Question Bank for Deloitte

Fundamentals of Accounting
1. What is Book-keeping?
Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business and other
organizations. It involves preparing source documents for all transactions, operations, and other events of a business

2. What is Financial Accounting?

Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions
related to a business. This involves the preparation of financial statements available for public use

3. What is the difference between book-keeping and accounting?

Bookkeeping is a foundation/base of accounting. The purpose of bookkeeping is to maintain a systematic record of financial
activities and transactions chronologically. Bookkeeping is one segment of the whole accounting system. The result of the
bookkeeping process is providing input for accounting.

Whereas, accounting uses the information provided by bookkeeping to prepare financial reports and statements. Accounting
starts where the bookkeeping ends and has a broader scope than bookkeeping. The result of accounting is preparing financial
statements for making informed decisions and judgments. The purpose of accounting is to report the financial strength and
obtain the results of the operating activity of a business.

4. What are the different types/forms/branches of accounting?

(a) Financial accounting: -
Financial accounting involves recording and clarifying business transactions along with preparation and presentation of
financial statements. Financial accounting follows GAAP principles and focuses on historical data
(b) Management Accounting: -
Managerial accounting works to improve the company's administration, enhance its profit, and provide management with
financial reports that influence planning and budgets. This branch of accounting performs forecasting to advise management
on the best business practices to meet goals and maintain profit.
(c) Cost accounting: -
Cost accounting, considered a subset of management accounting, focuses on evaluating costs. This branch considers all
factors of manufacturing to accurately determine the cost of a project or venture. Cost accounting analyzes manufacturing
costs to prepare and present reports that inform decision makers on how to reduce cost, or when to spend more. It monitors
projects for waste and cost control.

5. What is Cost Accounting?

Cost accounting, considered a subset of management accounting, focuses on evaluating costs. This branch considers all
factors of manufacturing to accurately determine the cost of a project or venture. Cost accounting analyzes manufacturing
costs to prepare and present reports that inform decision makers on how to reduce cost, or when to spend more. It monitors
projects for waste and cost control.

6. What is Financial Accounting?

Financial accounting involves recording and clarifying business transactions along with preparation and presentation of
financial statements. Financial accounting follows GAAP principles and focuses on historical data

7. How financial accounting is differentiated with cost accounting?

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Cost Accounting refers to that branch of accounting which deals with costs incurred in the production of units of an
organization. Cost accounting generates information so as to keep a check on operations, with an aim of maximizing profit
and efficiency of the concern.

On the other hand, financial accounting refers to the accounting concerned with recording financial data of an organization,
in order to exhibit exact position of the business. Financial accounting ascertains the financial results, for the accounting
period and the position of the assets and liabilities on the last day of the period.

8. How financial accounting is differentiated with management accounting?

Financial accounting refers to the accounting concerned with recording financial data of an organization, in order to exhibit
exact position of the business. Financial accounting ascertains the financial results, for the accounting period and the
position of the assets and liabilities on the last day of the period.

On the other hand, management accounting is a new field of accounting that studies managerial aspects. It deals with the
provision of financial data to the company’s management so that they can make rational economic decisions. Management
accounting aims at providing both qualitative and quantitative information to the managers, so as to assist them in decision
making and thus maximizing the profit.

9. How cost accounting is differentiated with management accounting?

Cost Accounting refers to that branch of accounting which deals with costs incurred in the production of units of an
organization. Cost accounting generates information so as to keep a check on operations, with an aim of maximizing profit
and efficiency of the concern.

On the other hand, management accounting is a new field of accounting that studies managerial aspects. It deals with the
provision of financial data to the company’s management so that they can make rational economic decisions. Management
accounting aims at providing both qualitative and quantitative information to the managers, so as to assist them in decision
making and thus maximizing the profit.

10. What are the different types of accounts?

3 Different types of accounts in accounting are Real, Personal and Nominal Account.

Real Accounts are the ones that are related with properties, assets or possessions. These properties can be both physically
existing as well as non physical in nature.

