. Journal Entries
ii. Nilu’s A/c (Ans: Nulu's A/c 5,000 Dr)

SCP 2
Following transactions are provided to you:
a. Goods sold to Ganesh of Rs. 20,000.
b. Cash withdrawan from bank for personal use Rs. 5,000.
c. Goods lost by fire Rs. 8,000.
d. Goods returned by Ganesh Rs. 2,000.
Required:
i. Journal Entries
ii. Ganesh’s A/c (Ans: Ganesh's A/c 18,000 Dr)

SCP 3
Following transactions are given to you:
a. Goods purchased from Niru Rs. 15,000.
b. Purchased furniture for Rs.20,000.
c. Goods returned for Rs. 5,000 and paid cash to Niru Rs.5,000.
d. Cash paid to Niru Rs. 4,500 and received discount Rs. 500.
Required:
i. Journal Entries
ii. Niru’s Account

Unique’s Office Practice & Accountancy - 8 87

SCP 4
Following transactions are given to you:
Jestha 1 Started business with cash Rs.40,000.
Jestha 2 Cash deposited into bank Rs.20,000.
Jestha 8 Purchased goods on credit from Gopi Rs.5000.
Jestha 15 Settled Gopi`s account by paying cheque Rs.5000.
Required:
i. Cash account
ii. Gopi`s account
(Ans: Cash A/c 20,000 Dr, Gopi's A/c . Dr.)
Ledger Accounts from compound Journal Entries
SCP 5
Following transactions are given to you:
Jestha 1, 2071 Commencement of business with cash Rs.5,00,000 and bank
balance Rs. 2,00,000.
Jestha 5, 2071 Purchased goods from Sharma Stores Rs. 1,00,000.
Jestha 10, 2071 Sold goods on cash Rs.50,000.
Jestha 15, 2071 Payment made to Sharma Stores Rs. 95,000 and received discount
Rs.5,000.
Required:
i. Journal Entries
ii. Sharma Stores A/c
Ledger Accounts without Journal Entries
SCP 6
The following transactions of continental trading with Padma are given below:
a) Credit balance RS.30000.
b) Purchased goods worth Rs.50000.
c) Paid cash Rs.50,000.
d) Discount received Rs.3000.
e) Purchased return rs.6000.
Required :
a) Cash account b) Purchase account
c) Purchase return account
(Ans: Padma's A/c 21,000 Cr)

88 Unique’s Office Practice & Accountancy - 8

 Ch apter 9 Trial Balance

Learning Objectives: After studying this chapter, you will be able to:
♦♦ tell the introduction of trial balance
♦♦ tell the objectives of trial balance
♦♦ learn about the methods of preparing trial balance

INTRODUCTION
In the first phase of accounting process, the transactions are recorded in the journal
or subsidiary books as and when they occur. In the second phase, the debit and credit
items of journal are transferred to classified accounts in the ledger. During these two
phases, the concerned personnel may commit some clerical errors and so that it is
possible to verify whether all the recordings in the books of accounts are correctly
made or not. Hence, in third phase of accounting process, a statement with debit and
credit totals or balances of all the ledger accounts is prepared on a particular date to
check the arithmetical accuracy of accounting records. Such statement is called trial
balance.
Trial balance follows the fundamental principles of Double Entry System. The principles
state that the amount written on the debit sides of various accounts is always equal to
the amount entered on the credit sides of other accounts and vice-versa. Hence, the
total of the debit sides must be equal to the totals of the credit sides. In the same way
the total of the debit balances will be equal to the total of the credit balances. Once this
agreement is established, there is reasonable confidence that the accounting work is
free from clerical errors. This, however does not assure though cent percent accuracy
because some errors of principle and compensating errors may still remain. It can be
prepared any time: daily, weekly, monthly, quarterly, half - yearly, yearly as per the need
but it is preferable to prepare at the end of the accounting year.
Some definitions /are:
According to J.R. Batliboi, “Trial balance is a statement prepared with the debit and
credit balances of ledger accounts to test the arithmetical accuracy of the books.”
According to R. N. Carter, “Trial balance is the list of debit and credit balances taken

Unique’s Office Practice & Accountancy - 8 89

out from ledger; it also includes the balances of cash and bank taken from cash book”
In conclusion, trial balance can be defined as a statement prepared on a particular
date by taking the debit and credit totals or balances of ledger accounts to ensure the
arithmetical accuracy of all the recordings in the books of accounts."

