251 Trial Balance ii. The heading of a trial balance should be mentioned on the top middle of the page. “Trial Balance of ................. Co. As on .........................” iii. The table having five different columns should be drawn, the first is of “S. No.” i.e. serial Number. The S. No. continues as 1, 2, 3, 4, 5, ...... and so on according to the number of ledger heads. iv. A trial balance can be prepared on the basis of total figures or balance figures of the ledger accounts. Thus, the debit and credit totals of the ledgers should be determined along with the balancing of the accounts. v. The ledger accounts should be mentioned along with their serial number so as to facilitate the counting. It helps to find out whether or not any ledger account is omitted. vi. The respective ledger page number of the accounts should be mentioned if any in the L.F. column to facilitate the reference of the required ledger. vii. All assets, expenses and losses have debit balances and so they are to be debited in trial balance. Capital, liabilities, incomes and gains have credit balances and thus are to be credited in it. Dr. = All assets, expenses and losses Cr. = All capital, liabilities, incomes and gains viii. After mentioning all the ledger accounts in the trial balance, its debit and credit sides should be separately totalled to see whether or not they are equal. ix. When the two totals of a trial balance are equal, it is supposed that the books of account are arithmetically accurate; otherwise the books of accounts should be thoroughly revised as far as possible to locate the arithmetic errors. x. When the errors cannot be detected, and there it becomes a problem to proceed onward for the preparation of final accounts. In such a case, an account called a ‘suspense account’ is opened for the adjustment of the trial balance. The suspense account is opened for that side where there’s a shortage of amount and totals are made equal and proceeded onward to prepare final accounts. After finding the errors, errors are to be detected and corrected by passing journal and suspense account is removed from the trial balance. 6. Accounting Errors in Trial Balance There may be some unintentional and sometimes intentional errors committed by the accounting staff or by management in the process of book-keeping and accounting. Such mistakes are known as book-keeping errors or accounting errors.
252 Aakar’s Office Practice and Accountancy - 9 The accounting errors have been classified into two broad categories from trial balance point of view. They are: (i) errors that can be disclosed by a trial balance and (ii) errors that cannot be disclosed by a trial balance. Each of them is discussed below. A. Errors Disclosed by a Trial Balance When the two sides of trial balance fail to agree, the books of account are not regarded as arithmetically accurate. The debit and credit totals of a trial balance do not agree because of some errors and the disagreement of its two totals locates the arithmetical errors. Hence, the following errors can be disclosed by a trial balance by means of the disagreement of the two side totals: i. Errors of wrong totalling of subsidiary books. ii. Error of posting on the wrong side of a ledger in over or under-casting an amount while posting into ledger. iv. Errors of double posting in one side of a ledger. v. Errors of omission of posting on one side of a ledger. vi. Errors of totalling and balancing the account in the trial balance. vii. Omission of any ledger account in the trial balance. viii. Errors of mentioning the balance of any ledger in the wrong side of trial balance. ix. Errors in the totalling of the trial balance itself. B. Errors not Disclosed by Trial Balance The agreement of a trial balance proves only the arithmetic accuracy of the books of account. Thus, it should not be taken as the conclusive proof of the entire accuracy because there are still some errors which remain unaffected by the agreement of trial balance. Such errors are known as errors not disclosed by trial balance. They are as given below: i. Errors of Omission If a transaction is not