TELANGANA STATE BOARD OF

INTERMEDIATE EDUCATION

COMMERCE &
ACCOUNTANCY
FIRST YEAR
(English Medium)

BASIC LEARNING MATERIAL

ACADEMIC YEAR
2021-2022
 Coordinating Committee

Sri Syed Omer Jaleel, IAS

Commissioner, Intermediate Education &
Secretary, Telangana State Board of Intermediate Education
Hyderabad

Dr. Md. Abdul Khaliq

Controller of Examinations
Telangana State Board of Intermediate Education

Educational Research and Training Wing

Ramana Rao Vudithyala
Reader

Mahendar Kumar Taduri

Assistant Professor

Vasundhara Devi Kanjarla

Assistant Professor

Learning Material Contributors

M. Sunitha M. Krishna Rao

Principal, Govt. Jr. College (Girls), JL in Commerce, Govt. Jr. College,
Sangareddy, Sangareddy Dist. B.H.E.L, R.R. Dist.

Y. Ravinder B. Saidulu
JL in Commerce, Govt. Jr. College, JL in Commerce, Govt. Jr. College,
Hayath Nagar, R.R. Dist. Vachara, R. R. Dist.

V. Sreekanth
JL in Commerce, Govt. Jr. College,
Shadnagar, R.R. Dist.
 PREFACE

The ongoing Global Pandemic Covid-19 that has engulfed the entire world has changed every
sphere of our life. Education, of course is not an exception. In the absence of Physical Classroom
Teaching, Department of Intermediate Education Telangana has successfully engaged the students and
imparted education through TV lessons. In the back drop of the unprecedented situation due to the
pandemic TSBIE has reduced the burden of curriculum load by considering only 70% syllabus for class
room instruction as well as for the forthcoming Intermediate Examinations. It has also increased the
choice of questions in the examination pattern for the convenience of the students.

To cope up with exam fear and stress and to prepare the students for annual exams in such a
short span of time , TSBIE has prepared “Basic Learning Material” that serves as a primer for the
students to face the examinations confidently. It must be noted here that, the Learning Material is not
comprehensive and can never substitute the Textbook. At most it gives guidance as to how the students
should include the essential steps in their answers and build upon them. I wish you to utilize the Basic
Learning Material after you have thoroughly gone through the Text Book so that it may enable you to
reinforce the concepts that you have learnt from the Textbook and Teachers. I appreciate ERTW
Team, Subject Experts, who have involved day in and out to come out with the, Basic Learning Material
in such a short span of time.

I would appreciate the feedback from all the stake holders for enriching the learning material
and making it cent percent error free in all aspects.

The material can also be accessed through our websitewww.tsbie.cgg.gov.in.

Commissioner & Secretary

Intermediate Education, Telangana.
 CONTENTS

COMMERCE
UNIT - I Fundamentals of Business 1
UNIT - II Forms of Business Organizations 5

UNIT - III Formation of Company as per Companies Act 2013 11

UNIT - IV Sources of Business Finance 16

UNIT - V MSME’s and MNC’s 20

ACCOUNTANCY
UNIT - I Intruduction to Accounting 24

UNIT - II Subsidiary Books 31

UNIT - III CashBook and Bank Reconciliation Statement 35

UNIT - IV Trial Balance and Rectification of Errors 42

UNIT - V Final Accounts 46

 Commerce-I 1

Unit 1
Fundamentals of Business

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

1. Business
Ans. “A human activity directed towards producing or acquiring wealth through buying and

2.
selling of goods”.
Profession

B IE
Ans. A profession is an occupation or vocation interested to render personal service of a
sfecialized and expert nature.

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3. Employment
Ans. Employment is the relationship between two parties one party render his service on

4.

5.
Employee.
Risk
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contractual basis. Hence the realtionship between these two parties will be employee-

Ans. Risk is the fear of loss and profit is reward for assuming risk.
Home trade
Ans. The trade carried on within the boundaries of a nation or country is called home trade.
6. Entrepot Trade.
Ans. Importing goods from one country with the funsion of exporting them to another country
is called enbepot trade.
7. Extractive Industry
An. An industry concerned with extraction or drawing out goods from the soil air or water is
known as extractive industry.
2 Basic Learning Material

SHORT ANSWER TYPE QUESTIONS (5 MARKS)

1. Define Business. Explain its characteristic features.
Ans. “ a human activity directed towards prdoucing or acquiring wealth through buying and
selling of goods”.
Main characteristic fealwer of business.
1. Economic Activity: Business is an economic activity. It is performed with the main motive
of earnign money or profit.
2. Deals with goods and service: Every business enterprise produces or buys goods and
services with the intention of selling them to others so as to earn profit.
3. Creation of utilities: Business makes goods more useful to satisfy human wants. It adds
time, place, form and possession vtilities to various types of goods.
4. Continuity in dealings: Dealings in goodss and services become business only if undertaken

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on a regular basic.

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5. Profit motive: THe primary objective of busienss is to earn profit.
2. Describe various “Objectives of a business”?

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Ans: Objectives of Business
Economic Objectives
1. Profit earning

3. Innovation
Social objectives
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2. creating customers.

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1. Availability of goods at resonable prices
2. Fair remureative to employees
3. Generating employment
Human Objectives
1. Welfare of employees
2. Developing Human Resources
3. Particpative Management
National Objecting
1. Optimum utilization of resources
2. Development os small scale industries
3. Development of Bankwardd Regions
 Commerce-I 3

3. What is meant by Industry? Explain various types of Industries with suitable

examples.
Ans: Industry is that branch of business which is concerned with production of goods and
services. The production side of business activity is referred as industry.
Various types of Industries
1. Primary Industry : primary Industry is concerned with production of goods by undertaking
all types of farming and associated occupations basically related with nature. Eg:
Agriculature farming.
2. Genetic Industry : Genetic industries are those industries which are engaged in re-
production and multiplication of certain species of plants and animals. eg: poultry, cattle
breeding.
3. Extractive Industry: Extractive industry is concered with extraction or drawing out goods
from the soil air or water eg: coal, oil.
4.

5.
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Manufcturing Industry: Transforming raw materials into finished product with the help of

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machines and manpower. Eg: Textiles chemicals.
Construction Industry: Construction industries take up the work of construction of building
dams etc.

B
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4. What is commerce? Describe its branches.
Ans: “Commerce is an organized system for the exchange of goods betwen the member of the

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industrial world”.
Branches of Commerce (1) Trade (2) Aids to trade
1. Trade: It connects with buyign and selling of good and services trade may be classified
into (a) home trade (b) foreign trade.
(a) Home trade is also known as domestic trade. Home trade is carried on within the boundries
of the nation. Home trade is of two types (1) wholesaletrade (2) Retail trade
Wholesale trade: Buying and selling of goods in largequalities.
Retail Trade: Buying and selling of goods in small quantities
(b) Foreign trade: buying and selling of goods and service between two or more conntries,
foreign trade is of three types.
(a) Export trade (b) import trade (c) Extrepot trade
Export trade: Sale of goods to foreign countries.
Import Trade: Purchase of goods from foreign countries.
Extrepot Trade: Buying goods from one country for the purpose of selling them to another
country is called entrepot trade.
4 Basic Learning Material

2. Aids-to-trade:
(1) Transport (2) Communication (3) Watehousing (4) Insurance (5) Banking (6)
Advertising
5. Define trade and explain various types of aids to trade.
Ans. Trade is a branch of commerce it connects with buying and selling of goods and services
various types of aids-to-trade.
(1) Transport: It is one of the aids to trade. Which facilitaty the distribution of goods and
service smoothly and timely, Transportation creates place utility to goods and services.
(2) Communication: Information from one to another to finalise and settle the terms of sales
such as prices of goods discount allowed etc.
(3) Warehousing: It is another aid to trade, which facilities to store the goods until they either
get the demand or consumed by sloring godos warehouse creates time utility to goods.

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(4) Insurance: Insurance reduces the problem of risks business is subject to risks and
uncertainties.
(5)

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Banking: Bank is a place or an institution which provides short-term and long-term finance
to the business men or organization. it also solves the problem of paymput and facilities
exchange between buyer nd seller.

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(6) Advertising: Advertising helps the consumers to know about hte various brands
manufactured by several manufactures.

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 Commerce-I 5

Unit 2
Forms of Business Organizations

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

1. Sole proprietorship

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Ans. A type of business unit where one person is salely responsible for providing the capital and

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bearing the risk of the enterpirse, and for the management of the business.
2. Cooperative Societies

3.
B
Ans. Cooperative society as “a society, which has its objectives for he promotion of economic

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interests of its members in accordance with cooperative principles.”
Karta

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Ans. The head of the family member of joint Hindu family business. he is knownon as karta”
4. Partnership Deed
Ans. Partnership deed is a document containing the turms and conditions of parternship, certain
rights, duties and obligations of partner.
5. Active partner (or) Working partner
Ans. The partner who actively participate in the day to day operations of the business are known
as active partner a working partner.
6. Limited liability Partnership firm
Ans. “Limited liability partnership is a body corporate formed and incorporated under the act. It
is a legal entity separate from its partners.