Personal Accounts are the ones that are related with individuals, companies, firms, group of associations etc. These persons
could include natural persons, artificial persons or representative persons.

Nominal Accounts relate to income, expenses, losses or gains. These include Wages A/c, Salary A/c, Rent A/c etc.

11. Elaborate Real Account.

Real Accounts are the ones that are related with properties, assets or possessions. These properties can be both physically
existing as well as non-physical in nature. Golden Rule Related To The Personal Account is Debit What Comes In, Credit
What Goes Out

12. Discuss the Personal Account.

Personal Accounts are the ones that are related with individuals, companies, firms, group of associations etc. These persons
could include natural persons, artificial persons or representative persons. Golden Rule Related To The Personal Account is
Debit the receiver and credit the giver.
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 13. What is Nominal Account?

Nominal Accounts relate to income, expenses, losses or gains. These include Wages A/c, Salary A/c, Rent A/c etc. Golden
Rule Related To The Personal Account is Debit All Expenses and Losses, Credit All Incomes and Gains

14. Discuss Liabilities.

A liability is typically an amount owed by a company to a supplier, bank, lender or other provider of goods, services or loans.
Liabilities can be listed under accounts payable, and are credited in the double-entry bookkeeping method of managing
accounts.

15. What are the different types of liabilities?

Businesses sort their liabilities into two categories: current and long-term. Current liabilities are debts payable within one
year, while long-term liabilities are debts payable over a longer period.

16. What is Contingent Liability?

A contingent liability is a liability that may occur depending on the outcome of an uncertain future event. A contingent
liability is recorded if the contingency is likely and the amount of the liability can be reasonably estimated.

17. Discuss Current Liability with examples.

Current liabilities are a company's debts or obligations that are due to be paid to creditors within one year. Examples of
current liabilities include accounts payable, short-term debt, dividends, and notes payable as well as income taxes owed.

18. Discuss Non-current liability with examples.

Noncurrent liabilities, also known as long-term liabilities, are obligations listed on the balance sheet not due for more than a
year. Noncurrent liabilities include debentures, long-term loans, bonds payable, deferred tax liabilities, long-term lease
obligations, and pension benefit obligations.

19. Difference between current and non-current liability.

Current liabilities (short-term liabilities) are liabilities that are due and payable within one year. Non-current liabilities (long-
term liabilities) are liabilities that are due after a year or more.

20. Discuss Internal Liability.

The total amount of debts payable by a business to its owners are called internal liabilities e.g., capital.

21. What is external liability?

It is the liability which is to be paid to outsiders (other than owners of business). All obligations which a business has to pay
back to external parties i.e., lenders, vendors, etc. are termed as external liabilities. Example – Borrowings, Creditors, Taxes,
Overdraft, etc.

22. Difference between Internal and external liability.

Internal liability:- it is the amount payable to the owner by the business. It appears as capital in balance sheet. External
liability:- liability which are payable to outsiders. External liability arrives because of credit purchases or loans raised or
taken.

23. What is Asset?

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An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation
that it will provide a future benefit. Assets are reported on a company's balance sheet and are bought or created to increase
a firm's value or benefit the firm's operations

24. What are different types of Assets?

Assets can be categories in two ways, one is fixed asset/non-current asset and current asset. And other category is tangible
assets and intangible assets.

25. Elaborate fixed assets/non-current assets

An assets which are purchased for long-term use and are not likely to be converted quickly into cash, such as land, buildings,
and equipment.

26. Discuss current assets with examples.

Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities,
and other liquid assets. Current assets are important to businesses because they can be used to fund day-to-day business
operations and to pay for the ongoing operating expenses.

27. Difference between fixed assets/non-current and current assets.

Current assets are short-term assets that are typically used up in less than one year. Current assets are used in the day-to-
day operations of a business to keep it running. Fixed assets are long-term, physical assets, such as property, plant, and
equipment (PP&E). Fixed assets have a useful life of more than one year.

28. What is tangible asset? Discuss it with examples.

Tangible assets are physical; they include cash, inventory, vehicles, equipment, buildings and investments.

