Haryana subordordinate account services

Paper – ii

BOOK
KEEPING &
ACCOUNTS
IMPORTANT QUESTIONS

Written By :- Vinod Sungroya

Email id :- v4vinod888@gmail.com

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 INDEX
Question Question Name Page
No. No.
1. Definitions 3
2. Explain the Double Entry System of Book Keeping. What are its advantages? 7

3. What is an Account? Explain clearly the rules of recording business 8

transaction in the books of accounts.
4. What do you understand by Journal ? What are its characteristics/features, 8
functions, advantages and limitations.
5. What is meant for sub division of a Journal ? Explain the various subsidiary 10
books & their advantages.
6. What is Ledger ? Give its importance & advantages. How will you post 12
Journal into Ledger. Also give proforma of ledger.
7. What is the main objectives of Preparing a Trial Balance? Give any four 13
functions of a Trial Balance.
8. Types of errors which effects a Trial balance. 14
9. Difference b/w Provision and Reserve. 15
10. Different type of Reserves. 16
11. Distinguish between 17
(a) Reserve Capital & Capital Reserve
(b) One Sided Error & Two Sided Error
(c) A bill at sight & bill after sight.
12. What is meant by keeping Imprest System of keeping petty cash book? What 18
are its advantages?
13. What is Bank Reconciliation Statement ? How is it prepared? 19
14. What is need and importance of Bank Reconciliation Statement ? 20
15. a) What do you understand by Depreciation. What are the causes & 20
necessity for providing depreciation ?
b) What are the simimar terms used for Depreciation ?
16. What are the different methods of providing depreciation ? Give the merit & 22
demerit of each method.
17. What do you understand by reserve ? Explain the different type of reserves. 25
18. What is Secret Reserves ? How is it created ? What are its advantages & 26
disadvantages ?
19. a) What do you understand by Self Balancing of Ledger. 27
b) What is the object of Self Balancing Ledger.
c) How will you proceed to make the ledger Self Balancing .
d) State the advantages & disadvantages of Self Balancing Ledger.
20. What do you understand by Cost Accounts. Describe its object & advantages. 29

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 1. Definitions
Ans:-
1. Cash Discount:- This discount is allowed by the seller to the buyer of goods in order to
encourage to make prompt payment of cash. It is allowed only when purchaser makes
payment by a stipulated date. It is recorded in the books of account.
2. Trade Discount:- Trade Discount is an allowance made by the supplier to the retailers
off the list price. The object of allowing trade discount is to enable the retailers to sell
the goods to the consumer at list price and still leaving margin of his profit. The
deduction for trade discount is made from the invoices & only net amount is claimed
from the buyer by the seller.
3. Outstanding Expenses:- Expenses which have become due and have not been paid at
the end of financial year are called Outstanding Expenses.
4. Prepaid Expenses:- Such expenses as relate to the next year but have actually been
paid in advance are termed as prepaid expenses i.e. insurance paid in advance for a
part of next year.
5. Return Inward :- The return goods returns by customer is called Return Inward or Sale
Return. On return of sold goods, the Return Inward account is debited and customer
account is credited.
6. Return Outward:- The goods which have been returned to supplier are termed as
Return Outward or Purchase Return. Such goods are shown on the credit side of the
trial balance. Return outwards are shown as a deduction from purchases on the debit
side of the trading account.
7. Bills of exchange :- It is an order drawn by creditor on his debtor and requires
acceptance notes received by the business from its debtors.
8. Promissory note:- It is an instrument in writing (not being a Bank Note) containing an
unconditional undertaking signed by the maker to pay a certain sum to the order of a
certain person/or to the bearer of instrument. There are two parties to a promissory
Note, the maker and the payee.
9. Consignment :- Goods forwarded by a trader to his agent for sale on commission basis
on the sole risk of the former is known as consignment. The ownership remains with
the sender on the consignee. The consignee sells the goods on behalf and at the risk of
the real owner. After sale of goods the consignee will receive commission based in the
percentage of value of goods sold by him.
10.Sales:- this term denotes sales of “Goods” in which the trader deals. If cash is received
immediately, it is called cash sales. If cash is not received immediately, it is called credit
sale.
11.Revenue Expenditure:- It comprises all expenditure incidental to carrying on a
business. It also includes expenses on repairs, replacement and renewals of existing
assets which do not increase the earning capacity but merely serve to maintain the

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 original equipment in efficient working order. Salaries, carriage, rent, interest,
insurance, depreciation & trade charges etc are the example of Revemie Expenditure.
12.Capital Expenditure :- It means the expenditure incurred on the acquisition of
permanent assets which are utilized for the purpose of earning income. Expenditure
incurred on increasing or improving the earning capacity of the existing assets is a
capital expenditure. The instances of such an expenditure are the expenditure incurred
on the acquisition of Land, Building, Plants, Machinery, Furniture, office equipments,
Motor Vehicle etc.
13.Credit Note :- It is a note sent by supplier to the customer stating the amount credited
to his account in respect of the goods returned by him. Credit note are generally
printed in red ink to distinguish them from invoices.
14.Debit Note :- It is a note containing description of goods returned to the supplier due
to some defects notifying that the supplier’s account has been debited with the
amount stated.
15. Benefit of Crossing of Cheque :- Crossing of cheque is a direction to drawee banker to
pay the amount of crossed cheque through banker so that the party who obtain
payment of a cheque can be trade out. Thus crossing of cheque reduces the chances of
payment through fraudulent person.
16.Hypothecation :- this is one of the method for getting loan. Under this method of
security, the bank provide credit to borrowers against the security of movable property
usually inventory of goods. The goods hypothecated however continue to be in the
possession of the owner of goods i.e. borrower. If the borrower fails to pay his dues to
the bank, the banker may file a case to realize his dues by sale of goods hypothecated.
17.Mortgage:- It is the transfer of interest in specific immovable property for securing the
payment of money advanced. Mortgage is thus conveyance of interest in mortgaged
property. The mortgage interest in property is terminated as soon as debt is paid. In
addition to hypothecation or pledge bank usually ask for mortgages as additional
security. In case of default, the bank may obtain decree from the court to sale property
mortgaged so as to realise its duties.
18.Pledge :- This is one of the kind of security given by borrower to the lender against
credit. Under this system goods which are offered to security are transferred to the
physical possession of the lender. Any kind of movable property i.e. goods document or
valuable may be pledged. In case of default the lender can sell the goods after serving
proper notice to the borrower.
19.Accounting Cycle :- The accounting cycle starts with the recording of business
transactions in the Journa and subsidiary books and after passing through the ledger
and Trial Balance, it results in the preparation of Trading A/C, P&L – A/C and Balance
Sheet. This accounting cycle is generally completed in an accounting year and is again
repeated in each subsequent year.
20.Red Ink Interest :- Sometime due date of transaction falls beyond the settlement date
i.e. the date on which account current is prepared. In such case, days are counted from

