Panchayat Accounts Assistant Marks: 30

Syllabus of Panchayat Accounts Assistant Accountancy &

Book-keeping topic wise
1. Introduction to Financial Accounting & its terms.
2. Double Entry system of Book-keeping.
3. Accounting Equation.
4. Voucher approach in Accounting.
5. Rules of Journalizing.
6. Journal.
7. Cash Book.
8. Ledger Accounts.
9. Trial Balance.
10.Trading Account.
11.Profit & Loss Account.
12.Balance Sheet.
13.Financial Statements.
14.Financial Management.
15.Financial Audit.
16.Bank Reconciliation Statement.
17.Partnership Accounts.
18.Concept of Social Accounting & Social Audit.
19.Single Entry System of Accounting.
20.Public Financial Management System (PFMS).

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 Panchayat Accounts Assistant Marks: 30

Book-keeping & Accounting

➔ The origin of Double entry system of Accounting was originated in Italy when Lucas Pacioli wrote a
book entitled, “DE COMPASET SCRIPUTRIS” (Principles of Double Entry System) in 1494. Later on in
16th century this system was developed in England.
➔ The (ICAI), Institute of Chartered Accountants of India (1949) & Companies Act, 1956 helped in the
development of professional accountants in India.
➔ Accounting is the Language of Business.
➔ Accounting serves as an information system & Data Bank.
➔ Accounting is the systematic process of preparing & presenting books of accounts to know about the
financial performance/results & financial position of business.
➔ Accounting process consists of Identifying, Measuring, Recording, Classifying, Summarizing,
Analysing, Interpreting & communicating the financial performance & financial position of business
to the interested parties.
➔ Accounting begins where book-keeping starts.
➔ Book-keeping is part of Accounting concerned with Identifying, Measuring, Recording, Classifying &
Summarizing to have the systematic record of all business transactions.
➔ The main objective of book-keeping is the systematic record of all business transactions.
➔ The main objective of Accounting is to know about the financial performance/results (Profit/Loss) &
financial position (Assets/Liabilities) of business.
➔ The main objective of trial balance is to check the arithmetical accuracy of books of Accounts.
➔ Accounting has 3 branches: Financial, Cost & Management Accounting.
➔ The main concern of Financial Accounting is Systematic Record of all business transactions & Financial
Results/Performance (Profit/Loss) & Financial Position (Assets & Liabilities).
➔ The main concern of Cost Accounting is Cost determination, Cost Control &Cost reduction.
➔ The main concern of Management Accounting is to provide information for taking managerial decisions.
➔ Journal, Cash Book, Purchase Book, Sales Book, Purchase Return Book, Sales Return Book, Bills
Receivable Book & Bills Payable Book are known as ‘Primary Books’ or original record.
➔ Ledger is a ‘Principal Book’ of Accounting.
➔ The users of Accounting Information are: Owners, Mangers, Creditors, Shareholders, Financial
Institutions, Potential Investors, Employees, Competitors, Customers, Govt. etc

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 Panchayat Accounts Assistant Marks: 30

➔ Accounting is defined as the systematic process of preparing & presenting the book of accounts so as to
have systematic record of all business transactions, to know about Financial Results/Performance
(Profit/Loss) & Financial Position (Assets & Liabilities). The process of accounting consists of
Identification of business transaction, Measuring identified transactions in terms of money, Recoding,
Classifying, Summarising, Analysing, Interpreting & Communicating. (I,M,R,C,S,A,I,C)
➔ Accounting is the language of business, with Debit & Credit as consonants and Assets, Expenses,
Incomes & outstanding (Liabilities) as vowels.
➔ As a language of business, it is the means of communication between different stakeholders of business
(owners, management, employees, investors, creditors, Govt. etc.) and Business.
➔ Accounting serves as an information system & data bank.
➔ Following is the process of accounting, along with different books of accounts with the objectives of
preparing different books of accounts.