29. What is intangible asset? Discuss it with examples.

Intangible assets do not exist in physical form and include things like patents, trademark, copyright and goodwill.

30. Differentiate between Tangible and Intangible Asset.

Assets which have a physical existence and can be touched and felt are called Tangible Assets. Tangible assets can include
both fixed and current assets. Few examples of such assets include furniture, stock, computers, buildings, machines, etc.

Intangible assets don’t have a physical existence and cannot be touched or felt. Intangible assets can either be definite or
indefinite, depending on the kind of an asset in question. A few examples of such assets include goodwill, patent, copyright,
trademark, company’s brand name, etc.

31. What is working capital?

Working Capital indicates liquidity levels of companies for managing its daily expenses covering inventory, accounts
payable, accounts receivable. The capital of a business which is used in its day-to-day trading operations, calculated as the
current assets minus the current liabilities.

32. How we can calculate working capital?

At a high level, the calculation of working capital is as follows: Current assets - Current liabilities = Working capital

33. Discuss different basis of accounting?

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The two main types of bases are cash basis and accrual basis accounting. Cash basis records finances when money
exchanges hands, while accrual basis when the transaction occurs, whether or not any cash has been received or paid.

34. What is Cash basis of accounting?

Cash basis refers to a major accounting method that recognizes revenues and expenses at the time cash is received or paid
out. Cash basis records finances when money exchanges hands.

35. What is accrual basis/mercantile basis of accounting?

Accrual accounting is a financial accounting method that allows a company to record revenue before receiving payment for
goods or services sold or expenses are recorded as incurred before the company has paid for them.

36. What is the difference between accrual basis of accounting and cash basis of accounting?

The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are
recognized. The cash method is a more immediate recognition of revenue and expenses, while the accrual method focuses
on anticipated revenue and expenses.

37. Explain accounting cycle.

The accounting cycle is a collective process of identifying, analyzing, and recording the accounting events of a company. It is
a standard process that begins when a transaction occurs and ends with its inclusion in the financial statements.

The key steps in the eight-step accounting cycle include recording journal entries, posting to the general ledger, calculating
trial balances, making adjusting entries, and creating financial statements.

38. What are the different components of accounting cycles?

Accounting cycle includes, recording the financial transaction, journal entries, ledger account, preparation of trial balance,
adjustment entries, preparation of financial statement.
39. Discuss Generally Accepted Accounting Principles (GAAP).

Generally accepted accounting principles (GAAP) refer to a common set of accounting principles, standards, and procedures
issued by the Financial Accounting Standards Board (FASB).

40. Discuss about Accounting Standards.

An accounting standard is a common set of principles, standards, and procedures that define the basis of financial
accounting policies and practices.

41. Explain any three accounting principles with examples.

Explain any 3 accounting principles.
42. What is Depreciation?

In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner
until the value of the asset becomes zero or negligible.
An example of fixed assets are buildings, furniture, office equipment, machinery etc. The land is the only exception that
cannot be depreciated as the value of land appreciates with time.
Depreciation allows a portion of the cost of a fixed asset to the revenue generated by the fixed asset.

43. What are the different methods of depreciation?

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Two methods of depreciation are very commonly used these are Straight Line Depreciation Method, Diminishing Balance
Method.

44. What is Fixed Installment Method/Straight Line Method/ Equal Installment Method/ Original Cost Method?

It is also known as fixed instalment method. Under this method, an equal amount is charged for depreciation of every fixed
asset in each of the accounting periods. This uniform amount is charged until the asset gets reduced to nil or its salvage
value at the end of its estimated useful life.

45. What is the formula of calculating depreciation under Fixed Installment Method/Straight Line Method/ Equal
Installment Method/ Original Cost Method?
Depreciation = (Cost of Assets – Solvage Value) / useful life of an asset
46. What is Diminishing Balance Method/Reducing Balance Method/Written Down Value Method?

The diminishing balance method, also known as the reducing balance method, is a method of calculating depreciation at a
certain percentage each year on the balance of the asset which is brought from the previous year. The amount of
depreciation imposed for each period is not fixed but it goes on decreasing moderately as the opening balance of the asset
in each year will minimize.