Objectives of preparing a Trial Balance

The preparation of trial balance has the following objectives:

1. To ascertain the arithmetical accuracy

Trial balance is prepared under double entry system and fundamental principle
of this system is that for every debit amount there is an equal credit amount or
vice versa. This provides a check on arithmetical accuracy. Thus, if debit and credit
totals of trial balance are equal to each other, it ensures that accounting works have
been carried out with arithmetical accuracy.

2. To help in locating errors

If the total of debit and credit of trial balance does not agree, it indicates that some
errors have been committed during the accounting process. However, it cannot
locate the errors of principles and compensating errors.

3. To provide summary information

Trial balance is a list of debit and credit balances of various ledger accounts. It
provides summary information of all the ledger accounts in the form of statement.

4. To facilitate the preparation of financial statements

Before the preparation of financial statements, the trial balance is prepared with
the ledger balances of revenues, incomes, expenses, assets, liabilities and capital.
If debit and credit of trial balance are tallied, it is supposed that the financial
statements are prepared on arithmetically accurate information contained in trial
balance.

5. To facilitate in auditing
It helps the auditors to perform the auditing functions efficiently and effectively
by availing the arithmetically accurate information concerning various accounts.
During examination of the books of accounts and comparison of the facts and
figures of financial statements, auditors are greatly facilitated by trial balance.

90 Unique’s Office Practice & Accountancy - 8

Format/Specimen of Trial Balance
A common format of trial balance is as follows:
Trial Balance of .................
As on ....................

S.No. Particulars L.F. Debit Credit

Balances Balances
(Rs.) (Rs.)

1 2 3 4 5

The following information are mentioned in each column of trial balance:

1. Serial number (S.No.) : Serial number such as 1, 2, ….for accounts heads are
mentioned in it.
2. Heads of account : Names of accounts are written in it.
3. Ledger folio (L.F.) : Page no. of ledger account is mentioned in it.
4. Debit Amount : The amount of account having debit balance or debit total is
mentioned in it.
5. Credit Amount : The amount of account having credit balance or credit total is
mentioned in it.

Rules of Preparing Trial Balance if only the Ledger Balances are given
The following rules should be followed to prepare trial balance if the list of only the
ledger balances are given.
1. The balances of all assets, expenses, losses, drawing, cash and bank balances
should be placed in the debit column of the trial balance.
2. The balance of all liabilities, incomes, revenues, profits, capital should be placed
in credit column of trial balance.

Methods of Preparing a Trial Balance

The trial balance can be prepared using either of the following methods:

Unique’s Office Practice & Accountancy - 8 91

 Trial Balance

Debit (Dr.) Credit (Cr.)

♦♦ Assets ♦♦ Capital
♦♦ Expenses ♦♦ Liabilities
♦♦ Losses ♦♦ Incomes
♦♦ Drawings ♦♦ Profit and Gains
♦♦ Cash and bank balance

1. Total Method
Under this method, every ledger account is totalled and that totalled amount
(both of debit side and credit side) is transferred to trial balance. In this method,
trial balance can be prepared as soon as the ledger account is totalled. Time
taken to balance the ledger accounts is saved under this method as balance can
be found out in the trial balance itself. The difference of totals of each ledger
account is the balance of that particular account. This method is not used widely
as it cannot help in the preparation of the financial statements.

2. Balance Method
Under this method, every ledger account is balanced and the balances only
are carried forward to the trial balance. This method is used commonly by the
accountants and it helps in the preparation of the financial statements. Financial
statements are prepared on the basis of the balances of the ledger accounts.

3. Total and Balance Method

Under this method, both total and balance methods are combined. This method
is also known as a combined method or total cum balance method.