Process of Accounting
Step of Accounting Books Prepared Objective
1. Identifying of business Observational/theoretical steps
transactions & events
2. Measuring in terms of
money
3. Recording Journal Systematic record
4. Classifying Ledger Systematic record
5. Summarizing Trail Balance Check the arithmetical
accuracy
6. Analyzing & Interpreting Trading & P & L A/c financial performance/results
Balance Sheet & financial position
7. Communicating to Owners, management, Decision making, Information
creditors, investors, Govt. etc System & data bank

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 Panchayat Accounts Assistant Marks: 30

Difference between Book-keeping & Accounting

Points of difference Book Keeping Accounting
1. Nature & Scope Book-keeping means & includes Accounting means & includes Book-
Identification, Measuring, keeping plus Analysing, Interpreting
Classifying, Recording & of business transaction &
Summarising of business Communication to concerned users.
transactions.
2. Stage Book-keeping is the primary stage of Accounting starts where book-
accounting. keeping ends.
3. Depends Book-keeping can provide the base of Accounting depends on Book-
Accounting. keeping for its complete functions.
4. Data The necessary data about financial Accounting can take its decisions,
performances and financial positions prepare reports and statements from
are taken from Book-keeping. the data taken from Book-keeping.
5. Objective The primary objective of Book- The primary objective of Accounting
keeping is the systematic record of all is the financial results/performance
business transfusions. & financial position of business.
6. Branches Book-keeping has no branch Accounting has three branches
Financial, Cost & Management
Accounting.
8. Skill It is done by the junior staff because It is done by the senior staff because
nature of work is clerical. nature of work is analytical.

Book-keeping, Accounting & Accountancy

➔ Accountancy is a broader term & includes Book-keeping & Accounting. The art & practice of the
science of accounting is termed as accountancy. It is a discipline, i.e., a branch of knowledge & is a
profession.

Accountancy

Accounting

Book-
keeping

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 Panchayat Accounts Assistant Marks: 30

Users of Accounting Information

Users of Accounting Information
User/Stakeholder Interest in business Accounting Information
1. Owners/Investor Profits or losses Financial statements, Cost Accounting
s/existing and records, Management Accounting
potential reports
2. Lenders Assessment of capability of the Financial statement and analysis thereof,
business to pay interest and valuation of assets given as security.
principal of money lent.
3. Customers and Stability and growth of the Financial and Cash flow statements to
suppliers business assess ability of the business to offer
better business terms and ability to
supply the products and services
4. Government Whether the business is Accounting documents such as
complying with various legal vouchers, extracts of books, information
requirements of purchase, sales, employee obligations
etc. and financial statements
5. Employees and Growth and profitability Financial statements for negotiating pay
trade unions packages
6. Competitors Performance and possible tie-ups Accounting information to find out
in the era of mergers and possible synergies
acquisitions

Objectives of Accounting
The main objective of Accounting is the systematic record of all business transactions & events,
ascertain financial performance & financial and provide information to stakeholders. This financial
information is normally given via financial statements. The following objectives of accounting are as under;

➔ Systematic Record of business transaction

➔ To ascertain the amount of profit or loss (Financial Results/Performance) made by the business
i.e. to compare the income earned versus the expenses incurred and the net result thereof.
➔ To know the financial position (Balance Sheet) of the business i.e. to assess what the business owns
and what it owes and ascertain the Liquidity & Solvency positions of business.
➔ To provide a record for compliance with statutes and laws applicable.
➔ To enable the readers to assess progress made by the business over a period of time.
➔ To disclose information needed by different stakeholders.

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Importance of accounting
Accounting as a source of information is the key to forming of sound and logical business
decisions. The importance of accounting is highlighted with the help of following points:
➔ It serves as a replacement to the human memory
➔ It helps & guides in ascertainment of selling prices & deduction of costs.
➔ It helps in ascertaining the profit or loss and financial position of the business.
➔ Accounting records carry an evidentiary value in the court of law.
➔ It facilitates audit.
➔ Helps in inter-firm and intra-firm comparisons.
➔ Helps in the valuation of the business at the time of merger or sell-off.
➔ Helps in the settlement of tax liabilities.
➔ Facilitates the management in its decision making

Limitations of accounting
Though accounting supplies a lot of useful information, yet it is not free from its limitations.
Some of the main limitations of accounting are enumerated as below:
➔ Accounting information is historical in nature which reflects the past position of the business.
➔ Accounting records only monetary information. Non-monetary information finds no scope in
accounting records.
➔ Accounting statements do not show the effect of price level changes on the value of assets
since it is based on historical cost.
➔ In some cases accounting events are measured on the basis of estimates. In such cases the
personal judgment of the accountant has an influence on the accounting records.
➔ The accounting information may be manipulated by the management in which case they
become misleading.