47. What is the difference between Fixed Installment Method and Reducing Balance Method?

The main difference between the reducing balance and straight-line methods of depreciation is that while the reducing
balance method charges depreciation as a percentage of an asset's book value, the straight-line method expenses the same
amount each year.

48. What are different causes of depreciation?

There are 4 different causes of depreciation, these are: Internal Causes, External Causes, Time Element, and Abnormal
Occurrence.
49. Discuss the internal causes of depreciation.

 Wear and tear: Plant & machinery, furniture, motor vehicles etc suffer from loss of utility due to vibration,
chemical reaction, negligent handling, rusting etc.
 Depletion (or exhaustion): The utility or resources of wasting assets (like mines etc.) decreases with regular
extractions.

50. Discuss the external causes of depreciation.

 Obsolescence: Innovation of better substitutes, change in market demand, imposition of legal restrictions may
result into discarding an asset.
 Inadequacy: Changes in the scale of production or volume of activities may lead to discarding an asset.

51. Discuss Time Element cause of depreciation.

With the passage of time some intangible fixed assets like lease, patents. Copy- rights etc., lose their value or effectiveness,
whether used or not. The word “amortization” is a better term to speak for the gradual fall in their values.
52. Discuss Abnormal Occurrence of depreciation.

An accident, fire or natural calamity can damage the service potential of an asset partly or fully. As a result, the effectiveness
of the asset is affected and reduced.

53. What is Depletion under depreciation?

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This method is especially suited to mines, oil wells, quarries, sandpits and similar assets of a wasting character. In this
method, the cost of the asset is divided by the total workable deposits of the mine etc. And by following the above manner
rate of depreciation can be ascertained.

54. What is Obsolescence in depreciation?

The term ‘Obsolescence’ refers to loss of usefulness arising from such factors as technological changes, improvement in
production methods, change in market demand for the product output of the asset or service or legal or medical or other
restrictions.

55. What is Dilapidation under depreciation?

Dilapidation means a state of deterioration due to old age or long use. This term refers to damage done to a building or
other property during tenancy.

56. What is Amortization?

Intangible assets such as goodwill, trademarks and patents are written off over a number of accounting periods covering
their estimated useful lives. This periodic write off is known as Amortization and that is quite similar to depreciation of
tangible assets. The term amortization is also used for writing off leasehold premises. Amortization is normally recorded as a
credit to the asset account directly or to a distinct provision for depreciation account.

57. On which types of assets amortization applied?

Intangible assets such as goodwill, trademarks and patents are written off in amortization.

58. What is the difference between Depreciation and Amortization?

The key difference between amortization and depreciation is that amortization is used for intangible assets, while
depreciation is used for tangible assets. Another major difference is that amortization is almost always implemented using
the straight-line method, whereas depreciation can be implemented using either the straight-line or accelerated method.
Finally, because they are intangible, amortized assets do not have a salvage value, which is the estimated resale value of an
asset at the end of its useful life.

59. What is Capital Transaction?

Transactions having long-term effect are known as capital transactions. Transactions relating to share capital and reserves,
long-term debt capital, or fixed assets of a company, as opposed to revenue transactions. For example, the purchase of a
building is a capital transaction, while the maintenance of a building is a revenue transaction.

60. What is Revenue Transaction?

Transactions having short-term effect are known as revenue transactions. Recurring nature transactions are revenue
transactions.

61. Discuss Capital Income with examples

The income arises from non-recurring Transactions by certain or a certain event is called capital income. Sale of fixed assets,
capital employed or invested, and loans are the example of capital receipts.

62. Elaborate Capital Expenditure with examples

This represents 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 a computer for office use is a capital expenditure. For example, the
purchase of a car to be use to deliver goods is capital expenditure. Included in capital expenditure are such costs as, Delivery
of fixed assets, Installation of fixed assets, Improvement (but not repair) of fixed assets.
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 63. Discuss Capital receipt.