SHORT ANSWER TYPE QUESTIONS (10 MARKS)

1. Define sole propretiorship, Explain its features?
Ans. Definition : A type of business unit where one person is safely responsible for providing
the capital and bearing the risk of the enterprise, and for the management of the business.
6 Basic Learning Material

Features of Sole Proprietorship:

1. Individual Initiative : The sale proprietorship business is started by the initiative of a
single person who start the business. He prepares the business plan and arranges various
factors of production.
2. Single ownership: The sole proprietorship firm of business organisation has a signle owner
who himself /herself states the business by bringing together all the resource. He/she only
looks after the busienss affairs.
3. Less legal formalities: The formation and operators involves less legal formalities. Thus
the formation and windingup is very easy and simple.
4. Unlimited liability: The liability of the sole proprietor is unlimited. In case of less business
assets are not enough to pay the business liabilities his personal property can also be
utilised to pay off the liabilities.
5. Ownership and Management : There is no separate existence of the business with the

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owner. The business is dissolved if the owner dies, become insolvent or is removed from

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the busienss.
6. Motivation: The sole proprietor enjoys all the profits and at the same time he bears all the

7.

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losses. This helping business expansion, he alone bears the risks and reaps the profits.

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Secrecy : All the important decisions are taken by the sole proprietor. He/She keeps all the
business secrets only with himself / herself.

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8. No Seperate Entity : The sole proprietership business does not have an entity separate
from the owner, properiter and the busienss enterprise are one and the same.
9. One-Man Control : The management and controlling power prepares various plans and
executes them under own supervision.
10. Area of Operations : The sole properitor has limited resources and manacerial abilities,
he/she has usefully limited areas of operations.
2. What are the features of Joint Hindu Family Business?
Ans: Introduction: A business, which continues from one generation to another generation, is
known as joint hindu family business “ The head of the family is the head of the business.
He is known as ‘Karta’ and the member are known as “Co-parceners”.
Features of Joint Hindu Family Business
1. Formation: In Joint Hindu family business there must be at least two members in the
family, having some ancestral property. It is not created by an agreement but Created and
continued by birth.
2. Governed by Hindu Law: The JHF business is a jointly owned business. The management
and control of he JHF business is done according to Hindu succession Act, 1956.
3. Membership: The membership of the family can be acquired only by barth. Unlike other
 Commerce-I 7

business outsiders are nto allowed to become the coparceners in the JFH business.
4. Management: The business is managed by the senior most member of the family known
as ‘karta’ or manager. Other members do not have the right to pratice in the management.
5. Profit sharing: The joint Hindu family business is jointly owned by all the members.
6. Liability: All the member in a joint Hindu family have limited liability to the extent of
property. But the liability of the Karta is unlimited.
7. Continuity: Death of any coparceners does not affect the continutity of business. Even on
the death of the karta it continues to exist as the eldest of the coparceners takes position of
karta.
8. Accounts: The accounts an maintained by Karta (But this is not obligatory on his part.
Karta is not accountable to any member and nomember is supposed to ask what are the
profits and losses of the business.
3. What is partnership Deed ? Explain if contents in detail?

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Ans: Introduction: partnership deed is a document containing the terms and conditions of a

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partnership. It is an agreement in writing signed by all the partners duly stamped and
registered, this defines rights, duties and obligations of partners.

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The followign points are generatlly included in the deed.

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1. Name of the firm
2. Nature of the Business

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3. Name and address of partners
4. Location of business
5. Duration of partnership, if decided.
6. Amount of capital to be contoributed by each partner.
7. Profit and loss sharing ratio.
8. Duties, powers and obligations of partners.
9. Salaries and withdrawals of the partners.
10. Preparation of accounts and their audit.
11. Procedure for dissolution of the firm.
12. Procedure for settlement of disputes.
4. Disccuss any five types of partners?
Ans. I. Based on the extent of participation
1. Active partner or workng partner: the partners who actively partrcipate in the day-to-
day operations of the business are known as active or working partner.
2. Sleeping partner : The partner who does not participate in the day-to-day activities of
8 Basic Learning Material

the business is known as sleeping or ‘dormant partner”. He contibutes capital and shares
the profits and losses.
II. Based on sharing of profits
1. Nominal partner: He allows the firm to use his name as partner. He / she neither invests
any capital nor participates in the day-today operations. He is not entitled to share the
profits of the firm.
2. Partner in profits: A person who shares the profits of the business without being liable
for the losses is known as partner in profits.
III. Based on liabilities
1. Limited Partner : Based on liability of limited Partners is limited to the extent of his/her
capital contribution. This firms can be seen in European countries and U.S.A.
2. General partner : The partner having unlimited liability is called as general or partner
with unlimited liability.
IV. Partner by Estoppel :

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1. A person, who behaves in the public in such a way as to give an impression that he/she

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is a partner of the firm is called partner by estoppel. He is not entitled to share the profits,
but is fully liable if somebody suffers because of his / her false representation.

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2. Partner by Holdingout: Partner or partnership firm declares that a particular person is
a partner of their firm and such a person doesnot disclaim if, then he/she is known as

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partner by holding out. He is not entitiled to profit but are fully liable with regard with this
firms debt.

LONG ANSWER TYPE QUESTIONS (10 MARKS)

1. Define Co-operative Society Explain its features?
Ans. Introduction : The term cooperation is defined from the latin word ‘Co-operari’. The
word “Co” means with and operari means ‘to work’. Thus the term cooperation means
working together’.
Definition: The Indian Cooperative societies Act 1912, Section (4): Cooperative society
as “a society which has its objectives for the promation of economic interests of its members
in accordance with cooperative principles”.
Features of Cooperative Societies
1) Voluntary Association: Every one is at liberty to enter or leave the cooperative society as
and when he/she likes voluntary associations started with an aim of service to its members.
2) Open membership: The membership is open to all any person can volunteraly beeome a
member irrespective of his / her caste, creed, religion, colour, sex etc.
 Commerce-I 9

3) Number of Members: A minimum of 10 ordinary persons are required to form a cooperative

society. In case of multi-state cooperative societies the minimum number of members
should be 50 from each state.
4) Registration of the Society: In India, Cooperative societies are registered under the cooperative
societies Act, 1912 or under the state cooperative societies Act. The multi-state cooperative
societies are registered under the multi state cooperative societies act 2002.
5) State control: The cooperative department keeps a watch on the functioning of the societies.
Every society has to get its accounts audited from the cooperative department of the
government.
6) Capital: The Capital is contributed by its members since the members contribution is very
limited, often depends on the lean from governments and apex cooperative institution
grants and assistance from state and central Government.
7) Democratic Management: Every Member has a right to take part in the management of

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the society, the members of the managing committee are elected on the basis of one-man

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one-vote irrespective of the number of shares held by member.
8) Service Motive: The Primary objective of all the cooperative societies is to render service

B
of its members, not to earn profits other forms of business organisations.
9) One man one vote: Every member has one vote irrespective of his/her contribution towards

10)

11)
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the capital. All the members have equal voice in the management of the society.
Distribution of Surplus: After giving limited dividend to the members for their investment,
surplus profit is distributed in the form of bonus, certain percentage as reserve and for
general welfare of the society.
Return on Investment: Before distribution of surplus in the form of bonus, the member s
are entitled to get return on their capital investment in the form of dividend.
12) Cash Trading: One of the important principles of cooperative societies is trading on cash
basis only. This eliminates bad debts and collection expenses.
2. Define partnership. Explain its advantages & Disadvantages?
Ans: Definition of Section (4) partnership Act, 1932
“The relationship between persons who have agreed to share the profits of a business
carried on by all or any one acting for all”
Advantages of Partnership firm
1. Easy to form: Partnership can be formed easily without many legal famalities, not
compulsory to get the firm registered, a simple agreement either in oral, writing or implied
is sufficient to create a partnership firm.
2. Larger resources: Since two or more partners join hands to start partnership firm, it may
be possible to pool more resources as compared to sole proprietorship form of business
organisation.
10 Basic Learning Material

3. Better Decisions: Each partner has a right to take part in the management of the bsuiness.
All major decisions are taken in consultation with the consent of all partners.
4. Benefits of specialisation: All partners actively participate in the business as per their
specialisation and knowledge.
5. Flexibility in operations: At any time the partners can decide to change the size or nature
of business or area of its operation after taking the necessary consent of all the partners.
6. Sharing of Risks: The losses of the firm are shared by all the partners equally or as per the
agreed ratio. Every partner bears less burden as compared sole trader.
7. Keen Interest: Since partners share the profit and bear the losses they take keen interest in
the affairs of the business.
8. Protection of Minority Interests: The rights of each partner and his/her interests ar efully
protected. If a partner is dissatisfied with any decision, he can ask for dissolution of the
partnership or can withdraw from the partnership.
9.

10.
information of the outsiders.