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 the settlement date in the transaction date and put in the days column with (-) sign.
The product is also marked with (-) sign. This is called Red Ink Interest because in books
it is written in Red Ink.
21.Sunk Cost :- Are historical or past costs. These are costs which have been created by a
decision that was made in the past and that can not be changed by any decision that
will be made in the future. For example a departmental store is considering selling a
fleet of trucks it now owns. It wants to buy delivery service from an outside firm. The
sunk cost of the investment in trucks (present book value minus present market value)
is irrelevant in making this decision.
22.Sinking Fund :- It is created for repayment of liability like debentures or to replace an
old asset. It is created by setting aside a definite sum periodically. The money thus set
aside is invested in outside securities so that cash may be readily available when
required.
23.Window Dressing :- The term window dressing means manipulation of accounts in a
way so as to canceal important facts. The financial position is shown in such a way that
it seems to be better that what it was.
24.Zero Base Budget:- Usually the budgets are prepared on the basis of past performance
but in Zero budgeting no regard is kept for the previous figures. The previous figures do
not form base for budgeting hance the base is Zero. It starts form Zero and Heads of
Deptts are asked to prepare their budget assuming as if there was no previous budget,
now that base is Zero.
25.Break even Point :- The break even point is that level of output where there is no profit
or loss. At this point, the income of the business exactly equals in expenditure. If
production is enhanced beyond this level, profit shall accure to the business and if it is
decrease from this level, loss shall be suffered by the business. It is calculated by
dividing fixed expenses by the contribution per unit.
26.Invoice :- It is a statement sent by the seller to the buyer giving particulars as to quality,
quantity, rate and total price of goods supplied less trade discount if any.
27.Purchase Book :- Is meant for recording purchases of goods acquired for resale. Each
item of purchases is posted to the credit to the supplier & debited to purchase account.
Cash purchases & purchase of assets are not recorded in Purchase Book.
28.Preferential/Preference Shares :- Are those shares which carry preference both in
respect of divedend and also return of capital in the case of winding up of the
company. The rate of dividend on preference shares is fixed. Dividend is paid on these
shares before paying the dividend on equity shares.
29.Negotiable Instrumets :- Negotiable Instrument is refers to an instrument which can be
negotiated. In other words it means a document which may be transferred from one
person to another by mere delivery and endorsement, Bill of Exchange, Promissory
notes and cheques are negotiable instruments.
30.Account Current:- It is a statement in debit & credit from recording the transaction
between two parties in chronological order. In fact the account current is the copy of

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 the account appearing into the books of the sender with the additional column for
interest. It is usually sent by one merchant to another or by the agent to his principal
or by the banker to his client.

2. Explain the Double Entry System of Book Keeping. What are its
advantages?
Ans. There are two systems of recording transactions – Single Entry System and
Double Entry System. By double entry system of book keeping, we understand that
each transaction has a two fold effect and that in each transaction there are two
parties and two accounts. In other words, every transaction will involve one account
receiving the benefit and the other account giving the benefit. For example Ram
Purchases goods from Shyam for Rs. 2000/- on credit. In this case Ram is the receiver
of the benefit and Shyam is the giver of the benefit. Now it is clear that every
transaction effect two accounts. This is the principal of double entry system of book
keeping.
Advantages :-
The double entry system is the only scientific system of book keeping and advantages
of this system are as under :-
i) A detailed Profit and Loss Account can be prepared showing profit made or loss
incurred during a given period.
ii) It keeps a complete record of business transaction. It keeps both personal and
impersonal accounts.
iii) At the end of every trading period, a Balance Sheet prepared which discloses the
financial position of the concern. The sheet discloses whether the firm is solvent or
insolvent.
iv) Proper accounting discovers errors as well as frauds.
v) It provides a check on the arithemetical accuracy of the books of accounts.
vi) The management derives good guidance from the accounts for the purpose of
making decision.
vii) Details with regard to any account are easily available.
viii) For the Income Tax & Sales Tax point of view, it is essential to follow Double Entry
System.
ix) Reminders can be sent regualarly to the customers who fail to pay in time.
x) This system is helpful for making comparison of stock, purchase, sales, income &
expenditure of current year with those of previous year.
xi) This method is more progressive and more scientific as compared to other system of
book keeping.

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3. What is an Account ? Explain clearly the rules of recording business
transaction in the books of accounts.
Ans. An “Account” may be explained as a summery of all transaction relating to a
person or a property or a gain or loss e.g. Sham lal’s Account, Goods A/C, Interest
A/C etc. Separate account is kept for each type of transaction.
Accounts are divided into three classes i.e., Personal Accounts, Real Accounts & Nominal
Accounts.
Personal Accounts :- These accounts record transaction relating to persons, firms
companies or Estt. A separate account is opened for each person, firm or the Estt.
wherin transaction relating to that person, firm or Estt. are recorded.
Real Account :- These accounts relate to the assets such as cash, stock, furniture,
machinery, building etc. A separate account is opened for each type of assets where
in all transactions relating to that assets are recorded.
Nominal Accounts :- These accounts record to trader’s expenses and gain e.g. wages
account, salary account, interest account, discount account etc. These accounts
shows whether we have gained or lost on particular account.
RULES FOR RECORDING TRANSACTIONS
There are separate rules of debit and credit in respect of Personal, Real and Nominal
Accounts.
Personal Accounts :- Debit the receiver and credit the giver. For example Mr. Ram
receives of Rs. 2000/- from Shyam. Here Mr. Ram is receiver, so his account will be
debited and account of Shyam will be credited as he is the giver of money.
Real Accounts :- Real accounts are accounts of things. In this A/C the formula is debit
what comes in and credit what goes out. For example Furniture is purchased than
Furniture A/C will the debited because furniture has come in to us. Likewise if
furniture is sold then Furniture A/C will be credited because furniture has gone out.
Nominal Accounts :- These accounts are accounts of income, expenses, profit and losses.
In this A/C the formula is debit all expenses & losses & credit all income & gain. For
example, interest is paid, the interest A/C will be debited because interest is our
expense. Similarly on receipt of commission, the commission A/C will be credited
because commission is our income.