Receipts which are not of revenue nature are capital receipts. The Receipts which are not received now and then can be
treated as capital receipt. A receipt on account of fixed assets is a capital receipt whereas a receipt on account of current
assets or circulating capital is a revenue receipt. For example, Capitals contributed by members, Share capital contributed by
the share holders/ members, Loans raised, Proceeds from sale of fixed assets, Life membership fees in the case of clubs and
associations.

64. Discuss Capital payment.

The non-recurring payments and part of capital expenditure which is paid in cash are called capital payments. Examples of
capital payment are Amount paid for the purchase of Assets, Redemption of share capital and debentures, Repayment of
long drawing by the proprietor, premium paid on the purchase of Assets and Payments for Goodwill etc.

65. Differentiate between Capital Income and Capital Expenses.

The income arises from non-recurring Transactions by certain or a certain event is called capital income. Sale of fixed assets,
capital employed or invested, and loans are the example of capital receipts.

Whereas capital 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 a computer for office use is a capital expenditure. For example, the
purchase of a car to be use to deliver goods is capital expenditure. Included in capital expenditure are such costs as, Delivery
of fixed assets, Installation of fixed assets, Improvement (but not repair) of fixed assets.

66. Differentiate between Capital Receipt and Capital Payment.

Receipts which are not of revenue nature are capital receipts. The Receipts which are not received now and then can be
treated as capital receipt. A receipt on account of fixed assets is a capital receipt whereas a receipt on account of current
assets or circulating capital is a revenue receipt. For example, Capitals contributed by members, Share capital contributed by
the share holders/ members, Loans raised, Proceeds from sale of fixed assets, Life membership fees in the case of clubs and
associations.

Whereas, capital payment non-recurring payments and part of capital expenditure which is paid in cash are called capital
payments. Examples of capital payment are Amount paid for the purchase of Assets, Redemption of share capital and
debentures, Repayment of long drawing by the proprietor, premium paid on the purchase of Assets and Payments for
Goodwill etc.

67. Discuss Revenue Income with examples

These incomes arise in the ordinary course of business, which includes commission received, discount received etc.

68. Elaborate Revenue Expenses with examples

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.

69. Discuss Revenue receipt.

The receipts or income which are received by the business organization in the course of normal activities are revenue
receipts. Examples are receipts from sale of goods or services, Discounts, commissions received, Interest on Bank Deposits,
etc.

70. Discuss Revenue payment.

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 71. Differentiate between Revenue Income and Revenue Expenses.

These incomes arise in the ordinary course of business, which includes commission received, discount received etc.
Whereas, 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.

72. Differentiate between Revenue Receipt and Revenue Payment.

73. Discuss double entry system.

Double-entry bookkeeping, also known as, double-entry accounting, is a method of bookkeeping that relies on a two-sided
accounting entry to maintain financial information. Every entry to an account requires a corresponding and opposite entry
to a different account.

74. What are the golden rules of accounting?

Real Account: - Debit what comes in, Credit what goes out.
Personal Account: - Debit the receiver, Credit the giver.
Nominal Account: - Debit all expenses & losses, Credit all incomes and gains.

75. What is British Approach/Golden Rules/Traditional Approach of accounting?

When one identifies the account that is getting affected by a transaction and type of that account, the next step is to apply
the rules to decide whether the accounting treatment is to debit or credit that account. The Golden Rules will guide us
whether the account is to be debited or credited.
Real Account: - Debit what comes in, Credit what goes out.
Personal Account: - Debit the receiver, Credit the giver.
Nominal Account: - Debit all expenses & losses, Credit all incomes and gains.

76. What is American Approach/Modern Approach of accounting?

In order to understand the rules of debit and credit according to these approach transactions are divided into the following
five categories: Transactions relating to owner, Transactions relating to other liabilities, Transactions relating to assets,
Transactions relating to expenses, Transactions relating to revenues. It debits and credits the items with increases and
decreases in above items.

77. What is Balance Sheet Equation/Accounting Equation?

Assets = Liabilities + Owner’s equity

78. What is trade discount?

A discount on the retail price of something allowed or agreed between traders or to a retailer by a wholesaler. A deduction
from the list price of goods allowed by a manufacturer or wholesaler to a retailer.