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Secrecy: Business secrets of the firm are known to the partners only not disclose any

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More Credit Worthiness: The partners have sufficient contents in the market. They can

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offer more securities of the financial institutions. Liability of the partners being unlimited,

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they will be able to raise more funds.
Disadvantages of partnership firm

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1. Unlimited liability: The liability of the partners is unlimited. i.e., the partners are personally
liable for the debts and obligations of the firm. In otherwords their personal property can
also be utilised for payment of firm liabilities.
2. Instability: Every partnership firm has uncertain life the death, insolvency, incapacity or
the retirement of any partner brings the partnership to an end.
3. Limited capital: Total number of partners cannot exceed 20, the capacity to raise funds
remains limited as compared to joint scock company.
4. Burdel of Implied Authority: A partner can bind the business by his acts. He / she can acts
as an agent of the busienss. A dishonest partner may lead the busienss to difficulties.
5. Non-transferability of shares: The share of internet of any partner cannot be transfered to
ther partner or to the outsiders.
6. Possibility of conflict : Every partner in the firm has an equal right to participate in
management. Because of his some times there is a friction and quarrel among the partners.
7. Lack of public faith : The accounts of partnership concerns are not published therefore,
public is inaccurate of the exact posstion of the business.
8. Delay in Decision making: All important decisions are taken by the consent of partners so
decision making process because time consuming.
 Commerce-I 11

Unit 3
Formation of Company as per
Companies Act 2013
SHORT ANSWER TYPE QUESTIONS (2 MARKS)
1. Small company : Company’s share capital which does not excced Rs. 50 lakhs and a
company other than public company is called small company.
2. Government Company : Any company in which more than 51% of paid up share capital
is held either by the central government or any state government or both governments is

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called government company.

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3. Holding Company : Where one company holds more than 51% of paid up share capital of
another company and controls the management of that another company, the controlling

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company is called ‘Holding company’.

1.

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VERY SHORT ANSWER TYPE QUESTIONS (10 MARKS)
Define Joint Stock Company Explain the features of a joint stock company.
Ans. As per the comparies Act, 2013, “A company refers to an organisation incorporated under
the companies Act, 2013 or under any previous company Law”.
Features
i. An artificial person created by law : A company is an artificial and invisible legal person
created by law.
ii. Separate legal entity : A company has a separate legal entity entirely different from that
of its members who constitute it.
iii. Formation : A company is formed with the promoters. It comes into existence after
preparation of several documents and it should be registered or incorporated under the
Indian companies Act, 2013.
iv. Common seal as a substitute for signature : As the company is not a natural person it
cannot sign on its documents. The common seal with the name of the company engraved
on it and signature of the offices is binding on the company.
v. Perpetual existence : A company has a perpetual life and the death, lunary, returement or
insolvency of its members does not affect its existence. It continues for an unlimited period
unitil it is legally dissolved.
12 Basic Learning Material

vi. Limited liability of members : The liability of members of a company is limited to the
extent of the amount of shares they hold. The members are not liable to pay anything
towards the debts or losses of the company.
vii. Transferability of shares : The members of the public company are free to transfer the
shares held by them to any persons as and when they like.
viii. Membership : To from a joint stock company, a minimum of 2 members and maximum of
50 members are required in private limited company. A minimum of 7 members and
maximum there is no limit in public company.
ix. Democratic management : The company’s day to day affairs are managed by the
shareholder’s elected representatives, who are called as directors.
x. Staturary regulations : A company is governed by the returns to the government and also
its accounts have to be auolited by a chartered accountant.
2. Differentiate between a private company and a public company.
Ans.

1.
Point
Minimum number of
members
Private Company
Two (2)

B IE Public Company
Seven (7)

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2. Maximum number of Fifty (50) Unlimited
3. Minimum paid up Rs. 1,00,000 Rs. 5,00,000

4.

5.

6.
capital
Identification

Transfer of shares
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Public issue of capital
Must suffix ‘private limited’ to
its name
It cannot transfer its shares freely

It cannot secure capital from the

must suffix ‘public limited’
to its name
It can freely transfer or sell
their shares to others.
It can secure capital from
public the public
7. Board of directors Minimum : Two (2) Minimum : Three (3)
Maximum : No limit Maxmimum : Twenty (20)
8. Loans Directors can borrow money Directors cannot borrow
money
9. Quorum Minimum members required for Minimum members
a meeting is two (2) required for a meeting in
five (5)
10. Eligibility shares Directors reed not hold eligibility Directors must and should
shares hold eligibility shares
 Commerce-I 13

6. Formation of a Company

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

1. Promoter : A promoter is a person who does the necessary preliminary work incidentally
to the formation of a company.
2. Professional Promoter : These are the promoters specialized in promotion. It is their
whole time occupation.
3. Capital Subscription : A public company is allowed to raise their funds from the public
by issuing shares and debentures.

VERY SHORT ANSWER TYPE QUESTIONS (5 MARKS)

1. What are the functions of a promoter?

Features
i.

B IE
Ans. A promoter is one who undertakes to form a company. The promoter take lead for bringing
men, money, material and machinery together for establishing an enterprise.

A promoter conceives an idea for the setting up of a business.

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ii. A promoter makes preliminary investigation and ensures the future prospects of business.
iii. A promoter brings together various individuals who agree to associate with him and share

iv.
v.
vi.
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the business responsibilities.
A promoter prepares various documents and gets the company incorparated.
A promoter raiser the required finances and gets the company going.
A promoter gets into an agreement to acquire and obtain assets for the company.

7. Commencement of Business

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

1. Minimum Subscription : The minimum amount of capital to be collected out of the total
issue by a public company. 90% of the issued capital is considered as minimum subscription.

VERY SHORT ANSWER TYPE QUESTIONS (10 MARKS)

1. What is memorandum of Association? Explain its clauses?
Ans. The memorandum of Association is the constitution of the company. It defines the limitations
and powers of the company. The contents of memorandum of Association known as claues,
which are as follows ;
14 Basic Learning Material

Clauses
i. Name Clause Section 4(1) (a) : A company being a seperate legal intity must have a
name. A company may select any name which does not resemble the name of any other
company, king, queen and name of the government bodies. The word “Limited” must be
used at the end of the name of a public company and “Private Limited” used by a private
company.
ii. Registered office or Situation Clause Section 4(1) (b) : This clause states the place and
address of the registered office of the company. It the place is not decided at the time of
incorporation, it can be intimated to the registrar with in 30 days from the date of
incorparation.
iii. Objects Clause Section 4(1) (c) : This clause defines the sphere of activities and the
powers of the company. It sets out the objects for which a company is formed.
iv. Liability Clause Section 4(1) (d) : This clause contains the nature of liability of its members.

v.

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It states that the liability of the members is limited to the value of shares held by them.
Capital Clause Section 4(1) (e) : This clause contains the capital structure of the company.
The diuision of captital into equity shares, preference shares and the number of shares in

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each calegory and their value should be given.

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vi. Association Clause or Subscription Clause Section 13 (4) (c) : This clause contains the
names of the signatories to the memorandum of Association. The full addresses and

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occupations of subscribers and witnesses are also given.
VERY SHORT ANSWER TYPE QUESTIONS (5 MARKS)
1. What is prospectus? Explain the contents of prospectus.
Ans. Prospectus is an invitation to the public to subscribe to the shares and debentures of a
public company. The following are the contents of prospectus as per the companies Act,
2013.
i) Name and full address of the company.
ii) The particulars of the signatories to the memorandum of association and the number of
shares taken up by them.
iii) Name addresses and occupations of members of the board of directors
iv) The minimum subscription amount fixed by the promotors.
v) The details of property acquired if any.
vi) The capital structure of the company and particulars of isue.
 Commerce-I 15

vii) Particulars about reserves and surpluses.

viii) The amount of preliminary expenses.
ix) The name and address of auditor.
x) ‘Disclosure of investors’ grievances and redressal system.
2. Discuss the differences between memorandum of Association and articles of
Association.
Ans :
Aspects Memorandum of Association Articles of Association
1. Scope It is a constitution of the company. The articles contain bye - laws for
The company works within the the day to day working of the
tramework given in the company as set out in the MOA
memorandum.

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2. Need It must be prepared by all the Public companies may not have

3.
companies and filed with the
registrar.

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Relationship It defines the relationship between
their own articles.

It defines the relation between the

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the company and outside world company and the members among
themselves.
4.

5.
Alteration

Provisions
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It can not be changed easily

It is subordinate only to the Act

It can be altered easily by the special
resolution of shareholders.
It is subordinate to the memorandum
and the companies Act.
16 Basic Learning Material

Unit 4
Sources of Business Finance

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

1. What is Busienss Finance?
Ans. The requirement of funds by business to eassy out its various activities is called business

E
finance.
2. What is working capital?

I
Ans. Funds for its day to day operations is known as working capital
3. What is Debentures?

B
S
Ans. A Debenture is a form of bound or long term loan which is issued by the company. The
debenture typically carries a fixed rate of internet over the course of the loan.

T
4. What are Retained earnings?
Ans. A portion of the not earnings may be retained in the business for use in the future, known
as retained earnings.

SHORT ANSWER TYPE QUESTIONS (5 MARKS)

1. Explain the advantages and disadvantages of equity source of finance?
Ans. The important advantages of raising fund through issuing equity shares are given below:
Advantages (Merits):
1. Equity shares do not create any obligation to pay a fixed rate of dividend.
2. Equity shares can be issued without creating any charge over the assets of the company.
3. It is a permanent source of capital and the company need not repay it except under
liquidation.
4. Equity shareholders are the real owners of the company. Who have the visiting rights.
5. In case of Profits, equity shareholders are the real gainers by way increased dividends.
Disadvantages (Limitations)
1. Investors who want steady income may not prefer equity shares, they get fluctuating returns.
 Commerce-I 17

2. The cost of equity shares is generally more as compared to the cost of raising funds through
other sources.
3. Issue of additional equity shares dilutes the voting power and earnings of existing equity
share holders.
4. More legal formalities and procedural delays are involved while raising funds.