4. What do you understand by Journal ? What are its

characteristics/features, functions, advantages and limitations.

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Ans. Journal is a book of original entry in which the transactions are recorded first of
all, as and when they take place. It provides a date-wise record of all the transactions
with details of the accounts debited and credited and the amount of each
transaction.
Features/Characteristics of Jouranl :-
The chief features of Journal may be stated as under :
i) Journal is a book in which the transactions are recorded first of all, as and when they
take place. For this reason it is called a book of original entry.
ii) A journal is only a book of primary (original) entry. All the transactions recorded in
the journal are subsequently transferred to ledger which is principal book of all
accounts.
iii) A journal is a daily accounting record, i.e., each day’s transactions are recorded in the
journal on the same day.
iv) In journal, transactions are recorded in a chronological order, i.e., in a date-wise
order.
v) It maintains the identity of each transaction and provides a complete picture of the
same in one entry.
vi) A journal records both debit and credit aspects of transaction according to the
double entry system of book-keeping.
vii) Each entry in the journal is followed by a brief explanation of the transaction which is
called ‘Narration’.
viii) A single journal entry is capable of recording more than one transactions involving
more than two accounts. Such an entry is called compound entry.
Functions of a Journal :-
i) To keep a chronological (i.e., date-wise) record of all transactions.
ii) To analyse each transaction into debit and credit aspects by using double entry
system of book-keeping.
iii) To provide a basis for posting into ledger.
iv) To maintain the identity of each transaction by keeping a complete record of each
transaction at one place on a permanent basis.
Advantages of a Journal :-
Although it is not necessary to maintain a Journal and the transactions can recorded
directly in the ledger accounts, a journal, still is used for the following reasons:-
i) As transactions in journal are entered as and when they take place, the possibility of
omission of a transaction in the book of accounts is minimised.

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ii) As transactions in journal are recorded in chronological order, it is very easy to locate
a particular transaction when required.
iii) By analysing each transaction itno debit and credit aspects, the journal facilitates the
positing into ledger.
iv) Each entry in the journal carries narration which gives a brief explanation of the
transaction. Hence, postings in the ledger can be made without explanation.
v) Journal facilitates cross checking of ledger accounts in case a trail balance does not
agree.
vi) Since entire transaction is recorded at one place in the Journal, the identity of each
transaction is maintained on a permanent basis.
vii) Once the transaction is recorded in journal, posting in the ledger can be made as and
when convenient.
Limitations of a Journal :-
i) When the number of transactions is larger, it is not possible to record all the
transactions in Journal. It will become bulky and voluminous. Hence, the usual
practice is to have separate journals or books for different classes of transactions
such as purchase book, sales book etc.
ii) Many transactions are repetitive in nature and if all transactions are recorded in
journal. It will involve debiting and crediting the same accounts time and again. It will
involve repetitive posting labour also.
iii) In order to ascertain cash balance everyday, cash transactions are usually recorded in
a separate book called ‘Cash Book’. Thus cash transactions need not be recorded in
journal.
iv) Journal does not provide the required information on prompt basis.
5. What is meant for sub division of a Journal ? Explain the various
subsidiary books & their advantages.
Ans. There are two books of accounts which must be maintained by every business house.
These are Journal & the Ledger. A journal is called the subsidiary book of accounts
and ledger is called principal book of accounts. Journal is a stepping stone to the
study of book keeping. Every transaction is first recorded in Journal and finally it is
posted from Journal to Ledger.
Journal is a subsidiary book or the book of original entry. In other words subsidiary
books are those book where a trasaction is recorded in the first instance. In early
days all transactions were recorded in a “Day Book” called the Journal. But with the
growth of business, it become difficult to record all transactions in one book and it
becomes necessary to sub divide the journal into a number of subsidiary book of
accounts.

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 If a business house maintains subsidiary books of accounts instead of single journal, it
have a set following books:-
i) Cash Book :- This book is used for recording all transactions relating to cash receipts
and cash payments. All banking transactions relating to receipts and payments are
also recorded in cash book.
ii) Purchase Book :- This book is used for recording the credit purchases of goods. It is also
called Supplier’s Journal or Purchase Journal.
iii) Sales Book :- This book is used for recording the credit sales of goods. It is also
called Sales Journal or Dry Book.
iv) Bill Receivable Book :- This book is maintains a record of all bills receivable. This
book is usually found in large concern where transactions in bills are numerous.
v) Bill Payable Book :- It keeps a complete record of all the bills payable. From this books,
the trader comes to know when he is to make the payment for the bills he has
accept.
vi) Purchase Return Book or Return Outward Book :- When the goods previously
purchased on credit are returned to the suppliers, such returns are recorded in this
book.
vii) Sales Return Book or Return Inward Book :- When the goods previously sold on
credit are returned by the customer, such returns are recorded in this book.
viii) Journal Proper :- Journal Proper is used for passing only such transactions which can
not find place in any of the subsidiary books. The journal which is used for this
limited purpose only is called Journal Proper. The Journal Proper is used for recording
the following transactions :-
i. Opening Entries
ii. Rectifying Entries
iii. Adjustment Entries
iv. Transfer Entries
v. Closing Entries
vi. Any other entries which can not be made in any of the subsidiary books.
Advantages of Subsidiary Books OR Advantages of Sub-Division of Journal
1. Permits division of work among the accounting staff :- As the number of subsidiary
books is more than one therefore, different clerks can be entrusted with the job of
writing of various subsidiary books.
2. Division of work, increase efficiency :- Since each person is required to write up only
one class of transactions, therefore he is likely to develop proficiency in his work.
3. The system of internal check can be made more effective with the use of subsidiary
books.
4. It makes information available regarding each particular class of transaction at one
place.

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5. Error can be located easily while preparing trial balance because different persons carry
on checking work simultaneously on different books.
6. It result in saving of time by posting periodical totals of impersonal accounts in ledger.
7. Since each book is less voluminious i.e., handy to make any reference.

