Bank reconciliation statement
ParthKishan
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Jun 26, 2015
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Slide Content
BANK RECONCILIATION STATEMENT (BRS)
Meaning: -
The services of Banks are very important for a businessman in modern time. Banks have
become a part of business. The businessman kept their current accounts in the banks. The
banks keep separate account for each customer in their ledger and give a copy of that
account in a form of statement of book to the concerned customer for his knowledge. This
book is called Pass Book. In the same way each customer with the bank in his Cash Book or
in a Bank Account kept in his ledger.
Thus, both the parties enter the banking transactions in their relative books of accounts.
Ordinarily the balance of accounts kept by both the parties should be the same. In other
words, the balance shown in the Pass Book given by the bank should tally with the balance
of Bank Account Kept in his ledger or Cash Book (Bank Column). But sometimes the
balances of the accounts kept by both the parties do not tally on account of many reasons.
This does not mean that there are mistakes in writing these accounts but the differences
may be due to the reason that some items have been entered in the Cash Book but not
entered in the bank Pass Book or same items might have been entered in the Cash Book.
The customer should compare the account given in the bank Pass Book with his Cash Book
from time to time and complete the entries which have not been done. If still the balances
of the Cash Book and bank Pass Book does not tally then it should be understood that there
is any mistakes in any side and for knowing this a statement is prepared which is called a
Bank Reconciliation Statement.
BRS is prepared by customer on a particular date.
Reasons for differences in the Bank Balance shown by Cash Book and the Pass Book:
1. Cheques issued but not yet presented for payment.
2. Cheques, Bill and Hundies deposite into Bank but not yet collected and credited.
3. Interest allowed by the bank.
4. Bank charges.
5. Standing Orders.
6. Direct deposited into the bank.
7. Interest on Bank overdraft.
8. Dishonoured cheques, Bill and Hundies.
Meaning: -
The services of Banks are very important for a businessman in modern time. Banks have
become a part of business. The businessman kept their current accounts in the banks. The
banks keep separate account for each customer in their ledger and give a copy of that
account in a form of statement of book to the concerned customer for his knowledge. This
book is called Pass Book. In the same way each customer with the bank in his Cash Book or
in a Bank Account kept in his ledger.
Thus, both the parties enter the banking transactions in their relative books of accounts.
Ordinarily the balance of accounts kept by both the parties should be the same. In other
words, the balance shown in the Pass Book given by the bank should tally with the balance
of Bank Account Kept in his ledger or Cash Book (Bank Column). But sometimes the
balances of the accounts kept by both the parties do not tally on account of many reasons.
This does not mean that there are mistakes in writing these accounts but the differences
may be due to the reason that some items have been entered in the Cash Book but not
entered in the bank Pass Book or same items might have been entered in the Cash Book.
The customer should compare the account given in the bank Pass Book with his Cash Book
from time to time and complete the entries which have not been done. If still the balances
of the Cash Book and bank Pass Book does not tally then it should be understood that there
is any mistakes in any side and for knowing this a statement is prepared which is called a
Bank Reconciliation Statement.
BRS is prepared by customer on a particular date.
Reasons for differences in the Bank Balance shown by Cash Book and the Pass Book:
1. Cheques issued but not yet presented for payment.
2. Cheques, Bill and Hundies deposite into Bank but not yet collected and credited.
3. Interest allowed by the bank.
4. Bank charges.
5. Standing Orders.
6. Direct deposited into the bank.
7. Interest on Bank overdraft.
8. Dishonoured cheques, Bill and Hundies.
METHODS OF PREPARING A BANK RECONCILIATION STATEMENT
There are two methods prepare a BRS:
A) Preparing BRS from Cash Book Balance.
I. If Bank Column of Cash Book shows a Debit Balances:
Add a) Chequed issued but not yet been presented for payment.
Add b) Interest credited by the bank but not yet considered in Cash Book.
Add c) Amount directly deposited by the customer or income directly received
by the bank but not yet considered in Cash Book.
Less a) Cheques, Bill & Hundies, deposited into the bank but not yet collected.
Less b) Bank charges and interest on overdraft charged by the bank but not yet
accounted for in Cash Book.
Less c) Expenses directly paid by the bank but not yet considered in the Cash
Book.
Less d) Amount of Cheques, Bill & Hundies deposited into bank and dishonoured
but not yet considered in Cash Book.
II If Bank column of Cash Book shown a Credit Balance under this case, all the
items added as given in 1) above will be deducted and all items deducted as given in
1) above well added.
2. Preparing BRS from Pass Book balance.
I. When there is Credit Balance of Pass Book:-
Less a) Amount of cheques issued to customers but not yet presented for
payment.
Less b) Interest allowed by bank on deposits.
There are two methods prepare a BRS:
A) Preparing BRS from Cash Book Balance.
I. If Bank Column of Cash Book shows a Debit Balances:
Add a) Chequed issued but not yet been presented for payment.
Add b) Interest credited by the bank but not yet considered in Cash Book.
Add c) Amount directly deposited by the customer or income directly received
by the bank but not yet considered in Cash Book.
Less a) Cheques, Bill & Hundies, deposited into the bank but not yet collected.
Less b) Bank charges and interest on overdraft charged by the bank but not yet
accounted for in Cash Book.
Less c) Expenses directly paid by the bank but not yet considered in the Cash
Book.
Less d) Amount of Cheques, Bill & Hundies deposited into bank and dishonoured
but not yet considered in Cash Book.
II If Bank column of Cash Book shown a Credit Balance under this case, all the
items added as given in 1) above will be deducted and all items deducted as given in
1) above well added.
2. Preparing BRS from Pass Book balance.
I. When there is Credit Balance of Pass Book:-
Less a) Amount of cheques issued to customers but not yet presented for
payment.
Less b) Interest allowed by bank on deposits.
Less c) The amount of dividend and interest collected by bank on the standing
orders of the customer.
Less d) Direct deposits by customers into Bank.
Add e) Amount of Cheques, Bills and Hundies deposited into Bank but not yet
collected and credited.
Add f) Amount of Cheques, bills and hundies deposited into bank but
dishonoured and not entered in Cash Book.
Add g) Amount of Bank Charges and interest on Bank Overdraft by bank.
II. When there is a Debit Balance as per Pass Book.
Less No. –2 (i) e, f, g
Add No. –2 (i) a, b, c, and d
orders of the customer.
Less d) Direct deposits by customers into Bank.
Add e) Amount of Cheques, Bills and Hundies deposited into Bank but not yet
collected and credited.
Add f) Amount of Cheques, bills and hundies deposited into bank but
dishonoured and not entered in Cash Book.
Add g) Amount of Bank Charges and interest on Bank Overdraft by bank.
II. When there is a Debit Balance as per Pass Book.
Less No. –2 (i) e, f, g
Add No. –2 (i) a, b, c, and d
In Summary by Table
Given to find
out
Cash Book
Dr. bal. Pass Book Cr.
Cash Book
Cr.
Pass Book
Dr.
Pass Book
Bal.
Cash Book
Bal.
Pass Book
Bal.
Cash Book
Bal.
1. Cheque
issued but not
yet presented
for payment
+ - - +
2. Cheque, bill,
or hundies
deposited into
bank but not yet
collected
- + + -
3. Interest
allowed by bank
+ - - +
4. Bank charges - + + -
5. Collection of
dividend by
bank
+ - - +
6. Direct
payment by
bank
- + + -
7. Dish. Cheques
or bill
- + + -
8. Interest
charged by the
bank on BO
- + + -
9. Any wrong
entry on the
debit side of the
Pass Book
- + + -
10. Any wrong
entry on the
credit side of
the Pass Book
+ - - +
11. Drawing
made by cheque
not entered in
Cash Book
- + + -
Given to find
out
Cash Book
Dr. bal. Pass Book Cr.
Cash Book
Cr.
Pass Book
Dr.
Pass Book
Bal.
Cash Book
Bal.
Pass Book
Bal.
Cash Book
Bal.
1. Cheque
issued but not
yet presented
for payment
+ - - +
2. Cheque, bill,
or hundies
deposited into
bank but not yet
collected
- + + -
3. Interest
allowed by bank
+ - - +
4. Bank charges - + + -
5. Collection of
dividend by
bank
+ - - +
6. Direct
payment by
bank
- + + -
7. Dish. Cheques
or bill
- + + -
8. Interest
charged by the
bank on BO
- + + -
9. Any wrong
entry on the
debit side of the
Pass Book
- + + -
10. Any wrong
entry on the
credit side of
the Pass Book
+ - - +
11. Drawing
made by cheque
not entered in
Cash Book
- + + -
Illustration:
From the following particulars, prepare a Bank Reconciliation Statement as on December
31, 2014:
On December 31, 2014 Mohan’s cash book showed a debit balance of Rs. 7,800. The balance
as per pass book was Rs. 10,300. On comparing the cash book with the pass book, the
following discrepancies were found:
1) Two cheques for Rs. 1,600 and Rs. 2,000 issued on December 23 have not been
presented to the bank for payment.
2) A cheque for Rs. 1,200 was deposited in the bank on December 29, but it was
credited by the bank on January 5, 2009.
3) There was a credit entry in the pass book for Rs. 520 in respect of dividend
received by the bank on behalf of Mohan. This had not been recorded in the cash
book.
4) Rs. 300 was deposited by a customer directly into the bank.
5) The bank charged Rs. 60 as their commission for collecting an outstanding
cheque. No entry for this appeared in the cash book.
6) A cheque for Rs. 500 received from Gopi and deposited in the bank was
dishonourd, but no entry was recorded in the cash book for the dishonour.
7) A cheque for Rs. 160 was entered in the cash book but it was not sent to the
bank for collection.
From the following particulars, prepare a Bank Reconciliation Statement as on December
31, 2014:
On December 31, 2014 Mohan’s cash book showed a debit balance of Rs. 7,800. The balance
as per pass book was Rs. 10,300. On comparing the cash book with the pass book, the
following discrepancies were found:
1) Two cheques for Rs. 1,600 and Rs. 2,000 issued on December 23 have not been
presented to the bank for payment.
2) A cheque for Rs. 1,200 was deposited in the bank on December 29, but it was
credited by the bank on January 5, 2009.
3) There was a credit entry in the pass book for Rs. 520 in respect of dividend
received by the bank on behalf of Mohan. This had not been recorded in the cash
book.
4) Rs. 300 was deposited by a customer directly into the bank.
5) The bank charged Rs. 60 as their commission for collecting an outstanding
cheque. No entry for this appeared in the cash book.
6) A cheque for Rs. 500 received from Gopi and deposited in the bank was
dishonourd, but no entry was recorded in the cash book for the dishonour.
7) A cheque for Rs. 160 was entered in the cash book but it was not sent to the
bank for collection.
Solution:
Rs. Rs.
Balance as per Cash Book 7,800
Add: Cheques issued but not yet presented for payment 3,600
Dividends collected by bank but not yet recorded in
the Cash Book
520
Amount deposited by a customer directly in the
bank
300
4,420
12,220
Less: Cheque deposited but not yet collected by bank 1,200
Bank charges debited by bank but not yet recorded
in the cash book
60
Cheque dishonoured but no entry made in cash
book for the dishonour
500
Cheque received from a customer entered in the
cash book but not sent to the bank for collection
160
1,920
Balance as per Pass Book 10,300
Note: The statement bears a heading ‘Bank Reconciliation Statement’ and mentions the
date for which reconciliation is done. So, whenever you prepare a Bank Reconciliation
Statement, make sure that it bears this heading along with the date of reconciliation
Rs. Rs.