Generally, balance method is used to prepare trial balance under which the balances
of the ledger accounts are transferred to respective sides of trial balance. As per the
principles of double entry system, when debit total becomes equal to credit total, it is
assumed that accounting works are carried out with arithmetical accuracy.
92 Unique’s Office Practice & Accountancy - 8
Possible Items Shown in Trial Balance
The possible items having debit and credit balances are listed in the trial balance below:
Trial Balance of …….
As on …….
S.No. Heads of Account L.F. Debit Credit
Amount (Rs.) Amount (Rs.)
1 Opening stock xxx
2 Purchases xxx
3 Sales return xxx
4 Carriage inward xxx
5 Import duty xxx
6 Custom duty xxx
7 Coolie and cartage xxx
8 Clearing charges xxx
9 Packing expenses xxx
10 Excise duty xxx
11 Wages xxx
12 Royalties xxx
13 Factory rent xxx
14 Heating and lighting xxx
15 Coal and coke xxx
16 Salaries xxx
17 Telephone charges xxx
18 General expenses xxx
19 Audit fee xxx
20 Establishment charges xxx
21 Administrative expenses xxx
22 Entertainment expenses xxx
23 Director fees xxx
24 Trade expenses xxx
25 Printing and stationery xxx
26 Rent, rates, and taxes xxx
27 Other expenses xxx
28 Electric charges xxx

Unique’s Office Practice & Accountancy - 8 93

29 Insurance xxx
30 Donation and charities xxx
31 Sales commission xxx
32 Selling and distribution expenses xxx
33 Discount allowed xxx
34 Advertisement expenses xxx
35 Carriage outward xxx
36 Travelling expenses xxx
37 Depreciation on fixed assets xxx
38 Bad debts xxx
39 Bank charges xxx
40 Interest paid xxx
41 Loss on sale of fixed assets xxx
42 Loss on valuation of fixed assets xxx
43 Goodwill xxx
44 Land and building xxx
45 Lease hold properties xxx
46 Plant and machinery xxx
47 Furniture and fittings xxx
48 Development properties xxx
49 Patents, trademarks, and design xxx
50 Live stock xxx
51 Vehicles xxx
52 Loose tools xxx
53 Fixed deposit xxx
54 Investment xxx
55 Current assets xxx
56 Stores and spare parts xxx
57 Interest due on investment xxx
58 Sundry debtors xxx
59 Cash in hand xxx
60 Cash at bank xxx
61 Advances and loans to subsidiaries xxx
62 Prepaid expenses xxx

94 Unique’s Office Practice & Accountancy - 8

 63 Preliminary expenses xxx
64 Drawings xxx
65 Bills receivable xxx
66 Advance rent xxx
67 Accrued income xxx
68 Repair and maintenance xxx
69 Sales xxx
70 Purchase return xxx
71 Rent received xxx
72 Miscellaneous receipts xxx
73 Interest received xxx
74 Discount received xxx
75 Sale of scrap xxx
76 Compensation received xxx
77 Appreciation of fixed assets xxx
78 Dividend received xxx
79 Profit on sale of fixed assets xxx
80 Bad debts recovered xxx
81 Apprentice premium xxx
82 Capital xxx
83 Bank Loan xxx
84 Bond xxx
85 Debenture xxx
86 Sundry creditors xxx
87 Bills payable xxx
88 Outstanding expenses xxx
89 Advance income xxx
90 Bank overdraft xxx
91 Long term loan xxx
92 Short term loan xxx
93 Sinking fund xxx
94 Pension fund xxx
95 General reserve xxx
96 Bonus fund xxx

Unique’s Office Practice & Accountancy - 8 95

 97 Interest received in advance xxx
98 Outstanding expenses xxx
99 Provision for tax xxx
100 Proposed dividend xxx
101 Discount on creditors xxx
102 Interest on drawing xxx
103 Unearned income xxx
Total xxxx xxxx

Illustration:1

Following transactions are given to you:

9-01 Started a business with cash Rs.15, 000.
9-03 Bought furniture of Rs. 5,000.
9-05 Sold goods to Hari for Rs. 30,000
9-10 Goods returned from Hari for Rs.500
9-15 Purchased goods from Shyam for Rs. 25,000.
9-15 Cash received from Hari Rs. 20,000.
9-16 Purchased goods for cash Rs. 15,000.
9-17 Goods returned to Shyam for Rs.500.
9-20 Sold goods for cash Rs.50,000.
9-20 Paid to Shyam Rs.20,000.
9-28 Paid Salaries for the month Rs.30,000.
Required:

1. Journal Entries
2. Necessary Ledger Accounts
3. Trial Balance

96 Unique’s Office Practice & Accountancy - 8

Solution:

1. Journal Entries:
Journal Entries in the books of ...

Date Particulars J.F. Dr. Cr.