recorded in the book of original entry, both the debit and credit aspects of the transaction will be omitted. This error will not affect the trial balance. For example, if goods sold to Dahal Bros. of Rs. 6,000, is not recorded in the books at all, i.e. neither debited in Dahal Bros. A/c nor credited in sales A/c, it will not affect the totals of the trial balance. It is because there’s omission of Rs. 6,000 on both sides. Thus, this type of error cannot be disclosed by a trial balance. ii. Errors of Commission It is the committed error. This type of error takes place when an imaginary transaction is entered in the original book of account or when wrong amount is posted in both of the accounts. It will not make any difference in the totalling of trial balance. For example, when an unreal transaction of any value is entered in the original book,
253 Trial Balance it increases both the sides of the trial balance with the same amount and do not create the disagreement. The mentioning of wrong amount of a transaction in the original book is also an error of commission, e.g. payment of salary Rs. 5,300 may be entered in the original book in as Rs. 3,500 in both sides. Similarly, the under-casting of any expense or over/under-casting of any income, etc. cannot be revealed by the trial balance. iii. Compensating Errors When the effect of one error is neutralised by the effect of another error, such an error is called compensating error. For example, forgetting to post Rs. 5000 on the debit side of certain account may be compensated/neutralised by under casting Rs. 5000 on the credit side of the same or another account. Since the first error is neutralised by second error, it does not affect the trial balance in numerical total and thus such errors cannot be revealed by a trial balance. iv. Errors of Principle When the fundamental principle of accountancy has not been followed while recording a business transaction, it is to be an error of principle. Such an error occurs when an expense is treated as asset or an asset as expense or an income as liability or a liability as an income, etc. Similarly, it occurs, when an account to be debited is credited and vice versa. For example, when salary A/c is credited and cash A/c is debited for the payment of salary, it is said to be an error of principle. This does not affect the totals of trial balance because the amount is allocated to both sides to the same extent. Thus, the trial balance cannot disclose such type of errors. v. Errors of Posting in the Wrong Account It is posting of any transaction made in the wrong account but in the correct side, the errors will not affect the total balance of trail balance. For example, machinery purchased from Suman for Rs. 10,000 is credited to Raman account in the ledger. In this case, trail balance will agree but it is error. 7. List of Possible Items Shown in Trial Balance S.N. Particulars L.F. Debit amount Credit amount Reasons 1 Opening stock ×××× Assets 2 Purchase ×××× Expenses 3 Sales return ×××× Decrease in sales 4 Traveling expenses ×××× Expenses 5 Cash ×××× Assets
254 Aakar’s Office Practice and Accountancy - 9 6 Bank ×××× Assets 7 Commission expenses ×××× Expenses 8 Bad debt ×××× Loss 9 Wages ×××× Expenses 10 Rent ×××× Expenses 11 Salary ×××× Expenses 12 Allowance ×××× Expenses 13 Land & building ×××× Assets 14 Machinery and plant ×××× Assets 15 Furniture ×××× Assets 16 Motor ×××× Assets 17 Adm. & office expenses ×××× Expenses 18 Patent ×××× Assets 19 Bills receivable ×××× Assets 20 Investment ×××× Assets 21 Depreciation ×××× Expenses 22 Custom, tax &fees ×××× Expenses 23 Debtor ×××× Assets 24 Interest expenses ×××× Expenses 25 Insurance & Advertisement ×××× Expenses 26 Phone & post expenses/electricity ×××× Expenses 27 Printing, transportation & fuel ×××× Expenses 28 Capital ×××× Capital 29 Purchase return ×××× Decrease in purchase 30 Sales ×××× Revenue 31 Interest received ×××× Income 32 Bank overdraft ×××× Liabilities 33 Commission received ×××× Income 34 Rent received ×××× Income 35 Discount received ×××× Income 36 Creditor ×××× Liabilities