6.What is Ledger ? Give its importance & advantages. How will you post
Journal into Ledger. Also give proforma of ledger.
Ans. Ledger is the principal book with suitable rulings. All transactions from the subsidiary
books are posted every month in the ledger. It is an important book to which the
trader must always refer for information regarding any transaction.
Importance of Ledger
The basic objective of accounting is to ascertain as to:-
i) How much amount is due from each customer or how much amount the firm has to
pay to each supplier.
ii) How much is the amount of purchase and sale during a period.
iii) How much amount has been spent on each head of expenditure and how much
amount has been earned on A/C of each head of income.
The Journal is fails to provide us the above information because it is only a chronological
record of daily transaction of a business. Transaction of same nature are not
recorded at one place journal. But Ledger will provide complete picture of all the
transactions relating to them at a glance. As such ledger is a very useful book and is
of utmost importance in any enterprise. Hence the Ledger is called the Principal Book
or the book of final entry.
Advantages of Ledger
i. All accounts are opened on separate pages in this book. Hence, all the transactions
pertaining to an account are collected at one place in the Ledger. As such, by looking
at the balance of that account, one can understand the collective effect of all such
transactions at any point of time.
ii. Any type of information relating to the business can be easily obtained from the
Ledger, such as regarding debtors, creditors, Purchases, Sales, Income, Expenditure,
Asset, Liabilities & Capital of the firm.
iii. A trial balance can be prepared with the help of ledger balances which helps in
ascertaining the arithmetical accuracy of the accounts.
iv. A trading and profite and loss account can only be prepared with the help of ledger
balance.

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 v. A balance sheet can also be prepared with the help of ledger balances which depicts
the financial position of the business.
Procedure of Posting in Ledger
The following procedure should be adopted while posting entries in the ledger:-
7. All transaction relating to an account should be entred at one place.
8. The word “To” is used before the accounts which appear on the debit side & the word
“By” is used on the credit side of an account.
9. If an account has been debited in the journal, the posting in ledger is also to be made
on the debit side of such account. In particular clumn, the name of other account
which has been credited in journal should be written for reference. Similarly credit
amount of journal should be posted on credit side in ledger.
10. The word A/C is not required after personal account.
11. Same account which has been posted on the debit side of an account should also be
posted on the credit side of another A/C.
Proforma of Ledger
Each ledger account is divided into two equal parts. The left-hand side is know as the
debit side the right-hand side as the credit side. As an accounts is in “T” shape,
therefor, sometimes it is called “T” account. The format of an account is as shown
below:-

Dr. Name of Account Cr

Date Particular J.F. Amou Date Particular J.F. Amou
s nt nt
Rs. Rs.
As shown above, ther are four columns on each side of an account :-
1. Date :- The date of transaction is recorded in this column.
2. Particulars :- Each transaction affects two accounts. The name of the other account
which is affected by the transaction is written in this column.
3. Journal Folio :- In this column, the page number of the Journal or Subsidiary book from
which that particular entry is transferred, is entred.
4. Amount :- The amount pertaining to this account is entered in this column.

7. What is the main objectives of Preparing a Trial Balance? Give any four
functions of a Trial Balance.
Ans. The objective of preparing a Trial Balance are stated below :-

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1. Cheking the Arithmetical accuracy :- Trial Balance helps in knowing the arithmetical
accuracy of accounting entries. This is because according to dual aspect, for every debit
there must be an equal credit Trial Balance represents a summary of all ledger balances
& therefore, if two sides of the Trial Balances tally , it is an indication that the books of
accounts are arithmetically correct.
2. Basis for financial statement :- Trial Balance forms the basis for preparing financial
statements such as the income statements & Balance sheet. The trial Balance
represents all transaction relating to the different accounts in a summarized form for a
particular period. In case trial balance is not prepared, it will be different to prepare
financial statement.
3. Summarised Ledger :- The Trial Balance contains the ledger balance on particular date.
Thus the entire ledger is summarized in the form of trial balance. The position of a
particular account can be judged simply by looking at the trial balance.
4. To help in detection of errors :- if a trial balance does not tally, it indicate that some
errors have occurred & accountant will then produced to docate such errors.

8. Types of errors which effects a Trial balance.

Ans. All errors may be classified into the following two categories :-

1. Errors Affecting Trial Balance.

2. Errors not Affecting Trial Balance.
1) Errors affecting Trial Balance :- if the trial balance does not tally, it will indicate that
certain errors have been committed which have affected the agreement of the Trial
Balance. The accountant will then proceed to find out the errors & ultimately the
errors will be located. Such errors are called “Errors disclosed by Trial Balance”.
Some of the examples of such errors are as follows:-
i) Wrong Casting :- If the total of the cash book or some other subsidiary book is
wrong, the Trial Balance will not tally. For example the total of the purchase
book has been added Rs. 1000/- in excess. When this total is posted to the debit
side of the purchase account, it will also show an excess debit of Rs. 1000/- &
hence Trial Balance will not tally.
ii) Posting to the wrong side :- If instead of posting an amount on the debit side of
an account, it is posted on the credit side or vice-versa, the Trial Balance will not
tally. For example Goods for Rs. 2000/- have been purchased from Gopal. If
instead of posting the amount on the credit side of Gopal’s account it is posted

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 to his debit, the debit side of the Trial Balance will exceed the credit by Rs.
4000/-.
iii) Posting of wrong amount :- The Trial Balance will not tally if posting in an
account is made with incorrect amount. For example goods for Rs. 600/- have
been purchased from Mahendra and it has been correctly entered in purchase
book but while posting to Mahendra’s credit, the amount posted is Rs. 60/-
instead of Rs. 600/-, the Trial Balance will not tally.
iv) Omission of posting of one side of an entry:- for example, if Rs. 500/- ave been
receive from Ram and correctly entered in the cash book, but it omitted to be
posted on the credit side of Ram’s account, the Trial Balance will not tally.
v) Double posting in a Single Account :- For example, if Rs. 500/- have been
received from Shyam Lal and correctly entered in the cash book, but it is posted
twice on the credit side of Shyam Lal’s account, the Trial Balance will not tally.
2) Errors not affecting Trial Balance :- Main object of preparing a Trial Balance is to
check the accuracy of the accounts. However, the equality of debits and credits of
the Trial Balance does not mean that there are a absolutely no errors in the books of
accounts. There may be a number of errors which may remain undetected in spite of
the greement of a Trial Balance. There may be discussed as below:-
i) Errors of Omission:- if a transaction remains altogether unrecorded either in the
journal or in subsidiary books,it will be formed as an error of omission. Such an
error will not affect the agreement of a Trial Balance. For example goods for Rs.
2000/- have been sold to Ram on credit and the transaction was omitted to be
recorded in the books. The omission will not affect the Trial Balance in any way.
Because neither it has been recorded on the debit side of Ram’s Account nor on
the credit side of sales account.
ii) Errors of commission:- if a wrong amount is entered either in the journal or in
the subsidiary books the Trial Balance will tally because the same amount will be
posted in both the accounts affected by the transaction. For example, sale of
goods to Ram on credit for Rs. 420/- has been entered in the journal as Rs.
240/-. When the entry is posted to ledger, double entry will be completed with
the Rs. 240/-. Ram being debited with Rs. 240/- and sales account being credit
with Rs. 240/-. In spite of inaccuracy in both the accounts, the Trial Balance will
tally.
iii) Compensating errors:-
9. Difference b/w Provision and Reserve.