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 Panchayat Accounts Assistant Marks: 30

Basic Accounting Terminology

1. Entity An economic unit that performs economic activities is called as an entity, e.g., Reliance
industries, J&K Bank, Khyber cement etc.
2. Event The happening of consequences to an entity is called as an event, e.g., use of raw material for
production.
3. Transaction A transaction is dealing or an exchange between two or more than two persons or
parties, in which each participant receives or sacrifices value. e.g. purchase of goods would involve
receiving material and making payment or creating an obligation to pay to the supplier at a future
date.
4. Proprietor/Owner The person who invest money & other resources and bears the risk to start a
business is called as proprietor.
5. Capital: It is amount invested in the business by its owners to start it or to expand, modernize or
diversify it. It may be in the form of cash, goods, or any other asset which the proprietor or partners of
business invest in the business activity. From business point of view, capital of owners is a liability
which is to be settled only in the event of closure or transfer of the business.
6. Drawings: It means an amount of cash, goods or any other assets which the owner withdraws from
business for his or her personal use. Drawings will result in reduction in the owners’ capital.
7. Voucher A voucher is a document which serves as an evidence in support of a transaction. The
vouchers act as source document on the basis of which transactions are recorded in the books of
accounts. For example, in case of cash purchases, cash memo & in case of credit purchases, purchase
invoices are vouchers.
8. Entry An Entry is the record made in the books of accounts in respect of a transaction or event on the
basis of vouchers.
9. Profit: The excess of Revenue Income over expense is called profit. It could be calculated for each
transaction or for business as a whole.
10. Loss: The excess of expense over income is called loss. It could be calculated for each transaction or
for business as a whole.
11. Assets Anything having value for the business or carry probable future value, whether tangible or
intangible is called as assets. In other words assets are the economic resources owned by business &
from which future economic benefits are expected to flow to the business.
These may be broadly classified as follows: current assets, fixed assets & fictitious assets.