Balance as per Cash Book 7,800
Add: Cheques issued but not yet presented for payment 3,600
Dividends collected by bank but not yet recorded in
the Cash Book
520
Amount deposited by a customer directly in the
bank
300
4,420
12,220
Less: Cheque deposited but not yet collected by bank 1,200
Bank charges debited by bank but not yet recorded
in the cash book
60
Cheque dishonoured but no entry made in cash
book for the dishonour
500
Cheque received from a customer entered in the
cash book but not sent to the bank for collection
160
1,920
Balance as per Pass Book 10,300
Note: The statement bears a heading ‘Bank Reconciliation Statement’ and mentions the
date for which reconciliation is done. So, whenever you prepare a Bank Reconciliation
Statement, make sure that it bears this heading along with the date of reconciliation
Multiple Choice Questions (MCQ) on Bank Reconciliation Statement (BRS)
1).Bank reconciliation statement is prepared by ans:A
A) Accountant of the business
B) Manager of the business
C) Controller of the bank
D) Accountant of the bank
2).Favourable balance of cash book implies that ans:B
A) Credit balance of cash book
B) Debit balance of cash book
C) Bank overdraft
D) Adjusted balance of cash book
3).A cash deposit made by business appears on the bank statement as _______ balance ans:B
A) Debit
B) Credit
C) Expenses
D) Liability
4).Bank reconciliation statement is the comparison of a bank statement (sent by bank) with the _________
(prepared by business) ans:C
A) Cash receipt journal
B) Cash payment journal
C) Cash book
D) Financial statements
5).Bank charges amounting to Rs.5000 was not entered in the cash book. Identify the correct adjustment
in cash book ans:C
A) Bank charges will be debited in cash book
B) Bank charges will be added to cash book balance
C) Bank charges will be credited in cash book
D) Bank charges need no adjustment in cash book
1).Bank reconciliation statement is prepared by ans:A
A) Accountant of the business
B) Manager of the business
C) Controller of the bank
D) Accountant of the bank
2).Favourable balance of cash book implies that ans:B
A) Credit balance of cash book
B) Debit balance of cash book
C) Bank overdraft
D) Adjusted balance of cash book
3).A cash deposit made by business appears on the bank statement as _______ balance ans:B
A) Debit
B) Credit
C) Expenses
D) Liability
4).Bank reconciliation statement is the comparison of a bank statement (sent by bank) with the _________
(prepared by business) ans:C
A) Cash receipt journal
B) Cash payment journal
C) Cash book
D) Financial statements
5).Bank charges amounting to Rs.5000 was not entered in the cash book. Identify the correct adjustment
in cash book ans:C
A) Bank charges will be debited in cash book
B) Bank charges will be added to cash book balance
C) Bank charges will be credited in cash book
D) Bank charges need no adjustment in cash book
Accounting Principles and Procedures
Objective of Accounting: The main objectives of Accounting are
1. To maintain systematic records.
2. To ascertain net profits or net loss of the business.
3. To ascertain the financial position of the business.
4. To provide accounting information to interested parties.
Parties Interested in Accounting Information: Accounting information are needed by
the owners, managers, lenders, creditors, prospective investors, tax authorities,
employees and researchers of the business to study the present position of business
and to compare the performance with past years and with the similar enterprises.
Advantage of Accounting:
1. Replacement of Memory
2. Provide Control over Assets
3. Facilitate preparation of Financial Statements
4. Meets the information requirement
5. Facilitate a comparative study
6. Assist the Management in other ways
7. Held in tax matters
Introduction:
The purpose of accounting is to provide information that is needed for sound economic
decision making. The main purpose of financial accounting is to prepare financial
reports that provide information about a firm’s performance to external parties such as
investors, creditors and tax authorities. Managerial accounting contrasts with financial
accounting in that managerial accounting is for internal decision making and does not
have to follow any rules issued by standard-setting bodies. Financial accounting, on the
other hand, is performed according to Generally Accepted Accounting Principles
(GAAP) guidelines. Cost Accounting is concerned with ascertainment and control of
costs.
Definition of Accounting:
Objective of Accounting: The main objectives of Accounting are
1. To maintain systematic records.
2. To ascertain net profits or net loss of the business.
3. To ascertain the financial position of the business.
4. To provide accounting information to interested parties.
Parties Interested in Accounting Information: Accounting information are needed by
the owners, managers, lenders, creditors, prospective investors, tax authorities,
employees and researchers of the business to study the present position of business
and to compare the performance with past years and with the similar enterprises.
Advantage of Accounting:
1. Replacement of Memory
2. Provide Control over Assets
3. Facilitate preparation of Financial Statements
4. Meets the information requirement
5. Facilitate a comparative study
6. Assist the Management in other ways
7. Held in tax matters
Introduction:
The purpose of accounting is to provide information that is needed for sound economic
decision making. The main purpose of financial accounting is to prepare financial
reports that provide information about a firm’s performance to external parties such as
investors, creditors and tax authorities. Managerial accounting contrasts with financial
accounting in that managerial accounting is for internal decision making and does not
have to follow any rules issued by standard-setting bodies. Financial accounting, on the
other hand, is performed according to Generally Accepted Accounting Principles
(GAAP) guidelines. Cost Accounting is concerned with ascertainment and control of
costs.
Definition of Accounting:
According to the American Marketing Association,”Accounting is the process of
identifying, measuring and communicating economic information to permit informed
judgments and decision by users of the information.”
According to American Institute of Certified Public Accountants, “Accounting is the art of
recording, classifying and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financing character and
interpreting the results thereof.”
Accounting Standards
In order that financial statements report financial performance fairly and consistently,
they are prepared according to widely accepted accounting standards. These standards
are referred to as Generally Accepted Accounting Principles, or simply GAAP. Generally
Accepted Accounting Principles are those that have “substantial authoritative support”.
Accrual vs. Cash Method
Many small businesses utilize an accounting system that recognizes revenue and
expenses on a cash basis; meaning that neither revenue nor expenses are recognized
until the cash associated with them actually is received. Larger businesses, however,
use the accrual method.
Under the accrual method, revenues and expenses are recorded according to when
they are earned and incurred, not necessarily when the cash is received or paid. For
example, under the accrual method revenue is recognized when customers are
invoiced, regardless of when payment is received. Similarly, an expense is recognized
when the bill is received, not when payment is made.
Under accrual accounting, even though employees may be paid in the next accounting
period of work performed near the end of the present accounting period, the expense
still is recorded in the current period since the current period is when the expense was
incurred.
identifying, measuring and communicating economic information to permit informed
judgments and decision by users of the information.”
According to American Institute of Certified Public Accountants, “Accounting is the art of
recording, classifying and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financing character and
interpreting the results thereof.”
Accounting Standards
In order that financial statements report financial performance fairly and consistently,
they are prepared according to widely accepted accounting standards. These standards
are referred to as Generally Accepted Accounting Principles, or simply GAAP. Generally
Accepted Accounting Principles are those that have “substantial authoritative support”.
Accrual vs. Cash Method
Many small businesses utilize an accounting system that recognizes revenue and
expenses on a cash basis; meaning that neither revenue nor expenses are recognized
until the cash associated with them actually is received. Larger businesses, however,
use the accrual method.
Under the accrual method, revenues and expenses are recorded according to when
they are earned and incurred, not necessarily when the cash is received or paid. For
example, under the accrual method revenue is recognized when customers are
invoiced, regardless of when payment is received. Similarly, an expense is recognized
when the bill is received, not when payment is made.
Under accrual accounting, even though employees may be paid in the next accounting
period of work performed near the end of the present accounting period, the expense
still is recorded in the current period since the current period is when the expense was
incurred.
Underlying Assumptions, Principles, and Conventions
Financial accounting relies on the following underlying concepts:
Assumptions: Separate entity assumption, going-concern assumption, stable
monetary unit assumption, fixed time period assumption.
Principles: Historical cost principle, matching principle, revenue recognition
principle, full disclosure principle.
Modifying conventions: Materiality, cost-benefit, conversation convention, and
industry practices convention.
Financial Statements
Businesses have two primary objectives:
Earn a profit
Remain solvent
Solvency represents the ability of the business to pay its bills and service its debt.
The four financial statements are reports that allow interested parties to evaluate the
profitability and solvency of a business. These reports include the following financial
statements:
Balance Sheet
Income Statement
Statement of Owner’s Equity
Statement of Cash Flows
These four financial statements are the final product of the accountant’s analysis of the
transactions of a business. A large amount of effort goes into the preparation of the
financial statements. The process begins with bookkeeping, which is just one step in the
accounting process. Bookkeeping is the actual recording of the company’s transactions,
Financial accounting relies on the following underlying concepts:
Assumptions: Separate entity assumption, going-concern assumption, stable
monetary unit assumption, fixed time period assumption.
Principles: Historical cost principle, matching principle, revenue recognition
principle, full disclosure principle.
Modifying conventions: Materiality, cost-benefit, conversation convention, and
industry practices convention.
Financial Statements
Businesses have two primary objectives:
Earn a profit
Remain solvent
Solvency represents the ability of the business to pay its bills and service its debt.
The four financial statements are reports that allow interested parties to evaluate the
profitability and solvency of a business. These reports include the following financial
statements:
Balance Sheet
Income Statement
Statement of Owner’s Equity
Statement of Cash Flows
These four financial statements are the final product of the accountant’s analysis of the
transactions of a business. A large amount of effort goes into the preparation of the
financial statements. The process begins with bookkeeping, which is just one step in the
accounting process. Bookkeeping is the actual recording of the company’s transactions,
without any analysis of the information. Accountants evaluate and analyze the
information, making sense out of the numbers.
For the reports to useful, they must be:
Understandable
Timely
Relevant
Fair and Objective (free from bias)
Double Entry Accounting
Financial accounting is based on double-entry bookkeeping procedures in which each
transaction is recorded in opposite columns of the accounts affected by the exchange.
Double entry accounting is a significant improvement over simple and more error-prone
single-entry bookkeeping systems.
Fundamental Accounting Model
The balance sheet is based on the following fundamental accounting equation:
Assets = Liabilities + Equity
This model has been used since the 18
th
century. It essentially states that a business
owes all of its assets to either creditors or owners, where the assets of a business are
its resources, and the creditors and owners are the sources of those resources.
Transactions:
To record transactions, one must:
information, making sense out of the numbers.
For the reports to useful, they must be:
Understandable
Timely
Relevant
Fair and Objective (free from bias)
Double Entry Accounting
Financial accounting is based on double-entry bookkeeping procedures in which each
transaction is recorded in opposite columns of the accounts affected by the exchange.
Double entry accounting is a significant improvement over simple and more error-prone
single-entry bookkeeping systems.
Fundamental Accounting Model
The balance sheet is based on the following fundamental accounting equation:
Assets = Liabilities + Equity
This model has been used since the 18
th
century. It essentially states that a business
owes all of its assets to either creditors or owners, where the assets of a business are
its resources, and the creditors and owners are the sources of those resources.
Transactions:
To record transactions, one must:
1. Identify an event that affects the entity financially.
2. Measure the event in monetary terms.
3. Determine which accounts the transaction affects.
4. Determine whether the transaction increases or decreases the balances in
those accounts.
5. Record the transaction in the ledgers.
Most larger business accounting systems utilize the double entry method. Under double
entry, instead of recording a transaction in only a single account, the transaction is
recorded in two accounts.
The Accounting Process
Once a business transaction occurs, a sequence of activities begins to identify and
analyze the transaction, make the journal entries, etc. Because this process repeats
over transactions and accounting periods; it is referred to as the accounting cycle.
THE ACCOUNTING CYCLE
The sequence of activities beginning with the occurrence of a transaction is known as
the accounting cycle. This process is shown in the following diagram:
Steps in the Accounting Cycle
Identify the Transaction
Identify the event as a
transaction and generate
the source document.
Analyse the Transaction
Determine the transaction
amount, which accounts
are affected, and in which
direction.
2. Measure the event in monetary terms.
3. Determine which accounts the transaction affects.
4. Determine whether the transaction increases or decreases the balances in
those accounts.
5. Record the transaction in the ledgers.
Most larger business accounting systems utilize the double entry method. Under double
entry, instead of recording a transaction in only a single account, the transaction is
recorded in two accounts.
The Accounting Process
Once a business transaction occurs, a sequence of activities begins to identify and
analyze the transaction, make the journal entries, etc. Because this process repeats
over transactions and accounting periods; it is referred to as the accounting cycle.
THE ACCOUNTING CYCLE
The sequence of activities beginning with the occurrence of a transaction is known as
the accounting cycle. This process is shown in the following diagram:
Steps in the Accounting Cycle
Identify the Transaction
Identify the event as a
transaction and generate
the source document.
Analyse the Transaction
Determine the transaction
amount, which accounts
are affected, and in which
direction.
Journal Entries
The transaction is recorded
in the journal as a debit
and a credit.
Post to Ledger
The journal entries are
transferred to the
appropriate T-accounts in
the ledger.
Trial Balance
A trial balance is
calculated to verify that the
sum of the debits is equal
to the sum of the credits.
Adjusting Entries
Adjusting entries are made
for accrued and deferred
items. The entries are
journalized and posted to
the T-accounts in the
ledger.
Adjusted Trial Balance
A new trial balance is
calculated after making the
adjustment.
Financial Statements
The financial statements
are prepared
Closing Entries
Transfer the balances of
the temporary accounts
(e.g. revenues and
expenses) to owner’s
equity.
After-Closing Trial
Balance
A final trial balance is
calculated after the closing
entries are made.
The transaction is recorded
in the journal as a debit
and a credit.
Post to Ledger
The journal entries are
transferred to the
appropriate T-accounts in
the ledger.