Amount (Rs.) Amount (Rs.)
9-01 Cash A/c Dr. 15000
To Capital A/c 15000
(Being business started with cash)
9-03 Furniture A/c Dr. 5000
To Cash A/c 5000
(Being bought furniture for cash)
9-05 Hari’s A/c Dr. 30000
To Sales A/c 30000
(Being goods sold to Hari)
9-10 Sales Return A/c Dr. 500
To Hari’s A/c 500
(Being goods returned from Hari)
9-15 Purchase A/c Dr. 25000
To Shyam’s A/c 25000
(Being goods purchased from
Shyam)
9-15 Cash A/c Dr. 20000
To Hari’s A/c 20000
(Being cash received from Hari)
9-16 Purchase A/c Dr. 15000
To Cash A/c 15000
(Being goods purchased for cash)
9-17 Shyam’s A/c Dr. 500
To Purchase Return A/c 500
(Being goods returned to Shyam)
9-20 Cash A/c Dr. 50000
To Sales A/c 50000
(Being goods sold for cash)

Unique’s Office Practice & Accountancy - 8 97

9-20 Shyam’s A/c Dr. 20000
To Cash A/c 20000
(Being cash paid to Shyam)
9-28 Salaries A/c Dr. 30000
To Cash A/c 30000
(Being salaries for the month paid)

2. Necessary Ledger Accounts:

Dr. Cash Account Cr.
Date Particulars JF Amount Date Particulars JF Amount
9-01 To Capital a/c 15000 9-03 By Furniture a/c 5000
9-15 To Hari’s a/c 20000 9-16 By Purchase a/c 15000
9-20 To Sales a/c 50000 9-20 By Shyam’s a/c 20000
9-28 By Salaries a/c 30000
9-30 By Balance c/d 15000
Total 85000 Total 85000
10-01 To balance b/d 15000

Dr. Furniture Account Cr.

Date Particulars JF Amount Date Particulars JF Amount

9-03 To Cash a/c 5000 9-30 By Balance c/d 5000
10-01 To Balance b/d 5000

Dr. Purchase Account Cr.

Date Particulars JF Amount Date Particulars JF Amount
9-15 To Shyam’s a/c 25000 9-30 By Balance c/d 40000
9-16 To Cash a/c 15000
Total 40000 Total 40000
10-01 To Balance b/d 40000

98 Unique’s Office Practice & Accountancy - 8

Dr. Shyam’s Account Cr.
Date Particulars JF Amount Date Particulars JF Amount
9-17 To Purchase Return a/c 500 9-15 By Purchase A/c 25000
9-20 To Cash a/c 20000 (Credit purchase)
9-30 To Balance c/d 4500
Total 25000 Total 25000
10-01 To Balance b/d 4500

Dr. Hari’s Account Cr.

Date Particulars JF Amount Date Particulars JF Amount
9-05 To Sales a/c 30000 9-10 By Sales Return a/c 500
(Credit Sales) 9-15 By Cash a/c 20000
9-30 By Balance c/d 9500
Total 30000 Total 30000
10-01 To Balance b/d 9500

Dr. Sales Account Cr.

Date Particulars JF Amount Date Particulars JF Amount
9-30 To Balance c/d 80000 9-05 By Hari’s a/c 30000
9-20 By Cash a/c 50000
Total 80000 Total 80000
10-01 To Balance b/d 80000

Dr. Salaries Account Cr.

Date Particulars JF Amount Date Particulars JF Amount
9-28 To Cash a/c 30000 9-30 By Balance c/d 30000
10-01 To Balance b/d 30000

Dr. Purchase Return Account Cr.

Date Particulars JF Amount Date Particulars JF Amount
9-10 To Balance c/d 500 9-17 By Shyam’s a/c 500
10-01 To Balance b/d 500

Unique’s Office Practice & Accountancy - 8 99

Dr. Sales Return Account Cr.
Date Particulars JF Amount Date Particulars JF Amount
9-10 To Hari’s a/c 500 9-17 By Balance c/d 500
10-01 To Balance b/d 500

Dr. Capital Account Cr.

Date Particulars JF Amount Date Particulars JF Amount
9-30 To Balance c/d 15000 9-01 By Cash a/c 15000
10-01 To Balance b/d 15000

Solution:
Trial Balance
As on 30th Poush, 2071
S.No. Particulars L.F. Debit Credit
Balances (Rs.) Balances (Rs.)