LONG ANSWER TYPE QUESTIONS (10 MARKS)

1. What is Business Finance? Explain its need and Significance in the business
organizations?
Ans. Business Finance: The requirements of funds by business to carry out its various activities
is called business finance.
The Significance and need of business finance is explained below
1. To meet fixed capital requirement of business: To purchase fixed assets like land and

E
buildings plant and machinery, furniture etc, business requires finance.

I
2. To meet working capital requirements: Working capital is used for holding current assets
such as stock of material, payment of wages, transportation etc.

B
3. For growth and expansion: for growth and expansion activities, a business requires finance.
It may be required to increase production, to install more machines, to set up a R & D

4.

5.

6.
centre etc.

T S
For diversification: Entering into new business and new lines it activities is known as
diversification, for this needed business finance.
For Survival : To carry out the various business operations in continuity, business finance
is needed. Without the required finance organization cannot survive for long.
Liabilities: To meet liabilities business, be it long term or short, a business requires sufficient
finance. e.g. for payment of loan in statements, creations.
7. For apyment of expenses: For paying salaries, wages, taxes, advertisements and rent finance
is needed.
2. What are various factors that determine the selection of sources of finance?
Ans: The following are the various factor determining the choice of sources of finance.
(i) Cost: There are two types of cost viz, the cost of procurement of funds and cost of utilizing
the funds. Both those costs should be taken into account while deciding about the source
of funds.
(ii) Financial strength and stability of operations: In the choice a source of funds for business
should be in a source financial position so as to be able to repay the principal amount and
interest on the borrowed amount.
(iii) Form of organisation and legal status: The form of business organisation and status
18 Basic Learning Material

influences the choice of a source for raising money.

(iv) Purpose and time period: Busienss should plan according to he time period for which the
funds are required. A short term need can be met through trade credit, commercial paper
etc. For long term issue of shares and debentures.
(v) Risk-Profile: Business should evaluate cash of the source of finance in terms of the risk
involved. For e.g. there is a least risk in equity share capital. A loan on the other hand is a
high risk.
(vi) Control: A particular source of fund may affect the control and power of the owners on the
management of a firm.
(vii) Effect on creditworthiness: The dependence of business on certain sources may affect its
credit worthiness in the market.
(viii) Flexibility and case : Another aspect affecting the choice of a source of finance is flexibility
and case of obtaining funds.

2.
Ans:
IE
(ix) Tax benefits: Various sources may also be weighed in turms of their tax benefits. For e.g.
while the dividend on preference shares is not tax deductible.
Differentiate between the equity shows adn preference shares?

B
S
Equity Shares Preference shares
1. Issue of these shares is compulory 1. Issue of these shared nto compulsory

T
2. Dividend is paid after paying dividends
on preference shares
3. Rate of dividend is not fixed and it is
recommended by he board of drivedtors
of the company.
4. In case of winding up, capital is refunded
2.

3.

4.
Dividend is paid before paying
dividends on equity shares.
Rate of dividend is prefixed and
pre-communicated.

In case of windign up capital is

after the payment of preference repaid before the payment of
share capital. equity share capital.
5. Equity shareholders are thereal owners 5. Do not have any voting rights.
of the company who have the
voting rights.
6. It is high risky as compared preference shares 6. It is less risky as compared to equity
shares.
7. Scope for speculation 7. No scope for speculation.
 Commerce-I 19

3. Differentiate between share and a debenture?

Ans:
Shares Defentures
1. A share is a Part of owned capital 1. A debenture is an acknowledge of debt.
2. Share holders are paid dividend on shares 2. Debenture holders are paid
hold by them interest on debentures
3. The Rate of dividend depends upon the 3. A fixed rate of interest is paid on
amount of divisible profiles and the debentures irrspectire of profits or
policy of he Board of directors loss.
4. Share holders have voting rights. They have 4. Debenture holders are only creditors
control over the management of the compnay of the company.

E
5. Shares are not redeemable (with the exception 5. Debentures are redeemed after

I
of redeemable preference shares) during the certain period.
life of the company.

B
6. At the time of liquidation of the company, 6. Debentures are payable in priority
share profit is payable after meeting all over share capital
outside liabilities

T S
20 Basic Learning Material

Unit 5
MSME’s and MNC’s

SHORT ANSWER TYPE QUESTIONS (2 MARKS)

1. What is a Service Enterprise?
Ans. The enterprises which are involved in providing or rendering services are called as service
enterprises.
2. What is Globalization?

E
Ans. Globalization refers to the increasing integration of markets and production to include the

I
mobility of capital, labour, organization and knowledge.
3. What is Foreign Direct Investment(FDI)?

4.
another country.
What are Multi National Corporations?
B
Ans. FDI is an investment made by a firm or individual in one country into business located in

S
T
Ans. A corporate business enterprise having extended its productive activity in many nations
beside its home country.
5. What is E-Business?
Ans. Performance of business activities, such as designing products, managing supply-chain,
operations, marketing and offering services to various stakeholders using electronic
technologies.
6. What is E-Banking?
Ans. Performing all banking operations by using their mobile phones is known as E-Banking.
7. What is E-Commerce?
Ans. Buying and selling of goods or services through computer mediated networks.
VERY SHORT ANSWER TYPE QUESTIONS (5 MARKS)
1. Explain the problems faced by Indian MSME sector in detail.
Ans. The various problems faced by Indian MSMEs under MSMED Act 2006 are discussed
below:
1. Lack of Credit from banks: The loan providing process of the bank is very time consuming
and proper adequate amount of loan is not provided to the MSMEs.
 Commerce-I 21

2. Competition from multinational companies: Multi National Corporations are providing

quality goods at cheaper price and the Indian MSMEs are facing problem in competing
with them.
3. Poor infrastructure: With poor infrastructure their production capacity is very low and
production cost is high.
4. Non-availability of raw material and other inputs: The lack of availability of skilled labour
and required raw material the MSMEs are unable to produce the products at reasonable
prices.
5. Lack of advanced technology: Due to use of outdated technology in their operations they
are unable to meet the expectations of the market demand.
6. Lack of distribution of marketing channels: Their advertisement and sales promotion
strategies are comparatively weaker than the multinational companies leading in poor selling
and low profits.

E
7. Lack of training and skill development program: The proprietors are not aware of the

I
innovative methods of production. Various development programs are not reaching the
needy.

2.

S B
Discuss the privileges offered to MSMEs in India.
Ans. MSMEs are enjoying specific privileges and advantages when compared to other enterprises.

T
1. Exclusive Manufacturing of Certain products by MSMEs: The reservation policy by
MSMED Act 2006, reserves manufacturing of certain items in MSMEs.
2. Space allocation: To encourage the MSMEs, the Special Economic Zones(SEZs) are
required to allocate 10% space for the small scale units.
3. Timely payment for Goods and Services: Under the MSMED Act, protection are offered
in relation to timely payment for goods and services by buyers to MSMEs.
4. Strong support and Encouragement from the Government: The government has been
offering packages of schemes and incentives through its specialized financial institutions
in from of training, marketing, finance, etc.
5. Interest for Delayed Payment by the Buyer: If a buyer fails to make payment as required by
the seller within the agreed time the interest payable is three times the bank rate.
6. Reference of Disputes: any dispute relating to amount payable for any goods or services
and any interest thereon, any be refereed by any party to the Micro and Small Enterprises
Facilitation Council.
22 Basic Learning Material

3. What are the promotional Measures initiated for strengthening of MSMEs in India?
Ans. The following are the measures of promotion:
1. Organizing programs to facilitate development of skills among the employees, management
and entrepreneurs.
2. Provision of credit facilities to ensure timely and smooth flow of credit to such enterprises.
3. Preferential procurement by the government, its aided institutions and the public sector
enterprises for the goods and services produced or provided by such enterprises.
4. Government grants to the notified fund or funds constituted to be utilized exclusively for
the promotion and development of such enterprises.

4. State the advantages of MNCs.

Ans. The following are the various advantages of MNCs:

E
1. Economic Development: MNCs can provide the required financial, technical and other

I
resources to the needy countries in exchange for economic gains.
2. Technology Gap: The services of MNCs can be of great help to bridge the technological

B
gap between developed and developing countries.
3. Industrial Growth: MNCs are dynamic and offer growth opportunities for domestic

4.

5.

6.
industries.

T S
Marketing opportunities: MNCs have access to many markets in different countries. They
have the necessary skills and expertise to market products at international level.
Work Culture: MNCs introduce a work culture of excellence, professionalism and
transparency in dealings.
Export promotion: MNCs help developing countries in earning foreign exchange revenue.

5. What are the four benefits of E-Business?

Ans. The following are the benefits of E-Business:
1. Convenient shopping: E-Business enables customers to shop or do any transactions 24
hours a day, round the year from almost any location.
2. Wider choices: E-Business enables the customers to have more choices or more alternative
products and services online.
3. Cost savings to Organizations: Reduces the cost of creating, processing, distributing, storing
and retrieving information to the organizations.
4. Environmental Benefits: Since customers can but their required products/ services online
with a click of button either from their place of work or home reducing traffic congestion,
air and sound pollution.
 Commerce-I 23

6. Explain the opportunities of business enterprise in 21st century.

Ans. The following are the opportunities of business enterprises in 21st century:
1. LPG: The economic reforms initiated in the form of Liberalization, Privatization and
Globalization have brought structural changes which ultimately created favorable
environment for business enterprises in India.
2. Increasing Size and Diversification: The 21st century business enterprises are characterized
with large sized and highly diversified organizations.
3. Increase in per capita income: Per capita income is the measure of living standards of its
people in a country. As India's per capita income is increasing, the business opportunities
are also increasing in India.
4. Market Economies: With changes in the international economic order, India had converted
itself into a market economy.
5. E-Commerce - A gate way to global markets: Improved cash flow, customer retention and

B IE
service satisfaction are few of the benefits gained from e-commerce.