Trial Balance
A trial balance is
calculated to verify that the
sum of the debits is equal
to the sum of the credits.
Adjusting Entries
Adjusting entries are made
for accrued and deferred
items. The entries are
journalized and posted to
the T-accounts in the
ledger.
Adjusted Trial Balance
A new trial balance is
calculated after making the
adjustment.
Financial Statements
The financial statements
are prepared
Closing Entries
Transfer the balances of
the temporary accounts
(e.g. revenues and
expenses) to owner’s
equity.
After-Closing Trial
Balance
A final trial balance is
calculated after the closing
entries are made.
The above diagram shows the financial statements as being prepared after the
adjusting entries and adjusted trial balance. The financial statements also can be
prepared before the adjusting entries with the help of a worksheet that calculates the
impact of the adjusting entries before they actually are posted.
THE SOURCE DOCUMENT
When a business transaction occurs, a document known as the source
document captures the key data of the transaction. The source document describes
the basic facts of the transaction such as its date, purpose, and amount.
Some examples of source documents:
Cash receipt
Cancelled cheque
Invoice sent or received
Credit memo for a customer refund
Employee time sheet
The source document is the initial input to the accounting process and serves as
objective evidence of the transaction, serving as part of the audit trail should the firm
need to prove that a transaction occurred.
To facilitate referencing, each source document should have a unique identifier, usually
a number or alphanumeric code. Prenumbering of commonly-used forms helps to
enforce numbering, to classify transactions, and to identify and locate missing source
documents. A well-designed source document form can minimize errors and improve
the efficiency of transaction recording.
The source document may be created in either paper or electronic format. For example,
automated accounting systems may generate the source document electronically or
allow paper source documents to be scanned and converted into electronic images.
adjusting entries and adjusted trial balance. The financial statements also can be
prepared before the adjusting entries with the help of a worksheet that calculates the
impact of the adjusting entries before they actually are posted.
THE SOURCE DOCUMENT
When a business transaction occurs, a document known as the source
document captures the key data of the transaction. The source document describes
the basic facts of the transaction such as its date, purpose, and amount.
Some examples of source documents:
Cash receipt
Cancelled cheque
Invoice sent or received
Credit memo for a customer refund
Employee time sheet
The source document is the initial input to the accounting process and serves as
objective evidence of the transaction, serving as part of the audit trail should the firm
need to prove that a transaction occurred.
To facilitate referencing, each source document should have a unique identifier, usually
a number or alphanumeric code. Prenumbering of commonly-used forms helps to
enforce numbering, to classify transactions, and to identify and locate missing source
documents. A well-designed source document form can minimize errors and improve
the efficiency of transaction recording.
The source document may be created in either paper or electronic format. For example,
automated accounting systems may generate the source document electronically or
allow paper source documents to be scanned and converted into electronic images.
Accounting software often provides on-screen entry forms for different types of
transactions to capture the data and generate the source document.
The source document is an early document in the accounting cycle. It provides the
information required to analyze and classify the transaction and to create the journal
entries.
ACCOUNTING CONCEPTS
Underlying Assumptions, Principles, and Conventions
Financial accounting relies on several underlying concepts that have a significant
impact on the practice of accounting.
Assumptions:
The following are basic financial accounting assumptions:
Separate entity assumption – the business is an entity that is separate and
distinct from its owners, so that the finances of the firm are not co-mingled with
the finances of the owners.
Going concern assumption – the business is going to be operating for the
foreseeable future.
Stable monetary unit assumption – e.g. the U.S. dollar
Fixed time period assumption – info prepared and reported periodically
(quarterly, annually, etc.)
Principles:
The basic assumptions of accounting result in the following accounting principles:
Historical cost principles – assets are reported and presented at their original
cost and no adjustment is made for changes in market value. One never writes
transactions to capture the data and generate the source document.
The source document is an early document in the accounting cycle. It provides the
information required to analyze and classify the transaction and to create the journal
entries.
ACCOUNTING CONCEPTS
Underlying Assumptions, Principles, and Conventions
Financial accounting relies on several underlying concepts that have a significant
impact on the practice of accounting.
Assumptions:
The following are basic financial accounting assumptions:
Separate entity assumption – the business is an entity that is separate and
distinct from its owners, so that the finances of the firm are not co-mingled with
the finances of the owners.
Going concern assumption – the business is going to be operating for the
foreseeable future.
Stable monetary unit assumption – e.g. the U.S. dollar
Fixed time period assumption – info prepared and reported periodically
(quarterly, annually, etc.)
Principles:
The basic assumptions of accounting result in the following accounting principles:
Historical cost principles – assets are reported and presented at their original
cost and no adjustment is made for changes in market value. One never writes
up the cost of an asset. Accountants are very conservative in this sense.
Sometimes costs are written down, for example, for some short -term
investments and marketable securities, but costs never are written up.
Matching principle – matching of revenues and expenses in the period earned
and incurred.
Revenue recognition principle – revenue is realized (reported on the books as
earned) when everything that is necessary to earn the revenue has been
completed.
Full disclosure principle – all of the information about the business entity that is
needed by users is disclosed in understandable form.
Modifying Conventions
Due to practical constraints and industry practice, GAAP principles are not always
applied strictly but are modified as necessary. The following are some commonly
observed modifying conventions:
Materiality convention – a modifying convention that relaxes certain GAAP
requirements if the impact is not large enough to influence decisions. Users of
the information should not be overburdened with information overload.
Cost-benefit convention – a modifying convention that relaxes GAAP
requirements if the expected cost of reporting something exceeds the benefits
of reporting it.
Conservation convention – when there is a choice of equally acceptable
accounting methods, the firm should use the one that is least likely to overstate
income or assets.
Industry practices convention – accepted industry practices should be followed
even if they differ from GAAP.
THE ACCOUNTING EQUATION
The resources controlled by a business are referred to as its assets. For a new
business, those assets originate from two possible sources:
Investors who buy ownership in the business
Creditors who extend loans to the business
Those who contribute assets to a business have legal claims on those assets. Since the
total assets of the business are equal to the sum of the assets contributed by investors
Sometimes costs are written down, for example, for some short -term
investments and marketable securities, but costs never are written up.
Matching principle – matching of revenues and expenses in the period earned
and incurred.
Revenue recognition principle – revenue is realized (reported on the books as
earned) when everything that is necessary to earn the revenue has been
completed.
Full disclosure principle – all of the information about the business entity that is
needed by users is disclosed in understandable form.
Modifying Conventions
Due to practical constraints and industry practice, GAAP principles are not always
applied strictly but are modified as necessary. The following are some commonly
observed modifying conventions:
Materiality convention – a modifying convention that relaxes certain GAAP
requirements if the impact is not large enough to influence decisions. Users of
the information should not be overburdened with information overload.
Cost-benefit convention – a modifying convention that relaxes GAAP
requirements if the expected cost of reporting something exceeds the benefits
of reporting it.
Conservation convention – when there is a choice of equally acceptable
accounting methods, the firm should use the one that is least likely to overstate
income or assets.
Industry practices convention – accepted industry practices should be followed
even if they differ from GAAP.
THE ACCOUNTING EQUATION
The resources controlled by a business are referred to as its assets. For a new
business, those assets originate from two possible sources:
Investors who buy ownership in the business
Creditors who extend loans to the business
Those who contribute assets to a business have legal claims on those assets. Since the
total assets of the business are equal to the sum of the assets contributed by investors
and the assets contributed by creditors, the following relationship holds and is referred
to as the accounting equation:
Assets = Liabilities + Owners’ Equity
Resources Claims on the Resources
Initially, owner equity is affected by capital contributions such as the issuance of stock.
Once business operations commence, there will be income (revenues minus expenses,
and gains minus losses) and perhaps additional capital contributions and withdrawals
such as dividends. At the end of a reporting period, these items will impact the owners’
equity as follows:
Assets = Liabilities + Owners’ Equity
+ Revenues
- Expenses
+ Gains
- Losses
+ Contributions
- Withdrawals
These additional items under owners’ equity are tracked in temporary accounts until the
end of the accounting period, at which time they are closed to owners’ equity.
The accounting equation holds at all times over the life of the business when a
transaction occurs, the total assets of the business may change, but the equation will
remain in balance. The accounting equation serves as the basis for the balance sheet,
as illustrated in the following example.
to as the accounting equation:
Assets = Liabilities + Owners’ Equity
Resources Claims on the Resources
Initially, owner equity is affected by capital contributions such as the issuance of stock.
Once business operations commence, there will be income (revenues minus expenses,
and gains minus losses) and perhaps additional capital contributions and withdrawals
such as dividends. At the end of a reporting period, these items will impact the owners’
equity as follows:
Assets = Liabilities + Owners’ Equity
+ Revenues
- Expenses
+ Gains
- Losses
+ Contributions
- Withdrawals
These additional items under owners’ equity are tracked in temporary accounts until the
end of the accounting period, at which time they are closed to owners’ equity.
The accounting equation holds at all times over the life of the business when a
transaction occurs, the total assets of the business may change, but the equation will
remain in balance. The accounting equation serves as the basis for the balance sheet,
as illustrated in the following example.
The Accounting Equation – A Practical Example
To better understand the accounting equation, consider the following example. Mike
Peddler decides to open a bicycle repair shop. To get started he rents some shop
space, purchases an initial inventory of bike parts, and opens the shop for business.
Here is a listing of the transactions that occurred during the first month:
Date Transaction
Sep 1 Owner contributes Rs. 7,500 in cash to capitalize the business.
Sep 8 Purchased Rs. 2,500 in bike parts on account, payable in 30 days.
Sep 15 Paid first month’s shop rent of Rs. 1,000.
Sep 17 Repaired bikes for Rs. 1,100; collected Rs. 400 cash; billed
customers
for the Rs. 700 balance.
Sep 18 Rs.275 in bike parts were used.
Sep 28 Paid Rs.500 to suppliers for parts purchased earlier in the month.
These transactions affect the accounting equation as shown below:
Assets = Liabilities + Owner’s Equity
Cash +
Bike
Parts
+
Accounts
Receivables
=
Accounts
Payable
+
Peddler
Capital
+
Revenue
(Expenses)
Sep 1 7,500 = 7,500
Sep 8 2,500 = 2,500
Sep 15 (1000) = (1000)
Sep 17 400 700 = 1100
To better understand the accounting equation, consider the following example. Mike
Peddler decides to open a bicycle repair shop. To get started he rents some shop
space, purchases an initial inventory of bike parts, and opens the shop for business.
Here is a listing of the transactions that occurred during the first month:
Date Transaction
Sep 1 Owner contributes Rs. 7,500 in cash to capitalize the business.
Sep 8 Purchased Rs. 2,500 in bike parts on account, payable in 30 days.
Sep 15 Paid first month’s shop rent of Rs. 1,000.
Sep 17 Repaired bikes for Rs. 1,100; collected Rs. 400 cash; billed
customers
for the Rs. 700 balance.
Sep 18 Rs.275 in bike parts were used.
Sep 28 Paid Rs.500 to suppliers for parts purchased earlier in the month.
These transactions affect the accounting equation as shown below:
Assets = Liabilities + Owner’s Equity
Cash +
Bike
Parts
+
Accounts
Receivables
=
Accounts
Payable
+
Peddler
Capital
+
Revenue
(Expenses)
Sep 1 7,500 = 7,500
Sep 8 2,500 = 2,500
Sep 15 (1000) = (1000)
Sep 17 400 700 = 1100
Sep 18 (275) = (275)
Sep 25 425 (425) =
Sep 28 (500) = (500)
Totals: 6825 + 2225 + 275 = 2000 + 7500 + (175)
Rs.
9325
= Rs. 9325
Note that for each date in the above example, the sum of entries under the “Assets”
heading is equal to the sum of entries under the “Liabilities + Owner’s Equity” heading.
In most of these cases, the transaction affected only the asset side with an increase in
cash and an equal but opposite decrease in accounts receivable.
At the end of the month of September, the net income (revenues minus expenses) is
closed to capital and the balance sheet for the business would appear as follows:
Peddler’s Bikes
Balance Sheet
September 30, 20xx
Assets Liabilities & Owner’s Equity
Cash 6,825 Accounts Payable 2,000
Accounts Receivables 275 Peddler, Capital 7,325
Bike Parts 2,225
Total Assets Rs. 9,325 Total Liabilities Rs. 9,325
The bike parts are considered to be inventory, which appears as an asset on the
balance sheet. The owner’s equity is modified according to the difference between
revenues and expenses. In this case, the difference is a loss of Rs. 175, so the owner’s
Sep 25 425 (425) =
Sep 28 (500) = (500)
Totals: 6825 + 2225 + 275 = 2000 + 7500 + (175)
Rs.