1 Cash A/c 15000 -

2 Furniture A/c 5000 -
3 Purchase A/c 40000 -
4 Shyam’s A/c - 4500
5 Hari’s A/c 9500 -
6 Sales A/c - 80000
7 Salaries A/c 30000 -
8 Purchase Return A/c - 500
9 Sales Return A/c 500 -
10 Capital A/c - 15000
Total 100000 100000

100 Unique’s Office Practice & Accountancy - 8

Illustration:2

Based on the following ledger balances, prepare a trial balance as on 31 Dec, 2014.
Particulars Amount (Rs.) Particulars Amount(Rs.)
Sales………………………… 500000 Loan………………………… 100000
Creditors…………………… 50000 Rent…………………………. 20000
Purchases …………………. 300000 Machinery…………………. 200000
Wages……………………….. 30000 Cash………………………….. 100000

Solution:
Trial Balance
As on 31st Dec, 2014
S.No. Particulars L.F. Debit Credit
Balances (Rs.) Balances (Rs.)

1 Sales A/c - 500000

2 Creditors A/c - 50000
3 Purchase A/c 300000 -
4 Wages A/c 30000 -
5 Loan A/c - 100000
6 Rent A/c 20000 -
7 Machinery A/c 200000 -
8 Cash A/c 100000 -
Total 650000 650000

Adjustment and Closing of Trial Balance

Before preparation of financial statements, a trial balance is prepared with a view to
providing arithmetically accurate financial information to express true and fair view
of affairs of the business. However, sometimes trial balance does not tally, hence
consume more time and effort, which may hit the spirit of timely submission of the
financial statement to the stakeholders. So, a temporary solution is suggested to settle
the differences that occur in trial balance while making debit and credit total equal,
assuming that undetected errors may be found later and then submitting the actual
report with reasonable reasons. Such a temporary account is called a suspense account
which is adopted as a means of temporary solution for the agreement of trial balance
and the trial balance is closed on a particular date with the help of a suspense account.

Unique’s Office Practice & Accountancy - 8 101

Suspense Account
The suspense account is a temporary solution for making debit total equal to credit
total of trial balance. In other words, it is the temporary means to make the trial balance
tallied. It gives the way for preparing the final account.
The suspense account is opened with difference amount of the trial balance. If debit total
of trial balance becomes heavier than its credit total, the amount of suspense account
is inserted in credit side of trial balance. If the credit total of trial balance becomes
heavier than its debit total, the amount of suspense account is inserted in debit side of
trial balance. After rectifying the errors the existence of the suspense account will be
no more in the books of accounts.

Exercise
Theoretical Questions
A. Very short answer questions. (Answer the following questions in one
sentence/in very short).
1. Give the meaning of trial balance.
2. Mention the methods of preparing trial balance.
3. What is a suspense account?
4. On which sides of trial balance, the amount of assets are shown?
5. What is the balance method of preparing trial balance?
B. Short answer questions. (Answer the following questions in short)
1. What is trial balance? What are its objectives?
2. Describe the methods of preparing trial balance briefly.
3. What is adjustment and closing of the trial balance?
4. What are the steps that should be followed to prepare trial balance?
C. Long answer questions. (Write long answer to this question)
1. Prepare a trial balance by using any five items in debit side and any five items
in credit side showing equal grand total with suitable heading and format.

102 Unique’s Office Practice & Accountancy - 8

Numerical Problems
Initial Problems
IP 1.
The following transactions are provided to you:
Poush-01, 2071 Started business with cash Rs.45,000.
Poush-09, 2071 Cash Rs. 18,000 deposited into bank.
Poush-18, 2071 Goods of Rs. 27,000 sold to Rajesh.
Poush-27, 2071 A cheque of Rs. 15,000 is received from Rajesh.
Poush-30,2071 Office rent Rs. 13,500 paid.
Required:

Journal entries
Necessary Ledger Accounts
Trial Balance
IP 2.
Prepare a trial balance from the following balances of ledger accounts:
Particulars Rs. Particulars Rs.
Capital………………………... 90000 Opening stock………………….. 45000
Sales………………………….. 65000 Purchases………………………. 60000
Computer…………………...... 25000 Purchase return………………… 5000
Salary……………………........ 50000 Creditors………………………. 20000