T S
24 Basic Learning Material

Unit 1
Intruduction to Accounting

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

1. What is Accounting Circle?
Ans. An Accounting circle is a complete sequence of accounting process that begins with the

E
recordign of business transactions Journal, ledger trial balance and financial statements.

I
Such as trading account profit and loss account and Balance sheet.
2. Define Accounting?

3.
B
Ans. “The Process of identifying measuring and communicating economic information to permist

S
informed july meats and decisions by users of the information”.
What is Book-keeping?

T
Ans. Book-keeping is an art at recording in the books of accounts the monctary aspects of
commercial or financial transactions.
4. What is a voucher?
Ans. It is a written document in support of a transaction. It is a proof that a particular transaction
has taken place for the value stated in the voucher cash receipt invoice etc.
5. What is an account?
Ans. An account is summary of relevant transaction at one place relating to a particular head it
has three parts A) Title of Account B) Left side of the Debit C) Right side of the Credit.
6. What is Ledger?
Ans. A book called Ledger is kept to maintain all the accounts is Real Personal and Nominal
accounts the collection of all accounts in book is called ledger.

SHORT ANSWER TYPE QUESTIONS (5 MARKS)

1. State any 5 (Five) advantages of Accounting?
Ans. Advantages of Accounting
1. Permanent and Reliable Record. Accounting Provides Permanent record for all business
 Accountancy-I 25

transations and provides reliable information.

2. Net Result of Business oferations: Accounting provide the operational result of business
for given period of time.
3. Ascetainment of financial position: The proprietor requires a full picture of the finanical
position to plan for the next year’s business. Balance sheet provides the financial status of
the business.
4. Helps Management: Accounting helps Management on imfortant Issues like ascentainment
of cost and price fixation of goods and services.
5. Evidence: Accounting records act as an affproved evidence in legal matters.
2. Briefly explain any 5 Concepts of Accounting?
Ans.
1. Business entity concept: As fer this concept. Business organizations are treated as a selarale

E
entity which can be distinguished from the “Owners” or stakeholden who provide capital
to the business.
2.

B I
Dual Aspect concept: Dual aspect concept is the basis for double entry system of book-
keeping. All business transactions recorded in accounts have two aspects: receiving benefit
and giving benefit.

S
3. Going Concern concept: As fer this concept it is assumed that the organizations will continue
for a long time unless it is closed as per the law to which it is subject. The financial

T
statements we prepared at the end of each financial year.
4. Money Measurment concept: In accounting all the treasations are recorded in terms of
money.
5. Cost Concept: As per this concept an asset is ordinily recorded at the price actually paid or
incurred to acqure it is at its cost and this cost becomes the basis for all subsequent accounting
treatment for the asset.
3. State the objectives of Accounting?
Ans. The main objectives of accounting are:
1. To maintain accounting records
2. To find out the result of operations
3. To ascestain the financial position.
4. To communicate the information to users.
4. Explain Accounting Conventions?
Ans. 1. Convention of Disclosure: Accounting statements should disclose full and completely
all the significant information based on which, decisions can be taken by various interacted
parties.
26 Basic Learning Material

2. Convention of Materiality: The materiality principle require the discloure of the significant
information exclusion of which would influence the decisions unimportant and insignificant
information are either left out or merged with other items.
3. Convention of Consistency: The convention of consistency pacilitates comparision of
finaicial performance of on entity from one accounting period to another wich is possible
with the accounting principle follwed by an eality are consistently aplied over the year an
organisation should not change its method.
4. Convention of Consovalism: The essence of this financial is “anticipale no profit but provide
for all possible losses” this means that all prospective losses we taken into considerations.
However no doubtful income is taken into consiteration in recording of transulations.
5. State the rules of debit and credit with examples?
Ans. (1) personal Accounts Debit the Receiver

(2) Real Accounts

(Assets)
(3) Nominal Accounts

B IE
(Natural Articifial, Representative persons) Credit the given
Debit what comes in
Credit what goes out
Debit all exfenses and losses

T S
(Expenses Losses Incomes and hairs) Credit all incomes and gains
 Accountancy-I 27

Journal Entries
1. Journalise the following transactions
2019
March - 1 Chandra kiran started business with cash 20,000
March 2 Purchased Machinery 8,000
March 5 Sold furniture 6,000
March 6. Rent paid 2,000
Ans: Journal entires in the book of chandra kiran
Date Particulars LF Debit Credit
Amount ( ) Amount (
2019 Cash a/c Dr. 20,000
March 1 To Captial a/c 20,000

March 2
(Being business Commenced with cash)
Machinery a/c
To Cash a/c
(Being Machinery Purchased)
I
Dr.

B E 8,000
8,000

S
March 5 Cash a/c Dr. 6,000
To Furniture a/c 6,000

2.

T
(Being Rent paid)
Journalise the following transactions
2020
April - 1 Mani Teja started business with
April - 2 Cash Sales
April - 5 Sold Machinery
50,000
10,000
8,000
April - 10 Purchased funiture 5,000
3. Journalise the following transactions
2020
September - 1 Nishitha Started business with 30,000
September - 5 Purchases goods for cash 15,000
September - 10 Salaries paid 5,000
September - 15 Interest Received 15,000
4. Journalise the following transactions
2019
28 Basic Learning Material

May - 1 Sarathsri Started business with 25,000

May - 6 Cash Sales 5,000
May - 15 Sold funiture 2,000
May - 20 Rent Paid 800
Ledger Accounts
1. Prepare Nishitha account from the following
2020
March - 1 Amount due for Nishitha 10,000
March - 4 Goods sold to nishitha 13,000
March - 12 Goods returned by Nishitha 5,000
March - 16 Cash Received from Nishitha 4,000

Ans:
Dr.
Date
March - 20 Received Cheque from Nishitha

Particulars LF Amount Date

IE
Nishitha’s Account

B Particulars
3,000

JF Amount
Cr.

S
2020 2020
March 1 To Balance b/d 10,000 March-12 By Sales returns a/c 5,000
March 4 To Sales A/c

T 13,000

23,000
March-16 By Cash A/c
March-25 By Bank A/c.
March-31 By Balance c/d
4,000
3,000
11,000

23,000
Apri-1 To Balance b/d 11,000

2. Prepare Mani TEJ’s account from the following

2020
May - 2 Amount due to Mani TEJ 10,000
May - 9 Goods Purchased from Mani TEJ 14,000
May - 16 Goods returned by Mani TEJ 3,000
May - 21 Cash paid to Mani TEJ 12,000
May - 25 Goods Purchased from Mani TEJ 7,000
[Ans: 16,000]
 Accountancy-I 29

3. Prepare Chandra Kiran’s Account from the following

2018
April - 7 Balance due from Chandra Kiran 3,500
April - 7 Sold goods to Chandra Kiran 1,500
April - 10 Purchased goods from Chandra Kiran 1,000
April - 15 Paid cash to Chandra Kiran 800
April - 23 Received cash from Chandra Kiran 500
April - 25 Returned goods to Chandra Kiran 200
[Ans: 4,500]
4. Prepare Sony Account from the following
2021
March - 1 Goods Purchased from Sony 40,000
March - 4 Cash Paid to sony
March - 12 Goods returned to sony
March - 18 Paid to sony by cheque
March - 21 Discount allowed by Sony

B IE 7,000
2,500
9,800
500

S
March - 25 Goods purchased from sony for cash 1,500
March - 28 Furniture purchased from sony 6,000

T [Ans: 26,200
30 Basic Learning Material

Unit 2
Subsidiary Books

Subsidiary Books
1. Prepare, Purchase book purchase returns books from the following transactions
2021
Jan 1 Purchased goods from Teja 10,000
Jan 2
Jan 6
Jan 11
Jan 13 Returned goods to Teja

B IE
Purchased goods from Rishi
Purchased goods from Ritwik
Purchased goods from Shiva
20,000
30,000
50,000
1,000

S
Jan 15 Goods Returned to Rishi 2,000
Jan 20 Goods Returned to Ritwik 3,000
Solution
Date

2021
Jan 1
Jan 2
Teja
Rishi
T
Particulars
Purchase Book
Inward
Invoice No.
LF
No
Detials Amount

10,000
20,000
Jan 6 Ritwik 30,000
Jan 11 Shiva 50,000
Total 1,10,000
 Accountancy-I 31

Purchase Returns Book

Date Particulars Debit LF Amount
Note No. No
2021
January 13 Teja 1,000
January 15 Rish 2,000
January 20 Ritwik 3,000

Total 6,000

Subsidiary Books Practice problems

1. Prepare Subsidary Books from the following transation
2021
March 1
March 2
March 3
Purchased goods from Vijay
Purchased goods from Sai
Goods purchased from Srinu