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Ans.
PROVISION RESERVE
1. Provision is made by debiting P&L A/C. 1. Reserve is created by debiting P&L
appropriation A/C.
2. Provsion is created to meet some 2. Reserve is created to strength the financial
known liability. resources of the concern.
3. Provison is necessary and must be 3. It is discretionary.
provided.
4. Provision is not meant for distribution 4. Reserve are available for distribution of
of dividend among share holders. dividends.
5. It reduces net profits. 5. It reduces only divisible profits.
6. Provison cannot be transferred to 6. Reserve can be transferred to provision.
general reserve.
7. Provisions are never invested in outside 7. Reserve can invested outside the business.
securities.
8. It is the requirement of the business. 8. It is question of financial policy.
9. Example of provisions are Provisions for 9. Examples of reserves are General Reserve,
Bad & Doubtful debts. Provision for Capital dividend Equalisation reserve,
depreciation, for taxation, for repairs Specific Reserve etc.
etc. 10. Reserve is shown on the liability side of
10.Provision is shown as deducation from the Balance Sheet.
respective asset

10. Different type of Reserves.

Ans. The reserves are of the following kinds :-

1. Revenue Reserve :- These reserves comes into existence out of profit which has been
earned in business. Therefore, the revenue reserve represents undistributed profit & as
such are available for the distribution of dividends.
Further Revenue Reserves is divided into two categories, i.e., Genereal Reserves &
Specific Reserves.
2. General Reserve :- Usually the businessman do not withdrawn the entire profit from
the business but retain a part of it in the business to meet unforeseen uncertainties.
Profit so retained in the business for a rainy day are known s General Reserve.
3. Specific Reserves :- Such a reserves is created for a specific purpose and can be utilized
for that purpose. Example of specific reserves are (i) Reserve for replacement of asset.

16
 (ii) Dividend equalization reserves (iii) Investment fluctuation fund (iv) workmen
compensation funds (v) debentures redemption reserves.
4. Capital Reserves :- In addition to normal profit, capital profits are earned in the
business from many sources. The reserve credited out of capital profit are called capital
reserves. Capital profit are generally earned from the following :-
i) Profit from sale of fixed assets.
ii) Profit on revaluation of fixed assets.
iii) Premium received on issue of shares/debentures.
iv) Profit on purchase of running business etc.

Capital reserve used to write off capital losses & for issue of fully paid bonus.

11. Distinguish between

a) Reserve Capital & Capital Reserve
Ans.

Reserve Capital Capital Reserve

Reserve Capital is the part of the Capital Reserve is that reserve which is not
uncalled capital which can be called in available for paying dividends through the profit
the event of winding up of the and loss account. It is generally created out of
company. It is a major security for capital proftits for meeting loss on capital account
creditors of the company. such as fall in market value of investment in
securities etc.

b) One sided error & Two sided error

Ans.

One Sided Errors Two Sided Errors

i. These are errors which affect the trial i. These are errors which do affect the trial
balance. balance.
ii. These error affect only one account. ii. These errors affect two accounts.
iii.Such type of errors are (a) undercasting iii.Such type of errors are (a) omission to
(b) overcastting (c) omission of posting in post entry in books of original records (b)
one account (d) Posting of wrong wrong recording in original record (c)
amount & posting in wrong side. posting to wrong account & errors of
principle.

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 c) Bill at Sight & Bill after Sight

Ans.

Bill at Sight Bill after Sight

In a bill of exchange, the expressions, ‘at The expression ‘after sight’ in a bill of
sight’ means payable on demand. If no time exchange means after accepting. Thus, where
for payment is mentioned in the bill, it is a bill is payable at a fixed period ‘after sight’
payable on demand. Bill payable on demand the period begins to run from the date
become due as soon as the bill is presented acceptance. Three days of grace are allowed
for payment. Such bill are not entitled to on such bills also. For instance, a bill
days of grace. exchange dated 1st January, 2002 in payable 2
month ‘after sight’ and it is accepted on 15 th
January, 2002. The due date of the bill will be
18th March, 2002.

12. What is meant by keeping Imprest System of keeping petty cash

book? What are its advantages?
Ans. Under this system, the petty cashier is given a definite sum say Rs. 500/- at beginning
of a certain period. The amount is called “Imprest Amount” the petty cashier goes on paying
all petty expenses out of this imprest amount and records them in the petty cash book
maintained by him. At the end of the given period, say a month, the petty cashier submits
the account to the main cahier who after examing the petty cash book, reimburses the
amount actually spent by the petty cashier. Thus on the first day of the next month, the
petty cahier after including the balance already left with him, is found again with the same
cash balance which he held on the first day of the preeceding month. This system of petty
cash is called the Imprest System because imprest mean “Advance made to a certain
person”.

Advantages of Imprest System of Petty Cash:-

i) The Chief Cashier of relieved of small cash payments thus saving of time & energy.
ii) Petty cash book is examined at the end of every month so that if an error has been
committed by petty cahier, it may be found out earlier.
iii) There is regular check on monthly petty expenses.
iv) The Chief Cashier can verify the cash on hand at any given period of time.
v) Posting in ledger becomes easy as only total of each head of A/C is posted.

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vi) The method of maintaining petty cash book is very simple which does not require any
specialized knowledge of accounting.
13. What is Bank Reconciliation Statement ? How is it prepared?

Ans. A reconciliation statement is prepared to indicate and reconcile the difference

between the bank balance as per bank pass book and balance shown in the bank column of
the cash book. This statement is prepared at various intervals to agree the two balances on
a given date. These balances do not tally normally. The items which cause difference may
be of the following nature.