255 Trial Balance 37 Loan and bills payable ×××× Liabilities 38 Reserves ×××× Liabilities 39 Advance income ×××× Liabilities 40. Carriage inward ×××× Expenses 41. Import / excise duty ×××× Expenses 42. Royalties ×××× Expenses 43. Cartage ×××× Expenses 44. Motive power ×××× Expenses 45. Audit fees ×××× Expenses 46. Legal charges ×××× Expenses 47. Sampling expenses ×××× Expenses 48. Discount ×××× Expenses 49. Commission ×××× Expenses 50. Export duty ×××× Expenses 51. Repair & maintenance ×××× Expenses 52. Charity donation ×××× Expenses 53. Bank charge ×××× Expenses 54. Sales tax ×××× Expenses 55. Brokerage ×××× Expenses 56. Loss by incident ×××× Loss 57. Drawings ×××× Decrease in capital 58. Prepaid expenses ×××× Assets 59. Goodwill ×××× Assets 60. Accrued income ×××× Assets 61. Bad debt recovered ×××× Income 62. Apprenticeship premium ×××× Income 63. Income from investment ×××× Income 64. Dividend received ×××× Income 65. Miscellaneous receipts ×××× Income 66. Outstanding expenses ×××× Liabilities Total ×××× ××××
256 Aakar’s Office Practice and Accountancy - 9 8. Illustrative Problems and Solutions Illustration 1 From the following balances taken from the books of Sanokaji & Co. as on 31st Ashwin, 075, prepare a trial balance. Heads of account Amount (Rs) Heads of account Amount (Rs) Cash Sundry debtors Salaries & wages Capital Sales Freight Discount earned Furniture 10,000 21,600 2,700 50,000 48,500 4,000 450 2,500 Commission paid Purchases Carriage inward Sundry creditors Drawings Return outwards Bank Machinery 150 20,000 3,000 5,000 6,000 2,000 9,000 27,000 Solution: Trial Balance of Sanokaji & Co, as on 31st Ashwin, 075 S.No Particulars L.F. Dr. Balance Cr. Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Cash Sundry debtors Salaries & wages Capital Sales Freight Discount earned Furniture Commission paid Purchases Carriage inward Sundry creditors Drawings Return outwards Bank Machinery 10,000 21,600 2,700 - - 4,000 - 2,500 150 20,000 3,000 - 6,000 - 9,000 27,000 - - - 50,000 48,500 - 450 - - - - 5,000 - 2,000 - - Total: 1,05 950 1,05,950
257 Trial Balance Illustration - 2 The following balances were extracted from the books of Bharatmani Bros. as on 31st Kartik, 075, prepare a trial balance: Heads of account Balance (Rs) Heads of account Balance (Rs) Capital Business premises Furniture & fixtures Plant and machinery Purchases Sales Return inwards Return outwards Carriage inward Carriage outward 60,000 35,000 13,500 46,000 78,000 1,30,000 1,500 2,000 1,400 1,100 Discount allowed Wages Insurance & rates Sundry creditors Sundry debtors Drawings Bills payable Cash in hand Bank overdraft Commission received 600 17,000 1,200 22,000 34,000 3,000 4,000 1,500 15,300 500 Solution: Trial Balance of Bharatmani Bros, as on 31st Ashwin, 075 S.N. Particulars L.F. Dr. Balance Cr. Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Capital Business premises Furniture & fixtures Plant and machinery Purchases Sales Return inwards Return outwards Carriage inward Carriage outward Commission received Discount allowed Wages Insurance & rates Sundry creditors Sundry debtors Drawings Bills payable Cash in hand Bank overdraft - 35,000 13,500 46,000 78,000 - 1,500 - 1,400 1,100 - 600 17,000 1,200 34,000 3,000 - 1,500 - 60,000 - - - - 1,30,000 - 2,000 - - 500 - - - 22,000 - - 4,000 - 15,300 Total 2,33,800 2,33,800
258 Aakar’s Office Practice and Accountancy - 9 Illustration - 3 From the following balances, prepare a trial balance as on 30th Bhadra, 075, in the books of LNS Co. Pvt. Ltd. Heads of account Balance (Rs) Heads of account Balance (Rs) Bills receivables Rent Opening stock Building Loan Purchases Interest Bills payable Sales return Tax and insurance 13,000 7,000 5,500 25,000 20,000 35,000 3,000 10,500 5,000 1,500 Capital Debtors Creditors Bank overdraft Sales Wages Cash Machinery Purchase returns Dividend (Cr.) 60,000 22,000 20,000 12,000 58,000 13,000 5,000 50,000 3,500 1,000 Solution: Trial Balance of LNS Co. Pvt. Ltd, as on 31st Bhadra, 075 S.N. Particulars L.F. Dr. Balance (Rs.) Cr. Balance (Rs.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Bills receivables Capital Rent Debtors Opening stock Creditors Building Bank overdraft Loan Sales Purchases Wages Interest Cash Bills payable Machinery Sales returns Purchase returns Tax and insurance Dividend (Cr.) 13,000 - 7,000 22,000 5,500 - 25,000 - - - 35,000 13,000 3,000 5,000 - 50,000 5,000 - 1,500 - - 60,000 - - - 20,000 - 12,000 20,000 58,000 - - - - 10,500 - - 3,500 - 1,000 Total 1,85,000 1,85,000