(Ans:Rs.1,80,000)

IP 3.
The following ledger balances of Koshi Guest House, Biratnagar are given to you:
Particulars Rs. Particulars Rs.
Capital………………………... 80000 Drawings………………………………. 2500
Sales………………………….. 45000
Cash…………………............ 47700 Salaries………………………………….. 20000
Sales return........................ 1500 Purchase return……………………… 4500
Purchase …………………….. 79000 Bank Loan……………………………… 21000

Discount received……………………. 200

Required: Trial Balance (Ans: Rs.1,50,700)

Unique’s Office Practice & Accountancy - 8 103

IP 4.
Prepare trial balance on 30th Poush, 2071 from the ledger balances of Sagarmatha
Bread Industry, Solu.
Particulars Rs. Particulars Rs.
Stock(01-10-070)…………….. 24000 Return outward..………………. 2450
Purchases…………………….. 108000 Bank overdraft………………… 36000
Return inward………………... 1250 Discount allowed……………… 250
Carriage inward……………... 9000 Rent received…..……………… 14050
Telephone charge…………….. 12000 Cash at bank…………………… 84000
Sales…………………………. 126000 Plant and machinery…………… 190000
Capital……………………….. 250000
(Ans: Rs. 4,28,500)
IP 5.
From the following information, prepare a trial balance:
Particulars Rs. Particulars Rs.
Purchases…………………….. 75000 Sales…………..………………. 175000
Import duties………………… 7500 General expenses……………… 22350
Bad debts…..………………... 4400 Audit fees…………………….. 12500
Insurance…………………….. 19500 Carriage outward……………… 20800
Bills payable…...…………….. 15000 Capital………………………… 205000
Pension fund...………………. 25000 Drawings……………………… 34000
Investment…………………… 50000 General reserve……………….. 29550
Bills receivable………………. 18500 Land and building……………. 185000
(Ans: Rs. 4,49,550)

IP 6.
From the following information, prepare a trial balance:
Particulars Rs. Particulars Rs.
Purchase………………………... 12500 Creditors………………………………. 7000
Wages………………………….. 2000 Debtors………………………………….. 6000
Machinery……………............ 9500 Sales……………..……………………… 15500
Bank Overdraft....................... 7500

(Ans:Rs. 30,000)

104 Unique’s Office Practice & Accountancy - 8

IP 7.

From the following information, prepare a trial balance:

Particulars Rs. Particulars Rs.
Capital………………………... 200000 Purchases………………………………. 100000
Debtors………………………….. 60000 Creditors………………………………… 50000
Furniture………………............ 40000 General expenses…………………… 10000
Sales……………........................ 120000 Machinery……………………………… 130000
Cash in hand………………….. 30000

(Ans:Rs. 370,000)
IP 8.

Prepare a trial balance from the following ledger balances:

Particulars Rs. Particulars Rs.
Purchases……………………... 200000 Sales……………………………………… 350000
Wages………………………….. 40000 Vehicles…………………………………. 100000
Rent………………............ 60000 Salaries………………………………….. 50000
Creditors………........................ 150000 Cash at bank…………………………… 50000

(Ans:Rs. 5,00,000)

Self Correction Problems

SCP 1.
Prepare a trial balance as on 31st Dec, 2012 from the following information.
Particulars Rs. Particulars Rs.
Capital………………………... 130000 Salary……………………........ 70000
Purchases…………………….. 250000 Bad debts………………….. 9500
Sales………………………….. 300000 Term loan………………… 40000
Return outward……………..... 12500 Machine………………………. 153000
(Ans: Rs. 4,82,500)

SCP 2.
Prepare a trial balance of Raj Kamal Industry of the fiscal year ended 2056/57
Ashadh 31 from the following particulars:

Unique’s Office Practice & Accountancy - 8 105

 Particulars Rs. Particulars Rs.
Capital……………………… 350000 Opening stock………………….. 40000
Sales………………………… 100000 Purchases………………………. 200000
Sales return…………… 1000 Purchase return………………… 5000
Creditors………………… 10000 Debtors………………………… 50000
Bank overdraft………… 15000 Land and building……………… 189000
(Ans: Rs. 4,80,000)