A) Item shown in bank column of cash book but not in bank pass book.
i) Cheque paid into bank but but not credited in pass book.
ii) Cheque issued to creditors but not presented for payment in the bank.
B) Items shown in bank pass book but not in bank column of cash book.
i) Interest on current account.
ii) Bank charges and commission of the bank.
iii) Dishonoured cheques.
These items of difference are to be removed to reconcile the balance in the two
books i.e., cash book & bank pass book.

Prepration of Bank Reconciliation Statement:- There are two methods of reconciling the
disagreement explained as under:-

A. Where the bank balance as per pass book is taken as the starting point.
i) Cheque paid into bank but not credited in the pass book are deducated from the cash
book balance as the balance of cash book stood inflated, though there has been no
actual addition in the bank balance.
ii) Cheques issued to the creditor but not presented for payment at the bank are added,
to the bank balance in cash book as the balance already reduced is to be restored.
iii) Interest on current account would be added in the bank balance of cash book.
iv) Bank charges and commission of the bank would be deducated from the cash book
balance to tally with pass book balance which already stands reduced in pass book.
v) Dishonoured cheques issued by the firm do not affect the bank passbook balance. So
the amount of such cheque would be added to cash book balance as the same was
deducted from it when cheque was issued.
In case bank balance in cash book shows anoverdraft, the above position would be
reversed.

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B. Where the balance as per pass book is taken as the starting point, the process stated in
A would be reversed.
14. What is need and importance of Bank Reconciliation Statement ?

Ans. It is important to prepare a bank reconciliation statement due to the following

reasons:-

(1) A bank reconciliation statement locates the errors or omissions that may have been
committed either on the part of the customer or the bank. The errors so detected can
be rectified accordingly.
(2) By preparing a bank reconciliation statement, the customer becomes sure of the
correctness of bank balance shown by the cash book. It helps him in making further
transactions with the bank. For example, suppose the cash book shown a bank balance
of Rs. 20,000/- , whereas the abalance shown by the pass book is Rs. 15000/-. By
reconciling the two it is disclosed that cheques for Rs. 5000/- were deposited into the
bank but have not been collected so far (or some of these have been dishonoured). In
such a case, further cheques will be issued by assuming the bank balance of Rs. 15000/-.
(3) A reconciliation statement facilitates the preparation of a revised cash book. For
example, the entries relating to bank charges, interest allowed or charged by the bank,
direct payment made by the bank on our behalf etc. will be recorded in the pass book
but for which there is no entry in the cash book. Such entries will now be recoreded in
the cash book as well.
(4) Periodical preparation of this statement reduces the chances of embezzlement by the
staff of the firm or even that of bank. For example, if a cahier merely makes an entry in
cash book but does not deposite the cash and cheques in the bank, it will be disclosed
by preparing a bank reconciliation statement.
(5) A reconciliation statement helps in revealing the unnecessary delay in the collection of
cheques by the bank.
(6) It also helps in keeping a track of cheques which have been sent to the bank for
collection.
15. a) What do you understand by Depreciation. What are the causes &
necessity for providing depreciation ?
b) What are the simimar terms used for Depreciation ?

Ans. a) Depreciatio denotes permanent decline in the value of assets due to use in the
business. In other words Depreciation is the gradual and permanent decrease in the

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 value of an asset due to wear & tear, with the passage of time, old fashion or any other
cause.

Causes of Depreciation.

Following are the reasons of depreciation in the value of assets:-

i) Constatnt Use :- The value of an asset decreases because of its constant use. This is
more applicable on machinery.
ii) With the passage of time:- The value of asset decreases with the passage of time.
iii) Accident:- the value of asset decreases due to accident also.
iv) Fall in Price:- When there is a permanent fall in the price of an asset, its value
depreciates e.g. investment etc.

Need for Providing Depreciation.

Depreciation is provided due to the following reasons:-

1. To find out net profit:- The trader has to incure certain expenses in earning revenue.
Fall in the value of assets used in the business is a part of cost and should be shown in
the Profit & Loss account of that year. Otherwise it will not correct profit.
2. To find out correct financial position:- If the depreciation is not provided, the assets
shown in the Balance Sheet will not show the correct value and thus Balance Sheet
will not provide real picture.
3. For the replacement of Assets:- The businessman takes advantages from the use of
fixed assets and time comes when these assets become useless and require
replacement. By maintaining a depreciation Fund, he can easily replace such assets.
4. To give correct information to the creditors:- Creditors give loan to the businessmen
and the assets of the business stand as surety for such a loan. Thus if these assets are
not shown in the Balance Sheet at their real value, the creditors may be misguided.
5. Proper Account of the cost of Productions:- Depreciation is a cost of production. If it is
not properly recorded in Profit & Loss account, the cost of production will not be true.
b) Similar terms used for Depreciation
1. Depletion : Some wasting assets like coal-mines, oil wells, quarries etc. get exhausted
or depleted through working. On account of continuous extraction of coal from mines
and oil from wells, a stage comes when the mines or well get completely depleted and
nothing remains left. Provision made for consumption of wasting asset is known as
provision for depletion.

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 2. Amortisation : Amortisation relates to cost allocation for intangible assets such as
patents, copyrights, goodwill etc. in other words, it is also called ‘a process of writing
off the intangible assets’.
3. Fluctuation : the reducation in the value of an asset in the market due to change in
prices is known as Fluctuations. The change in the market prices is not always
permanent.
4. Obsolescence : The value of an existing asset may decrease due to change in the
technology on account of new inventions, change in fashion etc. In other words, an
asset becomes obsolete or outdated because of the availability of a new improved
asset in the market which can perform the same job more efficiently and effectively.
Sudden reduction in the value of an asset due to obsolescence is treated as dererred
revenue loss.
5. Dilapidation : Dilapidation is the amount which will be required to bring the leasehold
asset back to its original condition before returning it to the owner. For example, when
a leasehold property is returned to its owner after the expiry of period the owner or
landlord is entitiled to put his property in as good condition as it was at the time of
leasehold. To fulfill this purpose, the leaseholder often sets aside some amount from
profits each year. Normally, the amount of dilapidation is added to the cost of
property taken for the purpose of calculating the depreciation.
16. What are the different methods of providing depreciation ? Give the
merit & demerit of each method.