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a. Current assets current assets are those assets which are in the form of cash or which can be
converted into cash within short period of time, up to 1 year. For example, cash in hand, cash
at bank, stock, debtors, bills receivables & prepaid expenses.
b. Fixed assets fixed assets are held for the purpose of providing or producing goods or services
& not meant for resale in the normal course of business. Fixed assets may be classified as
tangible & intangible as follows
 Tangible fixed assets Refers to those fixed assets that can be seen & touched. For
example, Land Building, Plant, Machinery, Furniture & fixtures.
 Intangible fixed assets: Refers to those fixed assets that cannot be seen & touched.
E.g. Goodwill, Patients, Copyright etc.
c. Fictitious Assets It refers to those assets which neither have any physical form nor any
resalable value. They cannot be converted into cash. They as shown as assets because of their
non-recurring nature. E.g Preliminary expenses (expenses incurred before the formation of
company), expenses on issue of shares or debentures etc.
12. Liability: It is an obligation of financial nature to be settled at a future date. It represents amount of
money that the business owes to the other parties. E.g. when goods are bought on credit, the firm will
create an obligation to pay to the supplier the price of goods on an agreed future date. Depending
upon the period of holding, these obligations could be further classified into Long Term on non-
current liabilities and Short Term or current liabilities.
a. Current Liabilities – A liability which is to be repaid within short time period which is
generally 1 year is called as Current liability. E.g. Creditors, Bills payable,
b. Non-Current Liabilities – All other Liabilities shall be classified as Non-Current Liabilities.
E.g. Loan taken for 5 years, Debentures issued etc.
c. Contingent Liability It refers to the amount which may or may not become payable in future.
Future event may decide whether it is a liability or not. Due to their uncertainty, these are
called contingent Liabilities. E.g., financial cases pending against business in court, Guarantees
taken on behalf of others etc.
13. Debtor:- Debtors are those persons from whom a business has to recover money on account of goods
sold or service rendered on credit. These debtors may again be classified as under:
➔ Good debts: The debts which are sure to be realized are called good debts.
➔ Doubtful Debts: The debts which may or may not be realized are called doubtful debts.
➔ Bad debts: The debts which cannot be realized at all are called bad debts.
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14. Creditor: A creditor is a person to whom the business owes money or money’s worth. e.g. money
payable to supplier of goods or provider of service. Creditors are generally classified as Current
Liabilities.
15. Capital Expenditure: The expenditure incurred for the purpose of acquiring a fixed asset which is
intended to be used over long term for earning profits there from. e. g. amount paid to buy Land,
Building, Furniture and Computer for office use is a capital expenditure.
16. Revenue expenditure: This represents expenditure incurred to earn revenue of the current period.
The benefits of revenue expenses get exhausted in the year of the incurrence. e.g. repairs, insurance,
salary & wages to employees, travel etc.
17. Deferred Revenue Expenditures:- Deferred revenue expenditures represent certain types of assets
whose usefulness does not expire in the year of their occurrence but generally expires in the near
future. These types of expenditures are carried forward and are written off in future accounting
periods. Sometimes, we make some revenue expenditure but it eventually becomes a capital asset
(generally of an intangible nature).
18. Trade Discount: It is the discount usually allowed by the wholesaler to the retailer computed on the
list price or invoice price. e.g. the list price of a TV set could be ` 15000. The wholesaler may allow
20% discount thereof to the retailer. This means the retailer will get it for 12000 and is expected to
sale it to final customer at the list price. Thus the trade discount enables the retailer to make profit by
selling at the list price. Trade discount is not recorded in the books of accounts. The transactions are
recorded at net values only. In above example, the transaction will be recorded at ` 12000 only.
19. Cash Discount: This is allowed to encourage prompt payment by the debtor. This has to be recorded
in the books of accounts. This is calculated after deducting the trade discount. e.g. if list price is
15000 on which a trade discount of 20% and cash discount of 2% apply, then first trade discount of
3000 (20% of 15000) will be deducted and the cash discount of 2% will be calculated on 12000
(15000–3000). Hence the cash discount will be 240/- (2% of 12000) and net payment will be 11,760
(12,000 - 240)
20. Contingent Liability: It means a potential obligation that could be created depending on the outcome
of an event. E.g. if supplier of the business files a legal suit, it will not be treated as a liability because
no obligation is created immediately. If the verdict of the case is given in favour of the supplier then
only the obligation is created. Till that it is treated as a contingent liability. The contingent liability is
not recorded in books of account, but disclosed by way of a note to the financial statements.

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 Panchayat Accounts Assistant Marks: 30

21. Net worth: It represents excess of total assets over total liabilities of the business. Technically, this
amount is available to be distributed to owners in the event of closure of the business after payment of
all liabilities.
22. Non-current Investments: Non-current Investments are investments which are held beyond the
current period as to sale or disposal. e. g. Fixed Deposit for 5 years.
23. Current Investments: Current investments are investments that are by their nature readily realizable
and are intended to be held for not more than one year from the date on which such investment is
made. E.g. 11 months Commercial Paper.

Systems or Basis of Accounting

➔ Cash system of Accounting:- In this system only cash transactions (Cash Receipts & Cash
payments), are recorded. This system is followed by all non-trading organizations such as
educational institutions, clubs etc.
➔ Accrual or Mercantile System of Accounting:- In this system both Cash & Credit transactions
are recorded.
➔ Joint System.

Single & Double entry Systems of Accounting

➔ Single Entry System of Accounting:- In this system only one aspect of transaction or event is
recorded in the books. Only personal accounts & cash aspect of transactions is recorded. It ignores
impersonal (Real & Nominal A/c) aspects of the transaction.
Although, it is simple, easy & time saving, it is an incomplete & unsystematic system,
hence cannot be adopted by corporate.
➔ Double Entry System of Accounting:- In this scientific & complete system of accounting, not
only all the business transactions & events are recorded, but both the aspects (Dr. & Cr.) of each
transactions & events is recorded in the books. Double entry system adheres to the rule, that for
each transaction the debit amount must be equal to credit amount. This is used by companies & big
organizations.

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