9325
= Rs. 9325
Note that for each date in the above example, the sum of entries under the “Assets”
heading is equal to the sum of entries under the “Liabilities + Owner’s Equity” heading.
In most of these cases, the transaction affected only the asset side with an increase in
cash and an equal but opposite decrease in accounts receivable.
At the end of the month of September, the net income (revenues minus expenses) is
closed to capital and the balance sheet for the business would appear as follows:
Peddler’s Bikes
Balance Sheet
September 30, 20xx
Assets Liabilities & Owner’s Equity
Cash 6,825 Accounts Payable 2,000
Accounts Receivables 275 Peddler, Capital 7,325
Bike Parts 2,225
Total Assets Rs. 9,325 Total Liabilities Rs. 9,325
The bike parts are considered to be inventory, which appears as an asset on the
balance sheet. The owner’s equity is modified according to the difference between
revenues and expenses. In this case, the difference is a loss of Rs. 175, so the owner’s
equity has decreased from Rs.7,500 at the beginning of the month to Rs.7,325 at the
end of the month.
end of the month.
MCQ on Accounting Principles and Procedures
1). Book Keeping is mainly concerned with
A. Recording financial data relating to business operations
B. Designing for systems recording, classifying and summarizing recorded data
C. Interpreting data for internal and external users
D. All the above.
2). Double entry system means:
A. Debit must be equal to credit
B. It is not necessary to equal both balances
C. Recording the transaction
D. None of the above.
3).Transactions are posted into Ledger Account from
A. Vouchers
B. Journal Book
C. None of the above
D. All the above
4).Business/Separate Entity Concept means
A. Transaction between the business and its owners are recorded
B. Transaction between the business and its owners are not recorded
C. Transaction between the business and its owners are recorded from the
business point of view
D. None of the above
5).The convention of conservatism takes into accounts
A. All prospective profits and losses
B. All prospective profits and leaves out prospective losses
C. All prospective losses but leaves out all prospective profits
D. None of the above
Ans:1-A, 2-A, 3-B, 4-C, 5-C
1). Book Keeping is mainly concerned with
A. Recording financial data relating to business operations
B. Designing for systems recording, classifying and summarizing recorded data
C. Interpreting data for internal and external users
D. All the above.
2). Double entry system means:
A. Debit must be equal to credit
B. It is not necessary to equal both balances
C. Recording the transaction
D. None of the above.
3).Transactions are posted into Ledger Account from
A. Vouchers
B. Journal Book
C. None of the above
D. All the above
4).Business/Separate Entity Concept means
A. Transaction between the business and its owners are recorded
B. Transaction between the business and its owners are not recorded
C. Transaction between the business and its owners are recorded from the
business point of view
D. None of the above
5).The convention of conservatism takes into accounts
A. All prospective profits and losses
B. All prospective profits and leaves out prospective losses
C. All prospective losses but leaves out all prospective profits
D. None of the above
Ans:1-A, 2-A, 3-B, 4-C, 5-C
PREPARATION OF BALANCE SHEET
FINAL STATEMENTS OR ACCOUNTS
Business report information in the form of financial statements issued on a periodic basis. GAAP requires
the following four financial statements.
Balance Sheet – statement of financial position at a given point in time. It has two sides. Assets
side and liability side. The two side total will be the same. It is not an Account.
Income Statement – revenues minus expenses for a given time period ending at a specified
date. It is prepared in two parts, namely Trading A/c and P & L A/c. Trading A/c will show gross
profit or gross loss whereas P & L A/c will show Net Profit or Net Loss of the business.
Statement of Owner’s Equity – also known as Statement of Retained Earnings or Equity
Statement.
Statement of Cash Flows – summarizes sources and uses of cash; indicates whether enough
cash is available to carry on routine operations.
Balance Sheet
The balance sheet is based on the following fundamental accounting model:
Assets = Liabilities + Equity
Assets can be classed as either current assets or fixed assets. Current assets are assets that quickly and
easily can be converted into cash, sometimes at a discount to the purchase price. Current assets include
cash, accounts receivable, marketable securities, notes receivable, inventory, and prepaid assets such as
prepaid insurance. Fixed asset include land, buildings, and equipment. Such assets are recorded at
historical cost, which often is much lower than the market value.
Liabilities represent the portion of a firm’s assets that are owed to creditors. Liabilities can be classed as
short-term liabilities (current) and long-term (non-current) liabilities. Current liabilities include accounts
payable, notes payable, interest payable, wages payable, and tax payable. Long-term liabilities include
mortgages payable and bonds payable. The portion of a mortgage long-term bond that is due within the
next 12 months is classed as a current liability, and usually is referred to as the current portion of long-
term debt. The creditors of a business are the primary claimants, getting paid before the owners should
the business cease to exist.
FINAL STATEMENTS OR ACCOUNTS
Business report information in the form of financial statements issued on a periodic basis. GAAP requires
the following four financial statements.
Balance Sheet – statement of financial position at a given point in time. It has two sides. Assets
side and liability side. The two side total will be the same. It is not an Account.
Income Statement – revenues minus expenses for a given time period ending at a specified
date. It is prepared in two parts, namely Trading A/c and P & L A/c. Trading A/c will show gross
profit or gross loss whereas P & L A/c will show Net Profit or Net Loss of the business.
Statement of Owner’s Equity – also known as Statement of Retained Earnings or Equity
Statement.
Statement of Cash Flows – summarizes sources and uses of cash; indicates whether enough
cash is available to carry on routine operations.
Balance Sheet
The balance sheet is based on the following fundamental accounting model:
Assets = Liabilities + Equity
Assets can be classed as either current assets or fixed assets. Current assets are assets that quickly and
easily can be converted into cash, sometimes at a discount to the purchase price. Current assets include
cash, accounts receivable, marketable securities, notes receivable, inventory, and prepaid assets such as
prepaid insurance. Fixed asset include land, buildings, and equipment. Such assets are recorded at
historical cost, which often is much lower than the market value.
Liabilities represent the portion of a firm’s assets that are owed to creditors. Liabilities can be classed as
short-term liabilities (current) and long-term (non-current) liabilities. Current liabilities include accounts
payable, notes payable, interest payable, wages payable, and tax payable. Long-term liabilities include
mortgages payable and bonds payable. The portion of a mortgage long-term bond that is due within the
next 12 months is classed as a current liability, and usually is referred to as the current portion of long-
term debt. The creditors of a business are the primary claimants, getting paid before the owners should
the business cease to exist.
Equity is referred to as owner’s equity or shareholders’ equity in a corporation. The equity owners of a
business are residual claimants, having a right to what remains only after the creditors have been paid.
For a sole proprietorship or a partnership, the equity would be listed as the owner or owners’ names
followed by the word “capital”. For Example:
Sole Proprietorship: John Doe, Capital
Partnership: John Doe, Capital
Josephine Smith, Capital
In the case of a corporation, equity would be listed as common stock, preferred stock, and retained
earnings.
The balance sheet reports the resources of the entity. It is useful when evaluating the ability of the
company to meet its long-term obligations. Comparative balance sheets are the most useful; for example,
for the years ending December 31, 2000 and December 31, 2001.
Income Statement
The income statement presents the results of the entity’s operations during a period of time, such as one
year. The simplest equation to describe income is:
Net Income = Revenue - Expenses
Revenue refers to inflows from the delivery or manufacture of a product or from the rendering of a service.
Expenses are outflows incurred to produce revenue.
business are residual claimants, having a right to what remains only after the creditors have been paid.
For a sole proprietorship or a partnership, the equity would be listed as the owner or owners’ names
followed by the word “capital”. For Example:
Sole Proprietorship: John Doe, Capital
Partnership: John Doe, Capital
Josephine Smith, Capital
In the case of a corporation, equity would be listed as common stock, preferred stock, and retained
earnings.
The balance sheet reports the resources of the entity. It is useful when evaluating the ability of the
company to meet its long-term obligations. Comparative balance sheets are the most useful; for example,
for the years ending December 31, 2000 and December 31, 2001.
Income Statement
The income statement presents the results of the entity’s operations during a period of time, such as one
year. The simplest equation to describe income is:
Net Income = Revenue - Expenses
Revenue refers to inflows from the delivery or manufacture of a product or from the rendering of a service.
Expenses are outflows incurred to produce revenue.
Income from operations can be separated from other forms of income. In this case, the income can be
described by:
Net Income = Revenue – Expenses + Gains – Losses
Where gains refer to items such as capital gains, and losses refer to capital losses, losses from natural
disasters, etc.
Statement of Owners’ Equity (Statement of Retained Earnings)
The equity statement explains the changes in retained earnings. Retained earnings appear on the
balance sheet and most commonly are influenced by income and dividends. The statement of Retained
Earnings therefore uses information from the Income Statement and provides information to the Balance
Sheet.
The following equation describes the equity statement for a sole proprietorship:
Ending Equity = Beginning Equity + Investment – Withdrawals + Income
For a corporation substitute “Dividends Paid” for “Withdrawals”. The stockholders’ equity in a corporation
is calculated as follows:
Common Stock (recorded at par value)
+ Premium on Common Stock (issue price minus par value)
described by:
Net Income = Revenue – Expenses + Gains – Losses
Where gains refer to items such as capital gains, and losses refer to capital losses, losses from natural
disasters, etc.
Statement of Owners’ Equity (Statement of Retained Earnings)
The equity statement explains the changes in retained earnings. Retained earnings appear on the
balance sheet and most commonly are influenced by income and dividends. The statement of Retained
Earnings therefore uses information from the Income Statement and provides information to the Balance
Sheet.
The following equation describes the equity statement for a sole proprietorship:
Ending Equity = Beginning Equity + Investment – Withdrawals + Income
For a corporation substitute “Dividends Paid” for “Withdrawals”. The stockholders’ equity in a corporation
is calculated as follows:
Common Stock (recorded at par value)
+ Premium on Common Stock (issue price minus par value)
+ Preferred Stock (recorded at par value)
+ Premium on Preferred Stock (issue price minus par value)
+ Retained Earnings
-----------------------------------------------------------------------------
= Stockholders’ Equity
Note that the premium on the issuance of stock is based on the price at which the corporation actually
sold the stock on the market. Afterwards, market trading does not affect this part of the equity calculation.
Stockholders’ equity does not change when the stock price changes!
Form of Trading Account
Trading Account of ………..
(Day, Month and Year)
Dr. Cr.
Particulars Amount Amount Amount Amount
Rs. Rs. Rs. Rs.
To Opening Stock ----- ----- By Sales -----
To Purchases ----- -----
Less Sales
Returns -----
Less Purchases
Returns
By Closing Stock ------
To Direct Expenses ------ ------
(Specify individually)
To Gross Profit ------
(Transferred to Profit and
Loss Account) -----
----- -----
+ Premium on Preferred Stock (issue price minus par value)
+ Retained Earnings
-----------------------------------------------------------------------------
= Stockholders’ Equity
Note that the premium on the issuance of stock is based on the price at which the corporation actually
sold the stock on the market. Afterwards, market trading does not affect this part of the equity calculation.
Stockholders’ equity does not change when the stock price changes!
Form of Trading Account
Trading Account of ………..
(Day, Month and Year)
Dr. Cr.
Particulars Amount Amount Amount Amount
Rs. Rs. Rs. Rs.
To Opening Stock ----- ----- By Sales -----
To Purchases ----- -----
Less Sales
Returns -----
Less Purchases
Returns
By Closing Stock ------
To Direct Expenses ------ ------
(Specify individually)
To Gross Profit ------
(Transferred to Profit and
Loss Account) -----
----- -----
Form of P & L A/c
Profit and Loss Account…………..
For the period ended ………..
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Gross Loss, if any, (transferred
from Trading Account)
By Gross Profit
(transferred from Trading Account)
To Salaries By Interest Received
To Rent, Rates and Taxes By Discount Received
To Postage and Telegrams By Rent Received
To Telephone Charges By Commission Received
To Printing and Stationery By Dividend Received
To Legal Expenses By Other Incomes and Gains
To Insurance By Net Loss
To Office Lighting (Transferred to Capital Account)
To Bad Debts
To Depreciation
To Advertising
To Travelling Expenses
To Carriage Outwards
To Trade Expenses
To Discount Allowed
To Interest Paid
To Repairs and Renewals
To Loss by Fire
To Loss by Theft
To Other Expenses and Losses, if any
To Net Profit
(Transferred to Capital Account)
Profit and Loss Account…………..
For the period ended ………..