Ans. The method of calculating depreciation varies according to the nature of assets. There
are different methods of providing depreciation which are stated below:-

1) Fixed Instalment Mehtod (Straight line or Original cost method) :- Under this method a
fixed proportion of original cost of the asset is written off annually so that its value is
reduced to zero when the asset is worm out.
The depreciation is calculated by dividing the cost of asset by the number of years of its
life yeach year. This method is simple, the cost of asset being spread evenly for its life. It
is useful for providing depreciation of Furniture, Patents, leases etc.

Merits:- This method has the following advantages:-

i. This method is very easy.

ii. The asset can be written off to zero.
iii.The value of depreciation can be easily known.

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Demerits :-

i. With the passage of time, efficiency of asset decreases but the amount of
depreciation remains the same which is not justified.
ii. No provision for interest is made on the value of assets.
iii.When the machine is much old, its repairing charges increases, but no attention is
paid to this fact under this method.
2) Diminishing Balance Method (Written down value or Reducing Instalment Method)
Under this method, a fixed percentage is written off each year on the balance value so
that the asset is reduced to its residual value at the end of its life. The amount of
depreciation goes on falling every year. The value of asset never comes to zero under
this method. This method is useful for such assets which have some residual value e.g.
Plant & Machinery, Furniture, Motor car etc.

Merits :-

i. There is equal burden of depreciation and repair on the P&L Account.

ii. The book value of the asset never falls to zero.
iii. This method is recognised by Income tax Law.
iv. This is simple method.

Demerits :-

i. Proper and sufficient depreciation is not provided because rate of depreciation is very
low.
ii. Rate of depreciation can not be easily decided.
iii. No account is kept of interest on the value of assts.
3) Annuity Method :- Under this method, the purchase of asset is considered as an
investment of capital. The investment if invested elsewhere would be earning a certain
rate of interest. The cost of assets alongwith interest thereon are written off annually by
equal instalment until extinguished or reduced to its residual value at the end of its
usefulness to business. The amount of instalment is ascertained from the annuity table.
The amount written off as depreciation is the same every year but the interest will
diminish each year. This method is useful for leases involving heavy expenditure spread
over a number of years.
4) Depreciation Fund Method or Sinking Fund Method :- Under this method a fixed
amount is charged for depreciation to P&L Account each year and credited to
Depreciation Fund A/C and an equivalent amount is invested in securities outside the

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 business and allowed to accumulate at compound interest so that at the end of the life
of asset may be replaced by realizing funds from investment. This method is employed
where it is desired to make provision for the replacement of costly asset e.g. acquisition
of a new lease.

Merits :-

i. It strengthen the financial position of a concern.

ii. It helps the concern to remain financially strong in spite of a period of difficulties.
iii. It enables the company to create internal resources for working capital.
iv. It helps to maintain the rae of dividend though when ther is low profit.
v. It discourages business competition.

Demerit:- i. This is based on many assumptions and as such is not practicable.

ii. it is a complicated method.

5) Insurance Policy Method :- under this method thae assetis insured with an Insurance
Company equal to the cost price of replacement value of assets. The amount of annual
depreciation is used in payment of the premium. This method is popular because the
amount is easily recoverd on the expiry of the period.

Merits:- i. It is very simple to maintain.

ii. There is no risk in replacement value as the loss is made goodby Insurance Co.

Demerits:- i. the amount of depreciation and repair go on increasing year after year.

ii. There is no interest provided on replacement value. As such it is costlier.

6) Revaluation Method:- Under this system assests are revalued each year. The difference
between the value as per last balance sheet and the present estimated value represents
depreciation. It is suitable for assets which constantly change & whose life is uncertain
e.g. Loose Tools, Live Stock etc.

Merits:- i. This is simple method and amount of loss can be ascertained easily.

Demerits:- i. Amount of depreciation is always unequal.

ii. The valuation of assets is very time consuming.

iii . The valuation of old assets is difficult. The valuation is to be done by experts.

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7) Machine Hour Rate Method:- This method is useful in case of machines. The life of
machine is fixed in terms of hours. Hourly rate of depreciation is worked out by dividing
the cost of machine by the total numver of hours for which machine is expected to be
used. Depreciation to written offin a year will be ascertained by multiplying the hourly
rate of depreciation by the number of hours that the machine actually runs in a year.
The main characteristic of the system is that depreciation is calculated on the working
life of the machine and as such it is considered better than that of straight line &
diminishing balance method. This method is most popular where machines are more in
use.
8) Depletion Method:- This method is most suitable for mines quarries etc. from which
certain quantity of output is expected to be obtained. The value of mines depends only
upon the quantity of minerals that can be obtained. Hence, one can say that the mines
depreciates according to the quantity mines. The rate do deprecieation is worked out as
per tone. It is obtained by simply dividing the cost of mine by the total quantity of
mineral expected to be available.

Choice of Method.
Study of aforesaid methods of depreciation reveal that none is absolutely best or bad
as each method has its own merits and demerits. Suitability of every method depends on
various consideration. For example straight line method suits to building and lease etc.
Reducing instalment method fits to machinery , equipment etc., depletion (Exhausting)
method for wasting asset like mines in quarries etc. Sinking Fund method & Insurance
Policy methods are suitable for the business having working capital problems. Machine
hour rate method is suitable in case of machines. Revaluation method is suitable for
inexpensive fixed assets like small tools, live stock, patent & copy right etc.

17. What do you understand by reserve ? Explain the different type of

reserves.
Ans. Reserve mean amount set aside out of profits and other surpluses to meet future
uncertainties. In other words, a reserve is meant for meeting any unknown liability or loss
in the future.

The Reserves are of the following kinds:-

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 i. Revenue Reserve :- These reserves comes into existence out of profit which has been
earned in the business. Therefore, the Revenue reserves represent undistributed profit
and as such are available for the distribution of dividends.
Further Revenue Reserves is divided into two categories i.e. General Reserves & Specific
Reserves.
ii. General Reserves :- Usually the businessman do not withdraw the entire profit from
the business but retain a part of it in the business to meet unforeseen uncertainties.
Profit so retained in the business for a rainy day are known as General Reserves.
iii. Specific Reserves :- Such a reserves is created for a specific purpose and can be utilised
for that purpose. Examples of Specific reserves are i) Reserve for replacement of asset (ii)
Dividend equalisation reserves. (iii) Investment Fluctuation Fund (iv) Workmen
compensation Fund (v) Debenture Redemption Reserves.
iv. Capital Reserves :- In addition to normal profit capital profits are earned in the
business from many sources. The reserve credited out of capital profit are called Capital
Reserves. Capital profit are generally earned from the following :-
i) Profit from sale of fixed assets.
ii) Profit on revaluation of fixed assets.
iii) Premium received on issue of shares/debentures.
iv) Profit on purchase of running business etc.