259 Trial Balance Illustration - 4 From the following ledger balances of Dinesh Murti Company, prepare a trial balance as on 31st Shrawan, 075: Heads of account (Rs) Heads of account (Rs) Opening stock Carriage Printing and stationery Machinery Furniture Rent and taxes Sales return Debtors Cash at bank Purchase returns Bills payables 4,000 500 400 13,000 15,000 4,000 1,500 8,000 18,000 800 4,000 Purchase Insurance Dividend received Discount (Cr) Land and building Creditors Salaries Cash in hand Sales Bills receivables Capital 10,000 600 2,550 150 20,000 7,000 7,000 5,000 22,000 4,500 75,000 Solution: Trial Balance of Dinesh Murti Co., as on 31st Shrawan, 075 S.N. Particulars L.F. Dr. Balance Cr. Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Opening stock Purchase Carriage Insurance Printing and stationery Dividend received Machinery Discount (Cr) Furniture Land and building Rent and taxes Creditors Sales return Salaries Debtors 4,000 10,000 500 600 400 - 13,000 - 15,000 20,000 4,000 - 1,500 7,000 8,000 - - - - - 2,550 - 150 - - - 7,000 - - -
260 Aakar’s Office Practice and Accountancy - 9 16 17 18 19 20 21 22 Cash in hand Cash at bank Sales Purchase returns Bills receivables Bills payables Capital 5,000 18,000 - - 4,500 - - - - 22,000 800 - 4,000 75,000 Total 1,11,500 1,11,500 Glossary Subsidiary book : additional book where the record of credit purchase, credit sales, return and cash transaction are recorded. Omission : lapse Accuracy : exactness/equal Rectified : corrected Revealed : found Exercise A. Answer the following questions in one sentence. 1. What is trial balance? 2. What is suspense account? 3. What are the methods of preparing trial balance? 4. What do you mean by errors of principle? 5. Write the major debit items of trial balance. B. Give short answers to the following question. 6. Define a trial balance and mention its importance. 7. Mention the specimen rulings of a trial balance. 8. Write the objectives of trial balance. 9. Mention the important considerations of a trial balance. 10. What is accounting error? What are its types from trial balance point of view? Mention. 11. Mention the errors that can be revealed by a trial balance. 12. Describe about the errors that cannot be revealed by a trial balance, with suitable examples.
261 Trial Balance NUMERICAL PROBLEMS 13. Pass journal entries, prepare necessary ledger accounts and draw out a trial balance from the following information of ABC Co., Chitwan. Jestha 1 Commenced business with cash of Rs. 20,000 and goods worth Rs. 10,000. Jestha 5 Withdrawn Rs. 2,000 on a permanent basis out of capital. Jestha 6 Brought in additional capital of Rs. 5,000. Jestha 9 Sale of goods Rs. 9,500. Jestha 10 Drawings made during the year Rs. 2,500. Jestha 12 Furniture purchased from Pooja Rs.10,000. Jestha 15 Goods purchased from Manish Rs. 5,000. Jestha 22 Goods purchased Rs. 3,000. Jestha 30 Paid salaries Rs. 3,000. 14. From the following balance extracted from the ledger accounts of XYZ Co. as on 30th Chaitra, 2075, prepare a trial balance. Particulars Rs. Particulars Rs. Capital Sundry creditors Sundry debtors Land and building Opening stock Wages Rent Advertising Office expenses Commission (Dr.) 60,000 30,800 22,500 26,000 15,500 25,000 4,000 3,000 6,400 1,400 Drawing Cash in hand Plant and machinery Purchase Carriage Salary Sales Printing and stationery Discount (Cr.) Bad debts 2,500 4,250 20,000 65,000 1,100 9,000 1,21,000 5,800 800 1,150 Ans: Total 2,12,600 15. Prepare a trial balance from the following information of ABC Co. Jestha, 2075. Capital Leasehold premises Purchase return Cash in hand Rent, rates and taxes Purchase Trade expenses Opening stock 15,560/- 7,410/- 2,640/- 1,420/- 4,650/- 12,680/- 7,840/- 2,640/- Suresh’s drawing Customers Creditors Salary and wages Sales Loan from bank Bills payables Sales return 5,640/- 5,300/- 5,280/- 5,980/- 27,560/- 2,500/- 1,000/- 980/- Ans: Total Rs. 54,540/-