79. What is cash discount?

A discount granted in consideration of immediate payment or payment within a prescribed time. Cash discount is referred to
as the discount that is offered by the seller of a product to the buyer at the time of payment for the purchase.

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 80. Discuss the concept of journal entry/books of prime entry/journalization.

A journal entry is the act of keeping or making records of any transactions either economic or non-economic. Transactions
are listed in an accounting journal that shows a company's debit and credit balances. The journal entry can consist of several
recordings, each of which is either a debit or a credit.

81. What is special journal/subsidiary books.

The Subsidiary Books are the books of Original Entry. These books are also called Day Books or special journals. It includes
Purchase Book, Sales Book, Purchase Return Book, Sales Return Book, Bills Receivable Book, Bills Payable Books.

82. What is Compound journal?

If for a single transaction, only one account is debited and one account is credited, it is known as simple journal. If the
transaction requires more than one account which is to be debited or more than one account is to be credited, it is known as
Compound Journal.

83. What is Cash book?

A cash book is a financial journal that contains all cash receipts and disbursements, including bank deposits and withdrawals.

84. What are different types of cash book?

There are three common types of cash books: single column, double column, and triple column. Single column cash book
will only record cash transactions. Under two column cash book instead of one column, we have an additional column
for discounts. Under triple column cash book, has the cash, the discount and additionally the bank columns in it.

85. What is Purchase day book and purchase return book?

A purchases day book is an accounting ledger in which credit purchasing transactions are recorded. A purchase returns
journal (also known as returns outwards journal/purchase debits daybook) is a prime entry book or a daybook which is used
to record purchase returns.

86. What is Sales day book and sales return book?

The sales day book is a manually-maintained ledger in which is recorded the key detailed information for each individual
credit sale to a customer. Sales returns book is also called returns inwards book. It is used for recording goods returned to us
by our customers. The ruling of this books is exactly as for sales day book.

87. Discuss the ledger account.

A ledger is a book or collection of accounts in which account transactions are recorded. Each account has an opening or
carry-forward balance, and would record each transaction as either a debit or credit in separate columns, and the ending or
closing balance.

88. What is trial balance?

A trial balance is a list of all the general ledger accounts contained in the ledger of a business. This list will contain the name
of each nominal ledger account and the value of that nominal ledger balance. Each nominal ledger account will hold either a
debit balance or a credit balance.

89. How will you prepare the trial balance?

While preparing the trial balance, all assets, expenses, losses, debtors, drawings must be debited in the trial balance. And all
liabilities, incomes, gains, creditors, capital must be credited in the trial balance.

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 90. What is Balance Sheet?

A balance sheet is a financial statement that reports a company's assets, liabilities and shareholder equity at a specific point
in time. It is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a
business partnership, a corporation, private limited company or other organization such as government or not-for-profit
entity.

91. How will you prepare balance sheet?

List all of your assets, Add up all of your assets, Add up liabilities, add owner’s equity, Add up liabilities and owners’ equity,

92. What is the difference between balance sheet and trial balance?

The main difference between the trial balance and a balance sheet is that the trial balance lists the ending balance for every
account, while the balance sheet may aggregate many ending account balances into each line item.

93. What is Trading Account?

Trading account is used to determine the gross profit or gross loss of a business which results from trading activities. Trading
activities are mostly related to the buying and selling activities involved in a business.

94. How will you make Trading Account?

95. What is Profit and Loss Account?

The profit and loss statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a
specified period. The P&L statement is one of three financial statements every public company issues quarterly and
annually, along with the balance sheet and the cash flow statement.

96. How will you make Profit and Loss Account?

97. What is Manufacturing Account?

The manufacturing account gives information on all the expenses and costs incurred in the preparation of the goods to be
sold. This includes the expenses that are met in the path of preparing the goods but not the finished goods.

98. How will you make Manufacturing Account?

99. Difference between Manufacturing Account and Trading Account?

The main difference between Trading Account and Manufacturing Account is, the trading account gives the Gross profit
made by the company whereas the Manufacturing account is the cost of the product manufactured by the company.