B IE 5,000
4,000
3,000

S
March 10 Purchased goods from Venkat 6,000
March 12 Returned goods to Vijay 500

2.
March 13
March 15

T
Returned goods to Sai
Goods Returned to Srinu
Prepare Subsidery Books from the following transation
2021
June 1
June 5
Purchased goods from Divya
Purchased goods from Sravanthi
1,000
2,000

1,000
2,000
June 10 Goods purchased from nandini 3,000
June 13 Parchased goods from Sunitha 4,000
June 15 Retunred goods of Divya 200
June 16 Returned goods of Sravanthi 300
June 18 Goods Returned to nandini 500
Write the opening Journal entry as on march 31, 2021/April 1 2021
Cash 5,000
Sundry Debitors 20,000
Stock 10,000
32 Basic Learning Material

Machinary 15,000
Sundry Creditors 10,000
Bills payable 5,000
Journal Proper
Date Particulars Lt Debit Credit
No. Amount Amount
2021 Cash Account Dr 5,000
March 31 Sundry Debtors A/c Dr 20,000
/ April 1 Stock A/c Dr. 10,000
(Machinery Account Dr. 15,000
To Sundry Creditors A/c 10,000
To Bills Payable A/c 5,000
To Capital Account
(Beering the Opening entry for the
above asset and liabilities)

B IE
Journal Propal
35,000

S
Opening Entry Practice Problems
1. Write the opening Journal Entry from the following particulars
2021
January 1 Cash

T
Stock
machinery
Bills Receivables
Creditors
10,000
20,000
30,000
40,000
20,000
Bills payables 10,000
2. Write the opening Journal Entry from the following particulars
2021
Feb 1 Furniture 20,000
Stock 5,000
Machinery 30,000
Debtors 15,000
Creditors 10,000
Bank over draft 5,000
Bills payable 20,000
 Accountancy-I 33

3. Write the opening Journal Entry from the following particulars

2021
March 1 Cash 50,000
Stock 30,000
Bills Receivable 20,000
Buildings 30,000
Creditors 10,000
Bills payables 20,000

B IE
T S
34 Basic Learning Material

Unit 3
CashBook and Bank Reconciliation Statement

BANK RECONCILIATION STATEMENT

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)
1. What do you mean by Bank Reconciliation Statement?

2. What is an overdraft?

B IE
Ans. Bank Reconciliation Statement isa statemetn prepared to reconcile the differences betwen
the balances as per the bank column of the cash book and pass book on any given date.

Ans. When a businesman withdraws excess amount from the bank account under this situation,

S
the pass book shows a debit balance. This balance is called “Overdraft Balance” as per
pass book.

1.
Particulars
T
LONG ANSWER TYPE QUESTIONS (10 MARKS)
Prepare a bank Reconciliation Statement of M/s. Vagdevi & Co. from the following

1) Balance as per cash book 20,000

2) cheques issued to Uma but not presented for payment 1,000
3) Cheques deposited into bank but not collected 3,000
4) Bank charges debited in the pass book only 100
5) Interest on investments credited by bank 1,500
 Accountancy-I 35

Ans. Bank reconciliation statement of M/s. Vagdevi & Co.

As on .............
Particulars Amount Amount
Balance as per cash book 20,000
Add:-
1. Cheques issued to uma not yest presented in bank 1,000
2. Interest on investments credited by bank 1,500 2,500
Less : 22,500
1. Cheques deposited not cleared 3,000
2. Bank charges debited 100 3,100
Balance as per pass book 19,400

E
2. Prepare a Bank Reconciliation Statement of M/s. Gayatri as on 31-03-2021

I
a) Balance as per cash book 15,000
b) Cheques deposited into bank but not cleared or collected 1,200

B
c) Cheques issued to Sridevi but not presented for payment 1,800
d) Interest on deposits credited by bank 250

3.

T S
e) Bank debited its charges 50
(Ans: Balance as per pass book
Prepare Bank Reconciliation Statement of M/s. Rishik & Co.
a) Balance as per Cash book 8,000
b) Cheques issued to Manju but not presented for payment 600
c) Cheques deposited into bank but not cleared 1,500
16,800)

d) Bank charges debited in pas book only 100.

e) Interest on investments credited in pass book 200
(Ans: Balance sa per pass book 7,200)
Favourable Balance as per book
1. Prepare a bank Reconciliation Statement of Mr. Sanved as on 31-3-2020
a) Balance as per pass book 35,000
b) Cheques of 1,000 & 2,000 issued to to Greeshma well net presented for payment.
c) A cheque of 1,500 sent to bank for collection was not entered in the pass book.
d) Bank allowed interest of 100 and charged 250 as bank commission in pass book
only.
36 Basic Learning Material

Ans. Bank reconciliation statement of M/s. Sanved as on 31.3.2020

Particulars Amount Amount
Balance as per cash book 35,000
Add:-
a. Cheque sent to bank for collection not entered
in the pass book 1,500
b. Bank commission debited int he pass book 1,500 1,750
Less : 36,750
a. Cheques issued to Greeshma not presented
fro payment (1,000+2,000) 3,000
b. Interest Credited by bank 100 3,100

E
Balance as per pass book 33,650

I
2. Prepare a Bank Reconciliation Statement of Mr. Vedanth as on 31-03-2021
a) Balance as per pass book 42,000

S B
b) Cheques of 5,000 issued to arush were not presented for payment.
c) Cheques of 3,500 sent to bank for collection was not entrered in the pass book.
d) Bank allowed interest of 200 and charged 300 as bank commission in pass book only.

3.

T
a) Balance as per Pass book 15,000
b) Two cheques of
on 2-4-2019
(Hint: Balance as per each book 40,600)
Prepare Bank Reconciliation Statement of M/s. Aneesh as on 31-3-2019.

4,000 & 800 issued to Jaya on 25.3.2019 were presented for payment

c) Cheques of 6,000 sent to bank for collection was not eatered in the pass book.
d) Bank allowed interest of 150 and charged 100 as bank commission in pass book only.
[Hint: a) Bank Balance as per cash book 16,150 b) cheques issued on 25.3.2019 and
presented on 2.4.2019 must be added)
 Accountancy-I 37

Unfavourable Balance/Overdraft Balance

1. Prepare a bank Reconciliation Statement as on 30-6-2020 for M/s. Vedanth from the
information given below:

a) Bank Overdraft as per cash book 14,500

b) Cheques issued to Aparna on 20-06-2020
but not yet presented for payment 1,500
c) Cheques deposited but not yet credited in the bank 3,000
d) Bills receivable directly collected by bank 1,000
e) Interest on Overdraft debited by bank 200
f) Amount wrongly debited by bank 100
Ans. Bank reconciliation statement of M/s. Samved as on 30.6.2020

E
Particulars Amount Amount

I
Overdraft balance as per cash book - 14,500
Add:-

S
b. Interest on overdraft debited by bank
c. Wrong debit by bank
B
a. Cheques deposited but not yet credited in the bank 3,000
200
100 3,300

2.
Less :

T
a. Cheques issued to Aparna but not presented
fro payment
b. Bills Receivable directly collected by bank
Overdraft balance as per pass book.
1,500
1,000

Prepare a Bank Reconciliation Statement of M/s. Janki as on 31-03-2021

17,800

2,500
15,300

a) Bank Overdraft as per cash book 22,000

b) Cheques issued to Aparna on 25-03-2021
but not yet presented for payment 700
c) Cheques deposited but not yet credited by bank 1,200
d) Bills receivable directly collected by bank 2,000
e) Interest on Overdraft debited by bank 500
f) Amount wrongly debited by bank 1,000
[Ans: Balance as per pass book overdraft 22,000]
38 Basic Learning Material

3. Prepare a Bank Reconciliation Statement of M/s. Sonu as on 31-08-2021

a) Bank Overdraft as per cash book 21,000

b) Cheques issued to Sai on 27-08-2021
not presented for payment 1,000
c) Cheques deposited but not yet credited by bank 800
d) Bills receivable directly collected by bank 500
e) Interest on Overdraft debited by bank 600
f) Amount wrongly debited by bank 900
[Ans: Overdraft balance as per pass book 20,800]
CASH BOOK
1. From the following transactions prepare a simple cash book on January 1 2021

E
2021
January 1
January 2
January 3
Cash sales
Purchases

B I
Sai Commenced business with cash 20,000
6,000
3,000

S
January 4 Received cash from vijay 10,000
January 10 Purchased Stationery 10,000

Dr.
Date
January 31 Paid Rent

Particulers
T
January 12 Received Commission
January 18 Paid Salaries

Simple (Single Column Cash Book)

LF Amount Date Particulare

1,000
3,000
2,000

LF Amount
Cr.