SCP 3.
Prepare a trial balance of Kunal Guest House as on 31st Ashad 2062 from the
following particulars:
Particulars Rs. Particulars Rs.
Capital………………………... 322000 Purchases….…………… 970000
Sales …………………………. 1200000 Drawings………………… 83000
Machinery & Equipment.… 371000 Bank loan...…..………… 56000
Creditors……………………... 150000 Depreciation…………… 165000
Reserve fund...……………….. 91000 Bills receivable....……… 230000

(Ans: Rs. 18,19,000)

SCP 4.
Prepare a trial balance of Sagun Company on 31st Ashad 2064 from the following
particulars.
Particulars Rs. Particulars Rs.
Purchases……………………... 250000 Depreciation……………… 12000
Sales …………………………. 212000 Bills receivable..………… 8000
Furniture………………..……. 30000 Discount received……… 5000
Bank loan…………………... 80000 Debtors….………………… 5000
Purchase returns…………….. 15000 Sales returns....………… 7000
(Ans: Rs. 3,12,000)

106 Unique’s Office Practice & Accountancy - 8

SCP 5.
Prepare a trial balance on 31st Dec, 2013 from the ledger balances given below:
Particulars Rs. Particulars Rs.
Stock at beginning..………….. 35000 Bills payable…..………………. 19360
Capital……..………………… 164000 Plant and machinery..………… 82000
Furniture & fittings.……….... 12500 Sundry debtors.……………….. 32560
Sundry creditors.…………….. 23715 Cash at bank…..……………… 14050
Cash in hand…...…………….. 1150 Purchase……………………… 44000
Carriage outwards……..…….. 5200 Insurance……………………… 3200
Discount allowed……………. 1200 Rent and taxes……………….. 18000
Salary and wages……………. 32500 Sales…………..………………. 98000
Administrative expenses…….. 10885 Return inwards……………….. 2000
Return outwards…………….. 1025 Bills receivable……………….. 6800
Drawings……………………. 6675 Discount received…………….. 1620
(Ans: Rs. 307720)
SCP 6.
The following ledger balances of Sagar Trading on 31st Dec, 2014 are given to
you:
Particulars Rs. Particulars Rs.
Land and Building..………….. 210000 Discount received ……………. 10500
Plant and machinery.………… 65000 Sundry creditors…....………… 35500
Stock (01.01.2014).……….... 54000 Outstanding 9000
expenses…………
Wages………….…………….. 21500 Provision for bad debt……….. 19500
Carriage inwards.…………….. 15000 Investment…………………… 95000
Salaries…………….…..…….. 42000 Sundry debtors……………….. 60000
Royalty………………………. 6500 Cash and bank……………….. 58500
Factory expenses.……………. 9500 Carriage outward……………. 4500
Discount allowed……..…….. 2500 Return inwards……………….. 5000
Prepaid expenses…………….. 23000 Capital……….……………….. 239000
Interest paid…………………. 3500 Commission received..……….. 32000
Sales………………………… 560000 Purchase……………………… 249000
Interest received…………….. 9000 Return outward………………. 10000
Required: Trial balance (Ans: Rs. 9,24,500)

Unique’s Office Practice & Accountancy - 8 107

 Practice Set
Office Practice and Accountancy (Grade 8)

Students are requested to give their answers in their own way.

Time: 1 Hr. 30 mins. Full Marks: 50
Pass Marks: 16
Group A

A. Write down the short answer to the following questions. (10×2 = 20)
1. What do you mean by economic transaction?
2. How many types of ledger are there? What are they?
3. What is Goswara Voucher? Write importances of its.
4. Write different between debit and credit with 3÷3 examples.
5. What do you call the person who work in an office? For what purpose, office
work is classified?
6. What is the meaning of VAT? Give examples.
7. Mention the types of tax raised by Government.
8. Mention the types of insurance. What do you mean by fire insurance? Clarify it.
9. What do you mean by dispatch register?
10. What are the advantages of means of communications.

Group B
B. Asnwer the following questions in brief. (2×2.5 = 5)
1. Journalise the following transactions.
a. Rs. 2100 taken as loan by Gopal from Govinda on 2050-5-25.
b. Dilip purchased goats for Rs. 4800/- on 2071-02-15.

108 Unique’s Office Practice & Accountancy - 8