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Gross Loss, if any, (transferred
from Trading Account)
By Gross Profit
(transferred from Trading Account)
To Salaries By Interest Received
To Rent, Rates and Taxes By Discount Received
To Postage and Telegrams By Rent Received
To Telephone Charges By Commission Received
To Printing and Stationery By Dividend Received
To Legal Expenses By Other Incomes and Gains
To Insurance By Net Loss
To Office Lighting (Transferred to Capital Account)
To Bad Debts
To Depreciation
To Advertising
To Travelling Expenses
To Carriage Outwards
To Trade Expenses
To Discount Allowed
To Interest Paid
To Repairs and Renewals
To Loss by Fire
To Loss by Theft
To Other Expenses and Losses, if any
To Net Profit
(Transferred to Capital Account)
Balance Sheet of ……….
as on ………..
Liabilities Amount Assets Amount
Rs. Rs.
Current Liabilities Current Assets
Bank Overdraft …….. Cash in hand ……..
Bills Payable …….. Bills Receivable ……..
Sundry Creditors …….. Cash at bank ……..
Sundry Debtors ……..
Closing Stock ……..
Long-term Liabilities
Loans …….. Investments ……..
Mortgages …….. Fixed Assets ……..
Capital Vehicles ……..
Balance …….. Furniture ……..
Add Net Plant & Machinery ……..
Profit …….. Land & Buildings ……..
Less Goodwill ……..
Drawings …….. ……..
…….. ……..
Cash Flow Statement
The nature of accrual accounting is such that a company may be profitable but nonetheless experience a
shortfall in cash. The statement of cash flows is useful in evaluating a company’s ability to pay its bills.
For a given period, the cash flow statement provides the following information:
Sources of cash
Uses of cash
Change in cash balance
The cash flow statement represents an analysis of all of the transactions of the business, reporting where
the firm obtained its cash and what it did with it. It breaks the sources and uses of cash into the following
categories:
Operating activities
as on ………..
Liabilities Amount Assets Amount
Rs. Rs.
Current Liabilities Current Assets
Bank Overdraft …….. Cash in hand ……..
Bills Payable …….. Bills Receivable ……..
Sundry Creditors …….. Cash at bank ……..
Sundry Debtors ……..
Closing Stock ……..
Long-term Liabilities
Loans …….. Investments ……..
Mortgages …….. Fixed Assets ……..
Capital Vehicles ……..
Balance …….. Furniture ……..
Add Net Plant & Machinery ……..
Profit …….. Land & Buildings ……..
Less Goodwill ……..
Drawings …….. ……..
…….. ……..
Cash Flow Statement
The nature of accrual accounting is such that a company may be profitable but nonetheless experience a
shortfall in cash. The statement of cash flows is useful in evaluating a company’s ability to pay its bills.
For a given period, the cash flow statement provides the following information:
Sources of cash
Uses of cash
Change in cash balance
The cash flow statement represents an analysis of all of the transactions of the business, reporting where
the firm obtained its cash and what it did with it. It breaks the sources and uses of cash into the following
categories:
Operating activities
Investing activities
Financing activities
The information used to construct the cash flow statement comes from the beginning and ending balance
sheets for the period and from the income statement for the period.
FINAL ACCOUNTS WITH ADJUSTMENT
There are several items which need adjustment at the time of preparing the final accounts. Some of the
important and common adjustments are listed below:
(1) Closing Stock: Unsold stock at the end of the year, it is known as closing stock.
Closing Stock Dr.
To Trading A/c
Treatment in Final Accounts:
(a) shown in credit side in Trading A/c
(b) shown in Balance Sheet in Asset side.
(2) Outstanding expenses:
Those expenses are relating in current year but not paid in current year, is known as
O/S expenses.
(a) Added to relating expenses in trading and P& L A/c
(b) Shown in liabilities side in Balance Sheet under Current Account.
Financing activities
The information used to construct the cash flow statement comes from the beginning and ending balance
sheets for the period and from the income statement for the period.
FINAL ACCOUNTS WITH ADJUSTMENT
There are several items which need adjustment at the time of preparing the final accounts. Some of the
important and common adjustments are listed below:
(1) Closing Stock: Unsold stock at the end of the year, it is known as closing stock.
Closing Stock Dr.
To Trading A/c
Treatment in Final Accounts:
(a) shown in credit side in Trading A/c
(b) shown in Balance Sheet in Asset side.
(2) Outstanding expenses:
Those expenses are relating in current year but not paid in current year, is known as
O/S expenses.
(a) Added to relating expenses in trading and P& L A/c
(b) Shown in liabilities side in Balance Sheet under Current Account.
(3) Prepaid expenses:
Those expenses which are related to next year but paid in the current year are called prepaid
expenses.
Adj. Entry:
Prepaid Expenses A/c Dr.
To Expenses
Accounting treatment:
(a) Subtracted from relating expenses in Trading and P & L Accounts.
(b) Shown in Balance Sheet in assets side under the head Current Assets.
(4) Accrued income:
Those incomes are relating to current year but not received in current it is known as Accrued
income.
Adj. Entry:
Accrued Income A/c Dr.
To Income
Accounting treatment:
(a) Added to the relating income in Profit and Loss A/c.
Those expenses which are related to next year but paid in the current year are called prepaid
expenses.
Adj. Entry:
Prepaid Expenses A/c Dr.
To Expenses
Accounting treatment:
(a) Subtracted from relating expenses in Trading and P & L Accounts.
(b) Shown in Balance Sheet in assets side under the head Current Assets.
(4) Accrued income:
Those incomes are relating to current year but not received in current it is known as Accrued
income.
Adj. Entry:
Accrued Income A/c Dr.
To Income
Accounting treatment:
(a) Added to the relating income in Profit and Loss A/c.
(b) Shown in Balance Sheet on assets side under the head Current Assets.
(5) Income received in advance or unearned income: Those income does not relating to current year
but received in current year. It is called unearned income.
Adj. Entry:
Income A/c Dr.
To Unearned Income
Accounting treatment:
Deducted from relating income in the P/L A/c
(a) Shown on the liabilities side under the head Current Liabilities.
(6) Depreciation:
It means decrease in the value of fixed assets due to their usage and the passage of
time.
Depreciation A/c Dr.
To Particular Assets
Accounting treatment:
(a) Shown in debit side of P & L Accounts.
(b) Deducted from concerned assets in the Balance Sheet.
(7) Interest on capital
(5) Income received in advance or unearned income: Those income does not relating to current year
but received in current year. It is called unearned income.
Adj. Entry:
Income A/c Dr.
To Unearned Income
Accounting treatment:
Deducted from relating income in the P/L A/c
(a) Shown on the liabilities side under the head Current Liabilities.
(6) Depreciation:
It means decrease in the value of fixed assets due to their usage and the passage of
time.
Depreciation A/c Dr.
To Particular Assets
Accounting treatment:
(a) Shown in debit side of P & L Accounts.
(b) Deducted from concerned assets in the Balance Sheet.
(7) Interest on capital
Interest on capital expenses for business. It is calculated on capital a fixed or given rate of
interest.
Interest on capital A/c Dr.
To Capital A/c
Accounting treatment:
(a) Shown in debit side in Profit & Loss A/c.
(b) Added in capital in Balance Sheet in liability side.
(8) Interest on Drawing
It is income for business or firm, so will be credited.
Drawing A/c Dr.
To Interest on Drawing
Accounting treatment:
(a) Shown in credit in Profit and Loss Account
(b) Deducted from capital in the liabilities of Balance Sheet.
(9) Interest on Loan:
Interest on loan expenses for business or firm. So will be debited.
If paid, Interest on loan A/c Dr.
interest.
Interest on capital A/c Dr.
To Capital A/c
Accounting treatment:
(a) Shown in debit side in Profit & Loss A/c.
(b) Added in capital in Balance Sheet in liability side.
(8) Interest on Drawing
It is income for business or firm, so will be credited.
Drawing A/c Dr.
To Interest on Drawing
Accounting treatment:
(a) Shown in credit in Profit and Loss Account
(b) Deducted from capital in the liabilities of Balance Sheet.
(9) Interest on Loan:
Interest on loan expenses for business or firm. So will be debited.
If paid, Interest on loan A/c Dr.
To Bank
P & L A/c Dr.
To Interest on Loan A/c
If not paid, O/S then, same entry.
Same adjustment of outstanding expenses.
(10) Bad debts:
When a debtor may fail to his debt either partially or completely. The amount of debt
which cannot be recovered from debtor is called bad debts. It will be a loss to the business.
Bad debts A/c Dr.
To Debtors
If the Bad debts given outside the Trial Balance.
Entry passed above.
Such additional bad debts called further bad debts.
Accounting treatment
(a) Debit side in P & L A/c
(b) Deducted from Sundry Debtors.
P & L A/c Dr.
To Interest on Loan A/c
If not paid, O/S then, same entry.
Same adjustment of outstanding expenses.
(10) Bad debts:
When a debtor may fail to his debt either partially or completely. The amount of debt
which cannot be recovered from debtor is called bad debts. It will be a loss to the business.
Bad debts A/c Dr.
To Debtors
If the Bad debts given outside the Trial Balance.
Entry passed above.
Such additional bad debts called further bad debts.
Accounting treatment
(a) Debit side in P & L A/c
(b) Deducted from Sundry Debtors.
(11) Provision for Bad debts:
Such a provision is made by debiting to the doubtful debts to the Profit and Loss A/c.
Profit and Loss A/c Dr.
To Provision for Bad Debts
(12) Provision for Discount on Debtors:
Adjustment Entry:
Profit and Loss A/c Dr.
To Provision for Discount on Debtors
Accounting treatment
(a) Shown in debit side in P & L A/c.
(b) Deducted from Debtors in Balance Sheet in Assets.
(13) Provision for Discount on Creditors:
Provision for Discount on Creditors Dr.
To Profit and Loss A/c
Such a provision is made by debiting to the doubtful debts to the Profit and Loss A/c.
Profit and Loss A/c Dr.
To Provision for Bad Debts
(12) Provision for Discount on Debtors:
Adjustment Entry:
Profit and Loss A/c Dr.
To Provision for Discount on Debtors
Accounting treatment
(a) Shown in debit side in P & L A/c.
(b) Deducted from Debtors in Balance Sheet in Assets.
(13) Provision for Discount on Creditors:
Provision for Discount on Creditors Dr.
To Profit and Loss A/c
Accounting treatment
(a) On credit side of P & L A/c.
(b) Deducted from Creditors in liabilities of Balance Sheet.
(14) Manager’s Commission:
Sometimes, the manager may also be entitled to a commission on profit earned by the
business. Such commission is usually calculated as a fixed percentage on profit.
Commission = % Rate X Net Profit before commission
Rate + 100
(15) Drawing of Goods by the proprietor:
Drawing A/c Dr.
To Purchases
Illustration: From the following Trial Balance of Gupta & Sons, prepare Trading and Profit and Loss
Account for the year ended December 31, 2014 and a Balance Sheet as on that date.
Trial Balance
(a) On credit side of P & L A/c.
(b) Deducted from Creditors in liabilities of Balance Sheet.
(14) Manager’s Commission:
Sometimes, the manager may also be entitled to a commission on profit earned by the
business. Such commission is usually calculated as a fixed percentage on profit.
Commission = % Rate X Net Profit before commission
Rate + 100
(15) Drawing of Goods by the proprietor:
Drawing A/c Dr.
To Purchases
Illustration: From the following Trial Balance of Gupta & Sons, prepare Trading and Profit and Loss
Account for the year ended December 31, 2014 and a Balance Sheet as on that date.
Trial Balance
Name to the Account Debit Balances Credit Balances
Rs. Rs.
Capital 500,000
Sales 1,000,000
Sales Returns 25,000
Purchases 500,000
Purchases Returns 15,000
Inventory as on1.1.87 60,000
Land & Buildings 400,000
Plant & Machinery 300,000
Furniture 100,000
Wages 50,000
Carriage Inwards 10,000
Provision for Bad Debts 7,000
Carriage Outwards 5,000
Cartage 5,000
Salaries 40,000
Loan 260,000
Debtors 150,000
Creditors 70,000
Rent 8,000
Bills Receivable 40,000
Acceptance 10,000
General Expenses 20,000
Rent & Rates 10,000
Investments 50,000
Cash in hand 50,000
Bank Overdraft 10,000
Discount 4,500
Bad Debts 5,000
Interest on Investments 5,000
Interest on Bank Overdraft 500
Goodwill 60,000
Total 18,85,000 18,85,000
Additional Information:
Rs. Rs.