Capital Reserves are used to write off capital losses and for issue of fully paid bonus
shares. It is not used for distribution of dividends.

18.What is Secret Reserves ? How is it created ? What are its advantages &
disadvantages?
Ans. A Secret Reserve is that Reserve which is not disclosed in the Balance Sheet. Where such
a reserve exists the financial position of the concern is definitely better than what appears
from the Balance Sheet. Under the provisions of Company Act, the creation of Secret
Reserve is not allowed as the Act requires the full disclosure of financial positions. The
Company Act however exempts certain companies for whom the creation of Secret
Reserve is essential e.g. Banking Companies, Electricity Companies & Insurance
Companies etc. Secret Reserves are created by the simple method of showing profit less
than the actual.

Methods of Creating Secret Reserves :-

i) By providing excessive depreciation.

26
 ii) By under valuing current assets such as stock in trade.
iii) By making excessive provisions for outstanding liability.
iv) By charging capital items to P&L A/C.
v) By writing down good will.
vi) By providing more reserve than necessary for bad and doubtful debt and discount on
sundry dobtors.
vii) By omitting some of the assets altogether from the Balance Sheet.
viii)By showing contingent liability as real one.
ix) By overvaluing the liabilities.
x) By suppressing sales.

Advantages of Secret Reserve:-

i) Business is saved from collapse on account of huge loss.

ii) Dividend can be paid even if ther are no profits.
iii) It discourages business competition
iv) Working capital can be increased to enhance the profits.
v) Dividend may be equalised more effectively.

Disadvantages of Secret Reserve:-

i) Balance Sheet does not show the the true position of the business.
ii) Management can conceal its efficiency
iii) It provides provocation for misappropriation.
iv) The profit and loss account does not show correct position.
v) The shareholders do not get their due share in the profit of the business.

19.a) What do you understand by Self Balancing of Ledger.

(b) What is the object of Self Balancing Ledger.
(c ) How will you proceed to make the ledger Self Balancing .
(d) State the advantages & disadvantages of Self Balancing Ledger.
Ans. (a) Meaning of Self Balancing Ledger :- If the number of credit customers & credit
suppliers are large, the ledger becomes heavy. The trial balance is too long & if there is
an error, it becomes difficult to locate it. To solve this roblem, the system of self
balancing is introduced. By the help of self balancing system mistake can be readily
located and rectified. In other words “A self balancing of ledger is one, whose balances
when extracted, form a complete Trial Balance without regard to the accounts without
ledger.

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(b) Object of Self Balancing Ledger :- The main object of Self Balancing is to eliminate the
wastage of time and labour by adopting very simple plan which will enable us to test the
accuracy of each ledger separately.
( c) Procedure to make Ledger Self Balancing :- According to the system of Self Balancing
Ledger, a trader is required to divide the whole ledger into three main parts :-
1. Debtor Ledger :- This ledger contains the accounts of Credit Customers. This is also
known as Sold Ledger or Customer’s Ledger.
2. Creditor Ledger :- This ledger contains the account of suppliers or creditors. It is called
Purchase ledger or Bought ledger or Creditor ledger.
3. General Ledger :- This ledger contains other accounts i.e. accounts relating to assets,
liabilities, expenses, income etc. This is the usual ledger minus the accounts of
customers & suppliers of goods in trade. It is also known as Principal ledger or the
Nominal Ledger.
It will be seen that no ledger contains all the required information for the preparation
of separate trial balance of each ledger. The system of Self Balancing Ledger means
that each of the three ledgers will contain completer information so that a trial
balance from each ledger can be prepared separately without the help of other
ledgers. This will be possible if a separate adjustment accouint is opened at the end of
each ledger.
Adjustment A/C is an extra A/C which is opened at the end of each ledger with a view
to check its arithemetical accuracy & make it self balancing. The following adjustment
accounts are opened in the three ledgers :-
1. Debtor Ledger :- The General Ledger Adjustment A/C will be opened in Debtor
Ledger. It will be the reverse of the Total Debtor’s A/C.
2. Creditor Ledger :- The General Ledger Adjustment A/C will be opened in the Creditor
Ledger. It will be the reverse of Total Creditor’s A/C.
3. General Ledger :- i) Debtor Ledger Adjustment A/C :- It will result in completing
double entry relating to transactions with trade debtors.
(ii) Creditor Ledger Adjustment A/C :- It will result in completing double entry with
trade credito’s.
(d) Advantage of Self Balancing System :-
i. The total amount payable by debtors and total amount payable to creditors are readily
available because total Debtor’s & total Creditor’s A/Cs are maintained in General
Ledger.
ii. This system saves labour.
iii. It is a useful instrument in strengthening the internal check.
iv. Final A/Cs can be prepared easily & quickly.
v. This system helps in reducing fraud.
vi. The responsibility of the person committing error can be fixed.
Disadvantages of Self Balancing Systme. :-

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 i. Additional column have to be maintained in the subsidiary books and with total figures,
control accounts have to be prepared. It means additional work.
ii. For small concerns, maintainance of these ledgers proves to be very constly as
compared to the advantages of these ledgers.
20. What do you understand by Cost Accounts. Describe its object &
advantages.
Ans. Cost Accounts are the set of accounts prepared for recording systematically and with
reasonable accuracy, the distribution of costs of material, labour and other expenses
incurred in the manufacture of a particular job or a commodity.
Object of Cost Account :-
i. The main object of Cost Account is to enable the manufacturer to ascertain the cost and
total cost of the articles he manufactures.
ii. This system is adopted with a view to provide valuable data for estimating or tendering
important contracts.
iii. It helps to examine whether profit has been earned in respect of each department
process or job.
Advantages of Cost Accounts :- The advantages of cost accounts may be summarized as
under :-
i. It enables a concern to first measure its efficiency and then to maintain & improve it.
ii. A true comparison can be made of the different classes & quantity of material used and
also various method of manufacture.
iii. It enables to prepare estimates for the puspose of tendering for contracts.
iv. It helps to achieve operative efficiency of the products.
v. Exact cause of existence of profits or losses is prevealed.
vi. It provides material for reducing cost by improving organisation.
vii. It enables control and check on leakage or wastage of materials.
viii. It provides most reliable check on the accuracy of financial accounts through
reconciliation.

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