100. What is Income and Expenditure Account?

The income and expenditure account is prepared by the non-trading entities to determine surplus or deficit of income over
expenditures for a particular time frame. The accumulated or accrual concept of accounting is rigidly pursued while
preparing income and expenditure a/c of non-trading concerns.

101. How Income and Expenditure account is differentiated from Profit and Loss Account?

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Income and expenditure account is account which is prepared for finding the excess of income over expenditures or excess
of expenditures over incomes. Profit and loss account is the account which is prepared for finding net profit or net loss.

102. What are different Financial Statements?

There are four main financial statements. They are: (1) balance sheets; (2) income statements; (3) cash flow statements.

103. What is Receipt and Payment Account?

Receipt and payment account functions as a summary of cash payments and receipts of an organisation during an
accounting period. It provides a picture of the cash position of a Not-for-Profit organisation.

104. What is Rectification of Errors?

Rectification of errors is referred to as the procedure of revising mistakes made in recording transactions. These mistakes
can occur while posting entries to ledger accounts, classifying accounts, carrying balance forward, etc.

105. What are different types of rectification of errors?

Rectification of errors are of three types namely, errors of principles, errors of commission, and errors of omission.
106. Explain errors of omission?

Errors of omission includes a partial omission or a complete omission. When entries are omitted, then this type of error is
error of omission.

107. Discuss errors of commission?

Error of commission is an error that occurs when a bookkeeper or accountant records a debit or credit to the correct
account but to the wrong subsidiary account or ledger. It includes a) Posting to wrong account, b) Posting on the wrong side,
c) Posting of wrong amount.

108. Discuss errors of principle?

When a transaction is recorded in contravention of accounting principles, like treating the purchase of an asset as an
expense, it is an error of principle. In this case there is no effect on the trial balance since the amounts are placed on the
correct side, though in a wring account. Suppose on the purchase of a typewriter, the office expenses account is debited; the
trial balance will still agree.

109. Differentiate between errors of omission and errors of commission.

110. What are adjustment entries?

Adjustment entries are passed either before or after preparation of trial balance. But generally adjustments are made after
trial balance has been prepared. Accrued incomes, incomes received in advance, outstanding expenses and prepaid
expenses etc. require adjustments at the end of the year so that true net income is determined on accrual basis. Besides
these, there are other items like closing stock, depreciation etc. which need adjustment.

111. What is horizontal format of Balance Sheet?

A horizontal balance sheet uses extra columns to present more detail about the assets, liabilities, and equity of a business.

112. What is vertical format of Balance Sheet?

A vertical balance sheet is one in which the balance sheet presentation format is a single column of numbers, beginning with
asset line items, followed by liability line items, and ending with shareholders' equity line items.

113. Discuss the Bank Reconciliation Statements (BRS).

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A bank reconciliation statement is a summary of banking and business activity that reconciles an entity's bank account with
its financial records. The statement outlines the deposits, withdrawals, and other activities affecting a bank account for a
specific period.

114. Why Bank Reconciliation Statement (BRS) is important for business?

Bank reconciliations are an essential internal control tool and are necessary in preventing and detecting fraud. They also
help identify accounting and bank errors by providing explanations of the differences between the accounting record's cash
balances and the bank balance position per the bank statement.

115. What is Bills of Exchange?

The bill of exchange contains an unconditional order to pay a certain amount on an agreed date while the promissory note
contains an unconditional promise to pay a certain sum of money on a certain date.
116. Discuss the different parties in Bills of Exchange?

 the drawer is the party that issues a bill of exchange – the 'creditor';
 the beneficiary or payee is the party to which the bill of exchange is payable;
 the drawee is the party to which the order to pay is sent - 'the debtor'.

117. Explain the discounting of bills.

If the creditor of the bill of exchange wants the money immediately, the bank provides him the the money by discounting
the bill of exchange. The bank deposits the amount of the bill in the current account of the bill holder after deducting its rate
of interest.

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