Capital 500,000
Sales 1,000,000
Sales Returns 25,000
Purchases 500,000
Purchases Returns 15,000
Inventory as on1.1.87 60,000
Land & Buildings 400,000
Plant & Machinery 300,000
Furniture 100,000
Wages 50,000
Carriage Inwards 10,000
Provision for Bad Debts 7,000
Carriage Outwards 5,000
Cartage 5,000
Salaries 40,000
Loan 260,000
Debtors 150,000
Creditors 70,000
Rent 8,000
Bills Receivable 40,000
Acceptance 10,000
General Expenses 20,000
Rent & Rates 10,000
Investments 50,000
Cash in hand 50,000
Bank Overdraft 10,000
Discount 4,500
Bad Debts 5,000
Interest on Investments 5,000
Interest on Bank Overdraft 500
Goodwill 60,000
Total 18,85,000 18,85,000
Additional Information:
1. The value of inventory on December 31, 2014 was Rs. 1,00,000.
2. Depreciation is to be provided on: Land & Building @ 5% p.a. Furniture @ 10% p.a., Plant &
Machinery Rs. 50,000.
3. Provision for Bad Debts is to be maintained @5% on debtors.
4. Wages are outstanding to the extent of Rs. 4,000 and Salaries to the extent of Rs. 3,000
5. Interest on Investment outstanding is Rs. 1,000.
6. Rent to the extent of Rs. 2,000 has been received in advance.
Solutions:
Trading & Profit and Loss Account
for the year ended December 31, 2014
Particulars Amount Particulars Amount
Rs. Rs. Rs. Rs.
To Inventory as on 1.1.14 60,000 By Sales 10,00,000
To Purchases 5,00,000 Less: Sales Returns 25,000 9,75,000
Less: Purchases Returns 15,000 4,85,000 By Inventory as on 31.12.14 1,00,000
To Wages 50,000
Add: Wages Outstanding 4,000 54,000
To Carriage Inwards 10,000
To Cartage 5,000
To Gross Profit c/d 461,000
10,75,000 10,75,000
To Carriage Outwards 5,000 By Gross Profit b/d 4,61,000
To Salaries 40,000 By Rent 8,000
Add: Outstanding 3,000 43,000 Less: Received in Advance 2,000 6,000
To General Expenses 20,000 By Interest on Investment 5,000
To Rent & Rates 10,000 Add: Outstanding 1,000 6,000
Less: Prepaid 2,500 7,500
To Discount Allowed 4,500
To Bad Debts 5,000
Add: New Provision 7,500
12,500
Less: Old Provision 7,000 5,500
To Depreciation on Plant &
Machinery 50,000
To Interest on Overdraft 500
2. Depreciation is to be provided on: Land & Building @ 5% p.a. Furniture @ 10% p.a., Plant &
Machinery Rs. 50,000.
3. Provision for Bad Debts is to be maintained @5% on debtors.
4. Wages are outstanding to the extent of Rs. 4,000 and Salaries to the extent of Rs. 3,000
5. Interest on Investment outstanding is Rs. 1,000.
6. Rent to the extent of Rs. 2,000 has been received in advance.
Solutions:
Trading & Profit and Loss Account
for the year ended December 31, 2014
Particulars Amount Particulars Amount
Rs. Rs. Rs. Rs.
To Inventory as on 1.1.14 60,000 By Sales 10,00,000
To Purchases 5,00,000 Less: Sales Returns 25,000 9,75,000
Less: Purchases Returns 15,000 4,85,000 By Inventory as on 31.12.14 1,00,000
To Wages 50,000
Add: Wages Outstanding 4,000 54,000
To Carriage Inwards 10,000
To Cartage 5,000
To Gross Profit c/d 461,000
10,75,000 10,75,000
To Carriage Outwards 5,000 By Gross Profit b/d 4,61,000
To Salaries 40,000 By Rent 8,000
Add: Outstanding 3,000 43,000 Less: Received in Advance 2,000 6,000
To General Expenses 20,000 By Interest on Investment 5,000
To Rent & Rates 10,000 Add: Outstanding 1,000 6,000
Less: Prepaid 2,500 7,500
To Discount Allowed 4,500
To Bad Debts 5,000
Add: New Provision 7,500
12,500
Less: Old Provision 7,000 5,500
To Depreciation on Plant &
Machinery 50,000
To Interest on Overdraft 500
To Depreciation
Land & Building 20,000
Furniture 10,000 30,000
To Net Profit (transferred
to Capital Account) 307,000
4,73,000 4,73,000
Balance Sheet as on December 31, 2014
Liabilities Amount Assets Amount
Rs. Rs. Rs. Rs.
Capital Fixed Assets
Balance 5,00,000 Goodwill 60,000
Add: Net Profit 3,07,000 8,07,000 Land & Building 4,00,000
Less: Depreciation 20,000 3,80,000
Long Term Liabilities Plant & Machinery 3,00,000
Loan 2,60,000 Less: Depreciation 50,000 2,50,000
Current Liabilities Furniture 1,00,000
Creditors 70,000 Less: Depreciation 10,000 90,000
Acceptances 10,000
Bank Overdraft 10,000 Investment 50,000
Wages Outstanding 4,000 Current Assets
Salaries Outstanding 3,000 Cash in hand 50,000
Rent Received in Advance 2,000 Debtors
Less: Provision for Bad
Debts
Bills Receivable 40,000
Closing Stock 1,00,000
Prepaid Rent & Rates 2,500
Interest on Investment Outstanding 1,000
11,66,000 11,66,000
Land & Building 20,000
Furniture 10,000 30,000
To Net Profit (transferred
to Capital Account) 307,000
4,73,000 4,73,000
Balance Sheet as on December 31, 2014
Liabilities Amount Assets Amount
Rs. Rs. Rs. Rs.
Capital Fixed Assets
Balance 5,00,000 Goodwill 60,000
Add: Net Profit 3,07,000 8,07,000 Land & Building 4,00,000
Less: Depreciation 20,000 3,80,000
Long Term Liabilities Plant & Machinery 3,00,000
Loan 2,60,000 Less: Depreciation 50,000 2,50,000
Current Liabilities Furniture 1,00,000
Creditors 70,000 Less: Depreciation 10,000 90,000
Acceptances 10,000
Bank Overdraft 10,000 Investment 50,000
Wages Outstanding 4,000 Current Assets
Salaries Outstanding 3,000 Cash in hand 50,000
Rent Received in Advance 2,000 Debtors
Less: Provision for Bad
Debts
Bills Receivable 40,000
Closing Stock 1,00,000
Prepaid Rent & Rates 2,500
Interest on Investment Outstanding 1,000
11,66,000 11,66,000
Illustration: From the following balances extracted from the book of Aristo Ltd., prepare a Trading and
Profit & Loss Account for the year ended December 31, 2014 and a Balance Sheet as on that date.
Trial Balance
Name to the Account Debit Balances Credit Balances
Rs. Rs.
Capital 2,00,000
Sales 5,00,000
Sales Returns 10,000
Purchases 2,00,000
Purchases Returns 10,000
Stock on 1.1.14 40,000
Land & Buildings 2,00,000
Plant & Machinery 1,00,000
Wages 25,000
Furniture 50,000
Provision for Bad Debts 5,000
Salaries 25,000
Debtors 82,000
Creditors 1,00,000
Bad Debts 3,000
Bills Payable 30,000
Investments 50,000
General Expenses 20,000
Cash in hand 5,000
Cash at Bank 15,000
Depreciation on Land & Buildings 20,000
8,45,000 8,45,000
Additional Information
Profit & Loss Account for the year ended December 31, 2014 and a Balance Sheet as on that date.
Trial Balance
Name to the Account Debit Balances Credit Balances
Rs. Rs.
Capital 2,00,000
Sales 5,00,000
Sales Returns 10,000
Purchases 2,00,000
Purchases Returns 10,000
Stock on 1.1.14 40,000
Land & Buildings 2,00,000
Plant & Machinery 1,00,000
Wages 25,000
Furniture 50,000
Provision for Bad Debts 5,000
Salaries 25,000
Debtors 82,000
Creditors 1,00,000
Bad Debts 3,000
Bills Payable 30,000
Investments 50,000
General Expenses 20,000
Cash in hand 5,000
Cash at Bank 15,000
Depreciation on Land & Buildings 20,000
8,45,000 8,45,000
Additional Information
1. The inventory on 31.12.2014 has been valued at Rs. 80,000. The inventory of the value of Rs.
20,000 was destroyed by fire on 1.12.2014 and a claim of Rs. 15,000 was admitted by the
insurance company.
2. Depreciation is to be provided on Plant & Machinery and furniture at 10 per anum.
3. Debtors are bad to time extent of Rs. 2,000. Provision for bad debts is to be made at 5% on
debtors and a provision for discount on debtors at 2%.
4. Wages are outstanding to the extent of Rs. 5,000.
5. Salaries are prepaid to the extent of Rs 2,000.
6. Create a provision for discount on creditors at the rate of
7. Create a provision for repairs to the extent of Rs. 4,000.
Solution:
Trading & Profit and Loss Account
for the year ended December 31,2014
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs. Rs.
To Opening Stock 40,000 By Sales 5,00,000
To Purchases 2,00,000 Less: Sales Returns 10,000 4,90,000
Less: Purchases Returns 10,000 1,90,000
By Closing Stock 80,000
To Wages 25,000 By Loss by Fire 20,000
Add: Outstanding 5,000 30,000
To Gross Profit c/d 3,30,000
5,90,000 5,90,000
To Salaries 25,000
Less: Prepaid 2,000 23,000 By Gross Profit b/d 3,30,000
By Provision for Discount on
Creditors
1,000
To Bad Debts 3,000
Add: Further Bad Debts 2,000
Add: New Provision 4,000
9,000
Less: Old Provision 5,000 4,000
To General Expenses 20,000
20,000 was destroyed by fire on 1.12.2014 and a claim of Rs. 15,000 was admitted by the
insurance company.
2. Depreciation is to be provided on Plant & Machinery and furniture at 10 per anum.
3. Debtors are bad to time extent of Rs. 2,000. Provision for bad debts is to be made at 5% on
debtors and a provision for discount on debtors at 2%.
4. Wages are outstanding to the extent of Rs. 5,000.
5. Salaries are prepaid to the extent of Rs 2,000.
6. Create a provision for discount on creditors at the rate of
7. Create a provision for repairs to the extent of Rs. 4,000.
Solution:
Trading & Profit and Loss Account
for the year ended December 31,2014
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs. Rs.
To Opening Stock 40,000 By Sales 5,00,000
To Purchases 2,00,000 Less: Sales Returns 10,000 4,90,000
Less: Purchases Returns 10,000 1,90,000
By Closing Stock 80,000
To Wages 25,000 By Loss by Fire 20,000
Add: Outstanding 5,000 30,000
To Gross Profit c/d 3,30,000
5,90,000 5,90,000
To Salaries 25,000
Less: Prepaid 2,000 23,000 By Gross Profit b/d 3,30,000
By Provision for Discount on
Creditors
1,000
To Bad Debts 3,000
Add: Further Bad Debts 2,000
Add: New Provision 4,000
9,000
Less: Old Provision 5,000 4,000
To General Expenses 20,000
To Depreciation on Land &
Buildings
20,000
To Loss by Fire 5,000
To Depreciation on Plant &
Machinery
10,000
To Depreciation on Furniture 5,000
To Provision for Discount on
Debtors
1,520
To Provision for Repairs 4,000
To Net Profit (transferred to
Balance Sheet)
2,38,480
3,31,000 3,31,000
Balance Sheet as on December 31, 2014
Liabilities Amount Assets Amount
Rs. Rs. Rs. Rs.
Capital 2,00,000 Land & Buildings 2,00,000
Add: Net Profit 2,38,000
4,38,480 Plant & Machinery 1,00,000
Creditor 1,00,000 Less: Depreciation 10,000 90,000
Less: Provision for Discount 1,000 99,000 Furniture 50,000
Less: Depreciation 5,000 45,000
Bills Payable 30,000
Wages Outstanding 5,000 Investments 50,000
Provision for Repairs 4,000 Cash in hand 5,000
Cash at bank 15,000
Closing Stock 80,000
Debtors 82,000
Less: Further Bad Debts 2,000
80,000
Less: Provision for Bad debts 4,000
76,000
Less: Provision for Discount 1,520 74,480
Insurance Claim 15,000
Salaries Prepaid 2,000
576,480 576,480
Buildings
20,000
To Loss by Fire 5,000
To Depreciation on Plant &
Machinery
10,000
To Depreciation on Furniture 5,000
To Provision for Discount on
Debtors
1,520
To Provision for Repairs 4,000
To Net Profit (transferred to
Balance Sheet)
2,38,480
3,31,000 3,31,000
Balance Sheet as on December 31, 2014
Liabilities Amount Assets Amount
Rs. Rs. Rs. Rs.