No. No
2021 2021
Jan 1 To Cpaital A/c 20,000 Jan 3 By Purchase A/c 3,000
jan 2 To Sale A/c 6,000 Jan 10 By Stationery A/c 10,000
Jan 4 To Vijay A/c 10,000 Jan 18 By Salaries A/c 3,000
Jan 12 To Commission A/c 1,000 Jan 31 By Rent A/c 2,000
Jan 31 By Balance c/d 19,000

37,000 37,000
Feb 1 To Balance b/d 19,000
 Accountancy-I 39

Simple Cash (Book Practice Problems)

1. Prepare simple cloumn cash book from the following transaction
2021
March 1 Srinu Commenced Business with Cash 50,000
March 2 Cash Sales 10,000
March 3 Cash Purchases 5,000
March 5 Received Cash from Venkat 20,000
March 6 Purchased Computer 20,000
March 10 Paid Salaries 5,000
March 20 Received Rent 10,000
March 28 Received Commission 5,000
2. Prepare simple cloumn cash book from the following transaction
2021
June 1
June 3
June 5
Cash sales
Cash Purchase

B IE
Commencement of Business with cash 30,000
30,000
20,000

S
June 10 Received Cash from Teja 10,000
June 15 Purchased Stationery 5,000

1.
June 20
June 25
June 30
T
Received Rent
Paid Salaries
Paid Repair

Three Column Cash Book

Prepare three cloumn cash book from the following transaction
1,000
10,000
5,000

2021
March 1 Cash in hand 5,000
Cash at bank 10,000
March 5 Cash Sales 10,000
March 6 Cash deposited into bank 5,000
March 8 Paid of Ritwik 2,500 discount received cash 500
March 10 Received Commission 1,000
March 18 Received cash from Vijay 5,500
March 20 Withdrawn cash from bank for office use 2,000
40 Basic Learning Material

March 25 paid salaries 1,000

March 31 Paid Telephone bill 500
Three Column cash Book
Dr. Cr.
Date Particulars LE Cash Bank Dis. Date Particulars LE Cash Bank Dis.
No. allowed No allowed
2021 2021
March March
”1 To balance b/d 5000 10000 ”6 By Bank A/c (C) 5000
”5 To Sales A/c 10000 ”8 By Ritwik A/c 2500 500
”6 To Cash A/c (C) 5000 ” 20 By Cash A/c (C) 3000
” 10 To Commssion

” 18
” 20
A/c
To Vijay A/c
To bank A/c (C)
1000
5500
3000
100

B IE ” 25 By Salaries A/c
” 31 By Telephone
Bill A/c
1000

500

April
1 To Blance b/d
T S 24500 15000 100

15500 12000
”3 By Balance c/d 15500 12000
24500 15000 500

Three cloumn cash book practice problems

Prepare three cloumn cash book from the following transaction
1. 2021
January 1 Cash in hand 10,000
January 3 Cash at bank 20,000
January 4 Cash purchase 3,000
January 9 Depsoited cash into bank 2,000
January 10 Received cash from Dinesh 2,000
Discount allowed 200
January 18 Purchased stationery 1,000
 Accountancy-I 41

January 20 Cash paid to Nani 2,000

Discount received 500
January 25 Cash with drawn from bank for office use 1,000
January 28 Paid Rent 500
January 31 Received interest 200
2) Prepare three cloumn cash book from the following transaction
2021
March 1 Cash in hand 5,000
Cash at bank 10,000
March 5 Purchases 1,000
March 8 Sales 3,000
March 10 Deposited cash into bank 1,000
March 12
March 18

March 21
Purchased stationery

Discount allwed

B IE
Received cash from Rajesh

Cash withdawn from bank for office use

500
10,000
1,000
5,000
March 28
March 29
March 31

T S
paid salaries througts cheque
Received Rent
Paid Interest
1,000
1,000
100
42 Basic Learning Material

Unit 4
Trial Balance and Rectification of Errors

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

1. Trial Balance : Trial balance is a statement, prepared with the debit and credit balances of
ledger accounts to test the arithmetical accuracy of the books.
2.
account known as suspense account.

1.
IE
Suspense Account : Difference in the trial balance may be termpararily posted to a special

VERY SHORT ANSWER TYPE QUESTIONS (5 MARKS)

B
What are the errors disclosed by Trial balnce?

S
Ans. The errors which are revealed by the trial balance are known as errors disclosed by trial
balance.

T
i. Error of posting of transaction to the wrong side of an account :Example, discount
allowed posted to the credit side of discount account.
ii. Error of posting of wrong amount : Example, purchases of Rs. 10,000 posted as
Rs. 1000 to purchase account.
iii. Errors in totalling : Wrong totalling made either in subsidiary books or in ledgers
affects the agreement of trial balance.
iv. Errors of carrying forurard : If a mistake is committed in carrying forward a total
of one page to the next page.
Ex : Sales book total is carried forward Rs. 2000 instead of Rs. 200.
v. Error of partial omission : Some times accountant may post only one aspect of the
entry to the ledger account.
vi. Error of double posting : An account may be recorded twice in the journal. Ex :
wages paid Rs. 500 debited twice to wages account.
2. What are the errors not disclosed by Trial balance?
Ans. This type of errors cannot be traced out in the preparation of trial balance.
i. Error of Principle : Transactions are recorded by violating the accounting principles are
known as errors of principle. Ex : Machincry purchased, debited to purchases account.
 Accountancy-I 43

ii. Errors of Omission : When a transaction is completely or partly omitted from the
books of accounts such error is known as error of omission. Ex : One transaction is
completely not recorded in the journal.
iii. Error of Commission : This error arises due to wrong recording, wrong posting,
wrong casting, wrong balancing, wrong carrying forward etc.
iv. Compensating Errors : Committing an error to compensate the previous or another
error is known as compensating error. Two or more errors are committed and one
error mullifieds another error, the net effect is unchanged.
v. Error of Posting to Wrong Head of Account : Instead of recording in one account,
recording in another account is known as error of posting to wrong head of account.
Ex : Paid to Rajesh Rs. 2000 is debited to Naresh account.
3. Rectify the following errors :
a) A sale of goods to Kirshor for Rs. 5000, was passed through the purchases book.
b)
c)
d)
e)
E
Salary of Rs. 1000 paid to Kiran was wrongly debited to his personal account.

I
Stock purchased on credit from Raju for Rs. 2000 was extered in the purchases book.

B
Rs. 10,000 spent on the extension of machinery was debited to Machinery repairs account.
Goods returned by Raghu Rs. 1500 were entered in the return outwards book.

S
Ans : Rectification Entries
Sl.No Particulars L.F. Debit Credit

a) Kirshor A/C
To sales A/C
T
To purchases A/C
(Being credit sales wrongly
Dr

recorded in purchases a/c rectified)

Rs.
10,000
Rs.

5,000
5,000

b) Salaries a/c Dr 1000

To Kiran a/c 1000
(Being salary paid to Kiran debited
to his a/c is rectified)
c) Stock a/c Dr 2000
To purchases a/c 2000
(correction of wrong debit to purchase
a/c for stock purchased)
44 Basic Learning Material

d) Machinery a/c Dr 10,000

To machinery repairs a/c 10,000
(Being entry to recfity the mistake
debiting repairs instead of machinery
e) Purchase returns a/c Dr 1500
Sales returns a/c Dr 1500
(Being entry to rectify the mistake of
purchase returns book)
Problems
1. Rectify the following errors
a) A sale of goods to Naresh for Rs. 3000, was passed through the purchases book.
b) Salary of Rs. 1500 paid to Haresh was wrongly debited to his personal account.
c)
d)
e)
2.
E
Stock purchased on credit from Suresh for Rs. 2500 was entred in the purchases book.

I
Rs. 8000 spent on the extension of Buildings was debited to Buildings repars a/c

B
Goods returned by Mahesh Rs. 2000 were entred is the return outwords book.
Rectify the following errors.

S
a) Sale of furniture for Rs. 4000, was credited to sales account.
b) Repairs on Machinery Rs. 2000 debited to machivery account.
c)
d)
e)

1.
T
Stock purchased on credit from Bharat for Rs. 3000 was recorded through purchases book.
Goods returned by Sharath Rs. 2500 wre entered in the return outwards book.
Wages of Rs. 3500 paid to Shashanth was wrongly debited to his personal account.

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

Prepare trial balance of Mohan as on 31-12-2020 from the following balances.
Particulars Amount Particulars Amount

Opening stock 18,000 Bill Receivable 12,000

Capital 25,000 Creditors 20,000
Bills payable 15,000 Machinery 10,000
Debtors 10,000 Buildings 10,000
 Accountancy-I 45

Ans. Trial Balance of Mr. Mohan as on 31-12-2020

Particulars/Name of the Account L.F. Debit Credit
Balances Balances
Opening stock 18,000 -
Capital - 25,000
Bills payable - 15,000
Debtors 10,000 -
Bills Receivable 12,000 -
Creditors - 20,000
Machinery 10,000 -
Buildings 10,000 -
Total 60,000 60,000

Problems

Particulars

B I
AmountE
1. Prepare Trial balance of Pavan from the following particulars.
Particulars Amount

Sales
Furniture
Cash in bank
Salaries
2.
T S 28,000
20,000
26,000
14,000
Bank overdraft
Purchases
Capital
General Reserve
Prepare Trial balance of Madhav from the following particulars.
Particulars Amount Particulars
12,000
25,000
30,000
15,000

Amount

Sales 22,000 Purchases 33,000

Sales returns 2,000 Purchase returns 3,000
Capital 30,000 Closing stock 15,000
Plant 25,000 Bank loan 20,000
3. Prepare Trial balance of Praveen from the following particulars
Particulars Amount Particulars Amount

Capital 30,000 Discount allowed 5,000

Drawings 10,000 Baddebts 15,000
Wages 8,000 Discount Received 20,000
Good will 22,000 Sundry creditors 10,000
46 Basic Learning Material

Unit 5
Final Accounts

VERY SHORT ANSWER TYPE QUESTIONS (2 MARKS)

E
1. What is interest on Capital?