Capital 2,00,000 Land & Buildings 2,00,000
Add: Net Profit 2,38,000
4,38,480 Plant & Machinery 1,00,000
Creditor 1,00,000 Less: Depreciation 10,000 90,000
Less: Provision for Discount 1,000 99,000 Furniture 50,000
Less: Depreciation 5,000 45,000
Bills Payable 30,000
Wages Outstanding 5,000 Investments 50,000
Provision for Repairs 4,000 Cash in hand 5,000
Cash at bank 15,000
Closing Stock 80,000
Debtors 82,000
Less: Further Bad Debts 2,000
80,000
Less: Provision for Bad debts 4,000
76,000
Less: Provision for Discount 1,520 74,480
Insurance Claim 15,000
Salaries Prepaid 2,000
576,480 576,480
Notes:
1. Depreciation on land & Buildings is given in the Trial Balance. Hence, it is shown in the
Profit and Loss Account only.
2. Provision for Bad Debts has been calculated at 5% on debtors after subtracting further bad
debts.
3. Provision for Discount on Debtors has been calculated at 2% on debtors after subtracting
further bad debts as well as provision for bad debts.
4. Loss by fire has been charged to Profit and Loss Account after taking into consideration
the claim from insurance company.
1. Depreciation on land & Buildings is given in the Trial Balance. Hence, it is shown in the
Profit and Loss Account only.
2. Provision for Bad Debts has been calculated at 5% on debtors after subtracting further bad
debts.
3. Provision for Discount on Debtors has been calculated at 2% on debtors after subtracting
further bad debts as well as provision for bad debts.
4. Loss by fire has been charged to Profit and Loss Account after taking into consideration
the claim from insurance company.
MCQ ON FINAL ACCOUNTS
1). The Balance Sheet is based on Accounting Model:
A. Assets= Equity + Liabilities
B. Assets= Equity - Liabilities
C. Goodwill + Plants= Liabilities
D. Equity+ Assets=Liabilities
2).Capital Account is
A. Real Account
B. Personal Account
C. Nominal Account
D. Fictitious Account
3).”Debit what comes in and credit what goes out” rule is applicable in
A. Real Account
B. Personal Account
C. Nominal Account
D. Fictitious Account
4). Heading of Balance Sheet of X will be shown as :
A. Balance Sheet of X as on/at 31.03.2015
B. Balance Sheet of X for 31.03.2015
C. Balance Sheet of X of 31.03.2015
D. Balance Sheet of X for the year ending on 31.03.2015
5). Goodwill is
A. Tangible Assets
B. Current Assets
C. Intangible Assets
D. None of the above.
Ans:1-A, 2-B, 3-A, 4-A, 5-C
1). The Balance Sheet is based on Accounting Model:
A. Assets= Equity + Liabilities
B. Assets= Equity - Liabilities
C. Goodwill + Plants= Liabilities
D. Equity+ Assets=Liabilities
2).Capital Account is
A. Real Account
B. Personal Account
C. Nominal Account
D. Fictitious Account
3).”Debit what comes in and credit what goes out” rule is applicable in
A. Real Account
B. Personal Account
C. Nominal Account
D. Fictitious Account
4). Heading of Balance Sheet of X will be shown as :
A. Balance Sheet of X as on/at 31.03.2015
B. Balance Sheet of X for 31.03.2015
C. Balance Sheet of X of 31.03.2015
D. Balance Sheet of X for the year ending on 31.03.2015
5). Goodwill is
A. Tangible Assets
B. Current Assets
C. Intangible Assets
D. None of the above.
Ans:1-A, 2-B, 3-A, 4-A, 5-C
Deduction of Income Tax on Salary, Contractor & Sub Contractor
At the time of making any payment, TDS is required to be deducted by the person making the payment.
The rate of TDS depends on the nature of payment made and in this article, we would be focusing on
Section 194C which deals with TDS on Payment to Contractor & Sub-Contractor.
There are various other sections under which TDS is deducted on other types of payments and for TDS
on such other types of payments kindly refer the following article:-
Section 192: TDS on Salary
Section 194A: TDS on Fixed Deposit
Section 194H: TDS on Commission/Brokerage
Section 1941: TDS on Rent
Section 1941A: TDS on Property Sale
Section 194J: TDS on Professional/Technical Fees
TDS on Recurring Deposit
Section 194C: TDS on Payment to Contractor
Any person responsible for paying any sum to a resident contractor for carrying out any work (incl.
Supply of labor for carrying out any work) under a contract shall deduct TDS on payment to contractor
under Section 194 C at the time of such payment thereof in cash or by issue of cheque or draft or by
whatever name called, whichever happens earlier.
The TDS on Payment to Contractor under Section 194C shall be deducted at the below mentioned
rates:-
1% if the payment is being made to Individual or HUF
2% in all other cases (i.e. cases except payment to Individual or HUF)
TDS on Payment to Sub-contractor
If a payment is being made to any resident sub-contractor in pursuance of a contract with the sub-
contractor for carrying out, or for the supply of labor for carrying out, the whole or any part of the work
undertaken by the contractor, TDS shall be deducted @1% on the gross amount of receipt at the time of
payment in cash or issue of cheque or by demand draft or through any other mode (whichever is
earlier).
At the time of making any payment, TDS is required to be deducted by the person making the payment.
The rate of TDS depends on the nature of payment made and in this article, we would be focusing on
Section 194C which deals with TDS on Payment to Contractor & Sub-Contractor.
There are various other sections under which TDS is deducted on other types of payments and for TDS
on such other types of payments kindly refer the following article:-
Section 192: TDS on Salary
Section 194A: TDS on Fixed Deposit
Section 194H: TDS on Commission/Brokerage
Section 1941: TDS on Rent
Section 1941A: TDS on Property Sale
Section 194J: TDS on Professional/Technical Fees
TDS on Recurring Deposit
Section 194C: TDS on Payment to Contractor
Any person responsible for paying any sum to a resident contractor for carrying out any work (incl.
Supply of labor for carrying out any work) under a contract shall deduct TDS on payment to contractor
under Section 194 C at the time of such payment thereof in cash or by issue of cheque or draft or by
whatever name called, whichever happens earlier.
The TDS on Payment to Contractor under Section 194C shall be deducted at the below mentioned
rates:-
1% if the payment is being made to Individual or HUF
2% in all other cases (i.e. cases except payment to Individual or HUF)
TDS on Payment to Sub-contractor
If a payment is being made to any resident sub-contractor in pursuance of a contract with the sub-
contractor for carrying out, or for the supply of labor for carrying out, the whole or any part of the work
undertaken by the contractor, TDS shall be deducted @1% on the gross amount of receipt at the time of
payment in cash or issue of cheque or by demand draft or through any other mode (whichever is
earlier).
Minimum Amount of Payment for Deduction of TDS under Section
194 C
If a payment that is being made to the contractor does not exceed Rs. 30,000, No TDS on payment to
contractor is required to be deducted. However, if the total of all such payments made or to be made
during a financial year exceeds Rs. 75, 000; TDS shall be deducted under Section 194C at the rates
mentioned above.
The limit for Rs. 30,000/- Rs. 75,000 was increased from Rs. 20,000/Rs. 50,000 by Finance Act 2010.
The criteria for minimum amount to be paid for TDS Deduction have been explained below with the help
of a few exemplary cases:-
Case Particulars TDS to be deducted or not
Case 1 Single contract of Rs. 30, 000 in a year No
Case 2 Two contracts of Rs. 30,000 each in the year No
Case 3 Three contracts of Rs. 30,000 each in the year Yes, TDS to be deducted on Rs. 90,000
Case 4 Single contract of Rs. 40, 000 in a year Yes
Case 5 Five contracts of Rs. 15,000 each in the year No
Case 6 Six contracts of Rs. 15,000 each in the year Yes, TDS to be deducted on Rs. 90,000
The Amount of TDS Deducted on payment to Contractor is required to be deposited with the Govt.
before the due date of TDS Payment. A TDS Return is also required to be filed for the same stating the
amount of TDS deducted, the TAN Number of the person making the payment, the PAN No. of the
person receiving the payment etc.
The person deducting the TDS on Payment to Contractor is also required to issue Form 16A/Form 16B at
the end of the year for the amount of TDS deducted and deposited with the govt. The details of TDS
deposited can also be checked by the person whose TDS has been deducted by checking the Form26AS
online.
Exceptions to deduction of TDS on payment to Contractor under
Section 194 C
In the following case, No TDS on payment to contractor is required to be deducted under Section 194C
and the person responsible for making the payment can make full payment without deduction of any
TDS:-
1. If the payment is being made by a category of taxpayer who is not required to get their tax audit
conducted under Section 44AB; No TDS on payment to contractor shall be deducted under
Section 194 C.
194 C
If a payment that is being made to the contractor does not exceed Rs. 30,000, No TDS on payment to
contractor is required to be deducted. However, if the total of all such payments made or to be made
during a financial year exceeds Rs. 75, 000; TDS shall be deducted under Section 194C at the rates
mentioned above.
The limit for Rs. 30,000/- Rs. 75,000 was increased from Rs. 20,000/Rs. 50,000 by Finance Act 2010.
The criteria for minimum amount to be paid for TDS Deduction have been explained below with the help
of a few exemplary cases:-
Case Particulars TDS to be deducted or not
Case 1 Single contract of Rs. 30, 000 in a year No
Case 2 Two contracts of Rs. 30,000 each in the year No
Case 3 Three contracts of Rs. 30,000 each in the year Yes, TDS to be deducted on Rs. 90,000
Case 4 Single contract of Rs. 40, 000 in a year Yes
Case 5 Five contracts of Rs. 15,000 each in the year No
Case 6 Six contracts of Rs. 15,000 each in the year Yes, TDS to be deducted on Rs. 90,000
The Amount of TDS Deducted on payment to Contractor is required to be deposited with the Govt.
before the due date of TDS Payment. A TDS Return is also required to be filed for the same stating the
amount of TDS deducted, the TAN Number of the person making the payment, the PAN No. of the
person receiving the payment etc.
The person deducting the TDS on Payment to Contractor is also required to issue Form 16A/Form 16B at
the end of the year for the amount of TDS deducted and deposited with the govt. The details of TDS
deposited can also be checked by the person whose TDS has been deducted by checking the Form26AS
online.
Exceptions to deduction of TDS on payment to Contractor under
Section 194 C
In the following case, No TDS on payment to contractor is required to be deducted under Section 194C
and the person responsible for making the payment can make full payment without deduction of any
TDS:-
1. If the payment is being made by a category of taxpayer who is not required to get their tax audit
conducted under Section 44AB; No TDS on payment to contractor shall be deducted under
Section 194 C.
2. In case a payment is being made by an Individual or HUF for the personal use of such individual
or a member of HUF, no TDS shall be deducted in such a case.
3. If the payment is being made in the course of business of plying, hiring or leasing goods
carriages, NO TDS is required to be deducted if the sub-contractor is an Individual who has not
owned more than 2 goods carriages at any time during the year.
4. NO TDS shall be deducted on payments made to travel agents or airlines for purchase of tickets
for air travel.
Income Tax Slabs and Rates for the Assessment Year 2015-16 (applicable on income earned
during 01.04.2014 to 31.03.2015) for various categories of Indian Income Tax payers.
I. Individual resident aged below 60 years (i.e. born on or after 1
st
April 1955) or any
NRI/HUF/AOP/BOI/AJP*
Income Tax:
Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 2, 50,000/. NIL
ii.
Where the taxable income exceeds Rs. 2,50,000/- but does not
exceed Rs. 5, 00 000/-
10% of amount by which the taxable income
exceeds Rs. 2,50,000.-
Less (in case of Resident individuals only) Tax
Credit u/s 87 A-10% taxable income upto a
maximum of Rs. 2000/-
iii.
Where the taxable income exceeds Rs. 5,00,000/- but does not
exceed Rs. 10, 00 000/-
Rs. 25,000/-+20% of the amount by which the
taxable income exceeds RS.5,00,000/-
iv. Where the taxable income exceeds Rs. 10,00,000/-
Rs.125,000/- +30% of the amount by which the
taxable exceeds Rs. 10,00,000/-
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in
Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
*Abbreviations used :
NRI – Non Resident Individual; HUF – Hindu Undivided Family; AOP – Association of Persons; BOI –
Body of Individuals; AJP – Artificial Judicial Person
II. Senior Citizen (Individual resident who is of the age of 60 years or more but below the age of 80
Years at any time during the previous year i.e. born on or after 1
st
April 1934 but before 1
st
April
1954)
or a member of HUF, no TDS shall be deducted in such a case.
3. If the payment is being made in the course of business of plying, hiring or leasing goods
carriages, NO TDS is required to be deducted if the sub-contractor is an Individual who has not
owned more than 2 goods carriages at any time during the year.
4. NO TDS shall be deducted on payments made to travel agents or airlines for purchase of tickets
for air travel.
Income Tax Slabs and Rates for the Assessment Year 2015-16 (applicable on income earned
during 01.04.2014 to 31.03.2015) for various categories of Indian Income Tax payers.
I. Individual resident aged below 60 years (i.e. born on or after 1
st
April 1955) or any
NRI/HUF/AOP/BOI/AJP*
Income Tax:
Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 2, 50,000/. NIL
ii.
Where the taxable income exceeds Rs. 2,50,000/- but does not
exceed Rs. 5, 00 000/-
10% of amount by which the taxable income
exceeds Rs. 2,50,000.-
Less (in case of Resident individuals only) Tax
Credit u/s 87 A-10% taxable income upto a
maximum of Rs. 2000/-
iii.
Where the taxable income exceeds Rs. 5,00,000/- but does not
exceed Rs. 10, 00 000/-
Rs. 25,000/-+20% of the amount by which the
taxable income exceeds RS.5,00,000/-
iv. Where the taxable income exceeds Rs. 10,00,000/-
Rs.125,000/- +30% of the amount by which the
taxable exceeds Rs. 10,00,000/-
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in
Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
*Abbreviations used :
NRI – Non Resident Individual; HUF – Hindu Undivided Family; AOP – Association of Persons; BOI –
Body of Individuals; AJP – Artificial Judicial Person
II. Senior Citizen (Individual resident who is of the age of 60 years or more but below the age of 80
Years at any time during the previous year i.e. born on or after 1
st
April 1934 but before 1
st
April
1954)
Income Tax :
Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 3, 00,000/. NIL
ii.
Where the taxable income exceeds Rs. 3,00,000/- but does not
exceed Rs. 5, 00 000/-
10% of amount by which the taxable income
exceeds Rs. 3,00,000.-
Less : Tax Credit u/s 87 A-10% taxable income
upto a maximum of Rs. 2000/-
iii.
Where the taxable income exceeds Rs. 5,00,000/- but does not
exceed Rs. 10, 00 000/-
Rs. 20,000/-+20% of the amount by which the
taxable income exceeds RS.5,00,000/-
iv. Where the taxable income exceeds Rs. 10,00,000/-
Rs.120,000/- +30% of the amount by which the
taxable exceeds Rs. 10,00,000/-
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in
Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
III. Super Senior Citizen (Individual resident who is of the age of 60 years or more but below the
age of 80 years at any time during the previous year i.e. born on or after 1
st
April 1934.
Income Tax
Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 10,000/. 10% of the income
ii.
Where the taxable income exceeds Rs. 10,000/- but does not
exceed Rs. 20,000/-
Rs. 1,000/- + 20% of income in excess of Rs.
10,000/-
iii. Where the taxable income exceeds Rs. 20,000/-
RS. 3,000/-+30% of the amount by which the
taxable income exceeds Rs. 20,000/-
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore.
(Marginal Relief in Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
IV. Co-operative Society
Income Tax
Income Slabs Tax Rates
Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 3, 00,000/. NIL
ii.
Where the taxable income exceeds Rs. 3,00,000/- but does not
exceed Rs. 5, 00 000/-
10% of amount by which the taxable income
exceeds Rs. 3,00,000.-
Less : Tax Credit u/s 87 A-10% taxable income
upto a maximum of Rs. 2000/-
iii.
Where the taxable income exceeds Rs. 5,00,000/- but does not
exceed Rs. 10, 00 000/-
Rs. 20,000/-+20% of the amount by which the
taxable income exceeds RS.5,00,000/-
iv. Where the taxable income exceeds Rs. 10,00,000/-
Rs.120,000/- +30% of the amount by which the
taxable exceeds Rs. 10,00,000/-
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal Relief in
Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
III. Super Senior Citizen (Individual resident who is of the age of 60 years or more but below the
age of 80 years at any time during the previous year i.e. born on or after 1
st
April 1934.
Income Tax
Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 10,000/. 10% of the income
ii.
Where the taxable income exceeds Rs. 10,000/- but does not
exceed Rs. 20,000/-
Rs. 1,000/- + 20% of income in excess of Rs.
10,000/-
iii. Where the taxable income exceeds Rs. 20,000/-
RS. 3,000/-+30% of the amount by which the
taxable income exceeds Rs. 20,000/-
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore.
(Marginal Relief in Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
IV. Co-operative Society
Income Tax
Income Slabs Tax Rates
i. Where the taxable income does not exceed Rs. 10,000/. 10% of the income
ii.
Where the taxable income exceeds Rs. 10,000/- but does not
exceed Rs. 20,000/-
Rs. 1,000/- + 20% of income in excess of Rs.
10,000/-
iii. Where the taxable income exceeds Rs. 20,000/-
RS. 3,000/-+30% of the amount by which the
taxable income exceeds Rs. 20,000/-
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal
Relief in
Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
V. Firm
Income Tax : 30% of taxable income
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore.
(Relief in surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
VI. Local Authority
Income Tax : 30% of taxable income
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore.
(Marginal Relief in surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
VII. Domestic Company
Income Tax : 30% of taxable income
Surcharge: The amount of income tax as computed in accordance with above rates, and
after being reduced by the amount of tax rebate shall be increased by a surcharge
At the rate of 5 % of such income tax, provided that the taxable income exceeds
Rs. 1 crore.(Marginal Relief in Surcharge, if applicable)
At the rate of 10% of such income tax, provided that the taxable income exceeds
Rs. 1 crore.
Education Cess : 3% of the total of Income Tax and Surcharge.
VIII. Company other than a Domestic Company
Income Tax :
ii.
Where the taxable income exceeds Rs. 10,000/- but does not
exceed Rs. 20,000/-
Rs. 1,000/- + 20% of income in excess of Rs.
10,000/-
iii. Where the taxable income exceeds Rs. 20,000/-
RS. 3,000/-+30% of the amount by which the
taxable income exceeds Rs. 20,000/-
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore. (Marginal
Relief in
Surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
V. Firm
Income Tax : 30% of taxable income
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore.
(Relief in surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
VI. Local Authority
Income Tax : 30% of taxable income
Surcharge : 10% of the Income Tax, where taxable income is more than Rs. 1 crore.
(Marginal Relief in surcharge, if applicable)
Education Cess : 3% of the total of Income Tax and Surcharge
VII. Domestic Company
Income Tax : 30% of taxable income
Surcharge: The amount of income tax as computed in accordance with above rates, and
after being reduced by the amount of tax rebate shall be increased by a surcharge
At the rate of 5 % of such income tax, provided that the taxable income exceeds
Rs. 1 crore.(Marginal Relief in Surcharge, if applicable)
At the rate of 10% of such income tax, provided that the taxable income exceeds
Rs. 1 crore.
Education Cess : 3% of the total of Income Tax and Surcharge.
VIII. Company other than a Domestic Company
Income Tax :
@50% of on so much of the taxable income as consist of (a) royalties received
from Government or an Indian concern in pursuance of an agreement made by
it with the Government or the Indian concern after the 31
st
day of March, 1961
but before the 1
st
day of April, 1976; or (b) fees for rendering technical services
received from Government or an Indian concern in pursuance of an agreement
made by it with the Government or the Indian concern in pursuance of an
agreement made by it with the Government or the Indian concern after the
29
th
day of February, 1964 but before the 1
st
day of April, 1976, and where such
agreement has, in e either case, been approved by the Central Government.
@ 40% of the balance
Surcharge
The amount of income tax as computed in accordance with above rates, and after being
reduced by the amount of tax rebate shall be increased by a surcharge as under
At the rate of 2% of such income tax, provided that the taxable income exceeds Rs.
1 crore. (Marginal Relief in Surcharge, if applicable)
At the rate of 5 % of such income tax, provided that the taxable income exceeds
Rs. 10 crores.
Education Cess : 3% of the total of Income Tax and Surcharge.
Marginal Relief in Surcharge
When an assessee’s taxable income exceeds Rs. 1 crore, he is liable to pay Surcharge at
prescribed rates, mentioned above on Income Tax payable by him. However, the
amount of Income Tax and Surcharge shall not increase the amount of income tax
payable on a taxable income of Rs. 1 crore by more than the amount of increase in
taxable income.
from Government or an Indian concern in pursuance of an agreement made by
it with the Government or the Indian concern after the 31
st
day of March, 1961
but before the 1
st
day of April, 1976; or (b) fees for rendering technical services
received from Government or an Indian concern in pursuance of an agreement
made by it with the Government or the Indian concern in pursuance of an
agreement made by it with the Government or the Indian concern after the
29
th
day of February, 1964 but before the 1
st
day of April, 1976, and where such
agreement has, in e either case, been approved by the Central Government.
@ 40% of the balance
Surcharge
The amount of income tax as computed in accordance with above rates, and after being
reduced by the amount of tax rebate shall be increased by a surcharge as under
At the rate of 2% of such income tax, provided that the taxable income exceeds Rs.
1 crore. (Marginal Relief in Surcharge, if applicable)
At the rate of 5 % of such income tax, provided that the taxable income exceeds
Rs. 10 crores.
Education Cess : 3% of the total of Income Tax and Surcharge.
Marginal Relief in Surcharge
When an assessee’s taxable income exceeds Rs. 1 crore, he is liable to pay Surcharge at
prescribed rates, mentioned above on Income Tax payable by him. However, the
amount of Income Tax and Surcharge shall not increase the amount of income tax
payable on a taxable income of Rs. 1 crore by more than the amount of increase in
taxable income.
Example :
In case of an individual assesseee (<60 years) having taxable income of Rs. 1,00,01,000/-
1 Income Tax Rs. 28, 30,300
2 Surcharge @ 10%of Income Tax Rs. 2,83,030
3 Income Tax on income of Rs. 1 crore Rs. 28,30,000
4
Maximum Surcharge payable
(Income over Rs. 1 crore less income tax on income over
Rs. 1 crore Rs. 700/-(1000-300)
5 Income Tax+Surcharge payable Rs. 28,31,000
6 Marginal Relief in Surcharge Rs. 2,82,330/-(2,83,030-700)
In case of an individual assesseee (<60 years) having taxable income of Rs. 1,00,01,000/-
1 Income Tax Rs. 28, 30,300
2 Surcharge @ 10%of Income Tax Rs. 2,83,030
3 Income Tax on income of Rs. 1 crore Rs. 28,30,000
4
Maximum Surcharge payable
(Income over Rs. 1 crore less income tax on income over
Rs. 1 crore Rs. 700/-(1000-300)
5 Income Tax+Surcharge payable Rs. 28,31,000
6 Marginal Relief in Surcharge Rs. 2,82,330/-(2,83,030-700)
MCQ on Deduction of Income Tax on Salary, Contractor & Sub Contractor
1). Full form of TDS is ans:A
A. Tax deduction at sources
B. Total diesel system
C. Total dust support
D. None of the above
2).TDS on Salary ans:A
A. Under section 192
B. Under section 193
C. Under section 194
D. Under section 195
3). TDS on contractor ans:C
A. Under section 194 A
B. Under section 194 B
C. Under section 194 C
D. Under section 194 D
4.) Rate of TDS on sub contractor is ans:A
A. 1%
B. 2%
C. 3%
D. 4%
5.) The amount of tax rebate shall be increased by a surcharge at the rate of 10% ans:A
A. If taxable income exceeds Rs. One crore
B. If taxable income exceeds Rs. two crore
C. If taxable income exceeds Rs. three crore
D. If taxable income exceeds Rs. five crore
1). Full form of TDS is ans:A
A. Tax deduction at sources
B. Total diesel system
C. Total dust support
D. None of the above
2).TDS on Salary ans:A
A. Under section 192
B. Under section 193
C. Under section 194
D. Under section 195
3). TDS on contractor ans:C
A. Under section 194 A
B. Under section 194 B
C. Under section 194 C
D. Under section 194 D
4.) Rate of TDS on sub contractor is ans:A
A. 1%
B. 2%
C. 3%
D. 4%
5.) The amount of tax rebate shall be increased by a surcharge at the rate of 10% ans:A
A. If taxable income exceeds Rs. One crore
B. If taxable income exceeds Rs. two crore
C. If taxable income exceeds Rs. three crore
D. If taxable income exceeds Rs. five crore
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