I
Ans. It is the amount of the Interest Payble on owner’s capital by the business organisation. The
interest on capital is on expenditure is debited to the Profit and Loss account.

B
2. What is interest on Drawings?

S
Ans. Interest should be calaculated at a given rate on the drawings amount. The interest on
drawings is an income. It is credited to profit and loss account.

T
3. Given the meaning of Bad debts?
Ans. When goods are sold on credit basis, some of the customers may not be pay the amount.
The debts which are not collected and prrecoverable are known as Bad debts.
4. What is Accrued Income?
Ans. The Income which is earned but not received during the accounting year is called accrued
Income.
 Accountancy-I 47

ESSAY ANSWER TYPE QUESTIONS (20 MARKS)

1. From the following trial Balance, Prepare Rishi Traders final accounts for the year
ended 31-03-2018.
Trial Balance

Debit Balance Amount Credit Balances Amount

Opening Stock 5,000 Capital 22,000

Purchases 4,700 Creditors 3,000
Wages 800 Bills Payble 5,400
Carriage 500 Discount 2,400
Rent 1,000 Sales 9,000
Salaries
Discount
Advertisement Oxfemses
Customs Duty
Factory Insurance

B IE
1,200
400
800
600
300
Overdraft 2,000

Machinery
Debtors
Furniture
Spend Post Charges
Bed Debits
T S 12,000
6,000
9,000
700
800
43,800 43,800

Adjustments
1. Value of Closing Stock : 5400
2. Prepaid wages : 300
3. Outstanding Rent : 400
4. Depreciation on Maclinery 5%, Depreciation on Furniture : 10%
48 Basic Learning Material

Solution:
Trading Account of Rishi Trader’s for the year ended 31-03-2018.
Dr Cr
Particulars Amount Particulars Amount

To Opening stock 5,000 By Sales 9,000

To Parchased 4,700 By Closing Stock 5,400
To Wages 800
(–) Prepaid Wages 300 500
To Carriage 500
To Customs duty 600
To Factory Insurance 300
To Gross Profit 2,800

E
14,400 14,400

Dr
Particulars

B
AmountI
Profit and loss account of Rishi Trader’s for the year ended 31-03-2018.

Particulars Amount
Cr

To Salaries
To Rent
(+) Outstanding Rent
To Discount
T
To Advertisment expenses
S 1000
400
1,200

1,400
400
800
By Gross Profit
By Discount

By Net Loss
(transferred to capital a/c)
2,800
2,400

1,600

To Speed Post Charges 700

To Depreaciation on Furniture 900
To Bad Debts 800
6,800 6,800
 Accountancy-I 49

Balance Sheet of Rishi trader’s as on 31-3-2018

Liabilities Amount Assets Amount

Capital 22,000 Machinary 12,000

(–) Net loss 1600 20,400 (–) Depreciation 600 111,400
Creditors 3,000 Furniture 9,00
Bills Payable 5,400 (–) Depreciation 900 8,100
Overdraft 2,000 Debtors 6,000
Outstanding Rent 400 Closing Stock 5400

31,200 31,200

E
Practice Problems

I
1. From the following Trial Balance, Prepare Final accounts of Sanvi Trader’s for the
year ended 31-03-2019.

Debit Balance

S B
Amount Credit Balances Amount

T
Cash 3,000 Bank Overdrft 1,000
Purchase 5,000 Sales 9,000
Wages 1,000 Purchase Returs 500
Openng Stock 2,500 Capital 15,000
Salaries 1000 Commission Received 1,200
Insurance 900 Creditors 1,000
Corriage on Purchases 500
Funiture 2,000
Sales Returns 600
Rent 800
Machinery 5,000
Debtors 4,000
Discount 400
Bills Receivable 1,000
27,700 27,700
50 Basic Learning Material

Adjustments
(1) Closing Stock : 4,500 (2) Out standing Salaries 500
(3) Prepaid Insurance 400, (4) Depreciation on machinery : 10%
2. From the following Trial Balance, Prepare Final accounts of Ravi Trader’s for the
year ended 31-03-2018.
Trial Balance

Debit Balances Amount Credit Balances Amount

Opening Stock 1,000 Sales 20,000

Cashin hand 6,000 Returns 800
Cash at Bank 1,500 Capital 40,000

E
Parchases 11,000 Creditors 4,250
Wages 3,000 Discount 800
Returns
Carriage Inwards
Carriage Outwards
I
1,000
1,000

B500

S
Investments 10,000
Patents 7,000

T
Salaries 1,300
Legal Expenses 600
Insurance 800
Drawings 1000
Debtors 12,000
Discount 750
Printing of Stationery 1,400
Machinery 6,000
65,850 65,800

Adjustments
(1) Closing Stock : 2,100 (2) Out standing Stationery 600
(3) Depreciation on machinery : 10% (4) Prepaid wages 500
 Accountancy-I 51

Example Problem -2:

From the following Trial Balance Saritha Trader’s Prepare Final Accounts for the
year ended 31-03-2018.
Trial Balance

Debit Balances Amount Credit Balances Amount

Purchases 20,000 Sales 52,000

Salaries 5,000 Creditors 18,500
Wages 7,800 Capital 30,000
Buildings 24,000 Interest Received 2,000
Carriage on Purchases 400 Bills payble 5200
Gas, Coal & Water 200 Bank Overdraft 5500

E
Office expenses 600 Outstanding Rent 800

I
Commission 300
Debtors 25,000

B
Opening Stock 6,000
Machinery 12,000
Insurance
Bank Balance
Bills Receivable
Cash
Furniture
T S 400
4,000
2,000
1,300
5,000

1,14,000 1,14,000

Adjustments
(1) Closing Stock : 9,000
(2) Out standing Stationery 1000
(3) Prepaid Insurance 100
(4) Create 5% provision for bad Debts.
(5) Depreciation on Furniture: 200
52 Basic Learning Material

Solution:
Trading and Profit & Loss Account of Saritha Trader’s for the year ended 31-03-2018.
Dr Cr
Particulars Amount Particulars Amount

To Opening stock 6,000 By Sales 52,000

To Parchased 20,000 By Closing Stock 9,000
To Wages 7,800
To Carriage on Purchases 400
To Gas, Coal & Water 200
To Gross Profit 26,600
61,000 61,000

E
To Provision for Bad dedts 1250 By Gross Profit 26,600

I
To Salaries 5,000 By Interest Received 2,000
(+) Outstanding Salaries 1000 6,000

B
To Office expences 600
To Commission 300

To Insurance
(–) Perpaid Insurance
To Net profit

T S
To Depreciation on Furunture
400
100
200

300
19,950
28,600 28,600
 Accountancy-I 53

Balance Sheet of Saritha Traders as on 31-03-2018.

Liabilities Amount Assets Amount

Capital 30,000 Buildings 24,000

(+) Net Profit 19,950 49,950 Debtors 25,000
Creditors 18,500 (–)5% provision
Bills Payable 5200 for Bad debts 1250 23,750
Bank Over draft 5,500 Machinary 12,000
Outstandign Rent 800 Bank Balance 4,000
Outstanding Salaries 1000 Bills Recaiable Cash 2,000
Furntiture 5000
(–) Depresiating 200 4,800

E
Closing Stock 9,000

I
Prepaid Insurance 100
80,950 80,950

S B
T
54 Basic Learning Material

Practice Problem :
From the following Particulars, Prepare Final Accounts of Hari Trader’s for the year
ended 31-03-2018.
Trial Balance

Debit Balances Amount Credit Balances Amount

Stock on 1-4-2017 2,000 Capital 60,000

Plant & Machinery 14,000 Sales 30,000
Wages 1,200 Discount 1,200
Returns 500 Creditors 4,200
Land & Buildings 30,000 Return Outwars 500

E
Purchases 15,000 Interest 1,500

I
Bills Receivable 9,300 Overdraft 6,000
Deftors 15,000 Commission 1,200

B
Cash at Bank 10,000 Bills Payable 5,000
Rent 2,500
Legal Expenses
Insurance
Salaries
Furniture
Gas & Water
Carriage
Freight
T S 1,200
600
1,500
5,000
400
600
800
1,09,600 1,09,600

Adjustments
(1) Closing Stock on 31-3-2018 : 5,600
(2) Out standing Wages: 700
(3) Prepaid Insurance: 200
(4) Provide Depreciation on Furniture 10%
(5) Write off 1500 as Bad Debts.
 Accountancy-I 55

Practice Problem :
Prepare FInal Accounts from the Trial Balance of Brundavan Trader’s for the year
ended 31-03-2018.
Trial Balance

Debit Balances Amount Credit Balances Amount

Slaries 6,000 Sales 47,000

Purchases 22,000 Creditors 10,000
Wages 7,800 Capital 25,000
Carriage on purchases 400 Bills Payable 5,800
Office expenses 500

E
Commission 600

I
Debtors 30,000
Furniture 3,000

B
Machinary 10,000
Insurance 400

S
Bank Balance 4,000
Bills Receivable 2,000

T
Cash 1,100
87,800 87,800

Adjustments
(1) Out standing Wages: 2000
(2) Out standing salaries: 1000
(3) Create 5% Reserve for Bad debts on Debtors
(4) Depreciation on Furniture 150 and on Machinery 500
(5) Closing Stock: 11,000