262 Aakar’s Office Practice and Accountancy - 9 16. The following balances were extracted from the books of Suraj Bro. as on 31st Bhadra, 075. Prepare a trial balance. Ledger heads Amt. (Rs.) Ledger heads Amt. (Rs.) Capital Cash in hand Cash at Bank Stock (1-5-075) Purchase Bad debt Carriage Return to supplies Wages Rent and rates Legal charges 10,000/- 1,700/- 7,000/- 1,000/- 11,000/- 500/- 800/- 1,000/- 4,000/- 600/- 400/- Packaging and printing Creditors Trade expenses Drawings Bills payables Debtors Repair & maintenance Reserve fund Sales Return from customers Carriage out 300/- 4,500/- 1,600/- 1,500/- 3,500/- 8,000/- 700/- 2,500/- 17,000/- 1,400/- 400/- Ans: Total 40,900. Suspense A/c (Cr.) 2,400. 17. Prepare a Trial Balance from the following information. Ledger heads Amt. (Rs.) Ledger heads Amt. (Rs.) Suresh’s capital Leasehold premises Due form customers Purchase returns Creditors Cash in hand Salaries & Wages Rent rates and taxes 1,556 741 530 264 528 142 598 465 Suresh’s drawing Sales Purchases Loan from bank. Trading and office expenses Bills payables Opening stock Sales returns 564 2,756 1,268 250 784 100 264 98 Ans, Total: 5,454 18. From the following balances taken from the books of Suresh & Co. as on 31st Ashwin, 075, prepare a trial balance. Heads of Account Amount Heads of Account Amount Cash Sundry debtors Salaries & Wages Capital Sales Furniture Discount earned Freight 10,000 21,600 2,700 50,000 49,500 8,000 450 2,500 Commission paid Purchases Carriage inward Sundry creditors Drawings Return outwards Bank Machinery 150 20,000 3,000 5,000 3,000 2,000 9,000 27,000 Ans: Total: Rs. 106,950
263 Trial Balance 19. Prepare a Trial Balance from the following ledger balances of Rita Pvt. Ltd. Ashad, 2075. Drawings Sundry Creditors Sundry Debtors Loan to Roshan Land Cash at Bank Purchases Sales Return Inwards Commission Discount Received 5,000 60,500 70,500 10,000 70,500 18,750 50,000 167,000 1,500 6,050 4,000 Capital Bills Payable Bills Receivable Fixture and Fittings Cash in hand Bank Overdraft (Megha Bank) Duty and clearing charges Salaries Return Outwards Trade Expenses Traveling Expenses 30,000 2,000 7,500 6,750 1,350 3,000 5,250 12,250 1,650 750 2,000 Ans: Rs. 2,68,150 20. On the basis of following balances, prepare a trial balance of Jestha, 2075. Cash Purchase Sales return Capital Bills payable Wages Business expenditure House rent Carriage outward Opening stock 12,500 30,000 500 41,000 10,000 6,000 4,000 3,000 3,000 16,500 Bank Sales Purchase return Creditor Bank overdraft Salary Insurance Debtor Carriage inward Building 3,500 80,000 3,000 15,000 5,500 16,000 1,500 11,000 2,000 45,000 Ans: Total Rs. 1,54,500 21. From the following points, prepare a trial balance of Suman & Company of 31st Ashadh, 2075 Capital Purchase Sales Insurance Reserved for doubtful debt Printing &Packing Salary Purchase return Bills payable Accrued income Bank balance 82,000 60,000 1,72,000 1,600 3,000 1,350 31,000 1,850 3,200 34,000 36,400 Bad debt Discount paid Rent charge Equipment Debtor Wages Sales return Bills receivable Drawing Sundry creditor 1,500 2,400 2,600 40,000 76,000 2,200 2,000 3,400 4,000 36,400 Ans: 2,98,450
264 Aakar’s Office Practice and Accountancy - 9 22. Prepare the Trial Balance of Sagar Furniture for the fiscal year 2075/076 from the following particulars. Particulars Amount Particulars Amount Accrued income Bank loan Cash Sales 10,000 40,000 45,000 70,000 Bills payable Debtors Discount received Purchase 20,000 25,000 30,000 80,000 Ans: Trial Balance Total: 1,60,000 23. Prepare the trial balance of Bikash Furniture, Kathmandu for the fiscal year 2075/076 from the following particulars. Particulars Amount Particulars Amount Sale of scrap Investment Rent earned Drawing 40,000 20,000 10,000 15,000 Machine Loan of Prem Advance Income Depreciation 35,000 30,000 10,000 20,000 Ans: Trial Balance Total: 90,000 24. Prepare the Trial Balance of Nepal Soap Company, Biratnagar for the fiscal year 2075/076 from the following particulars. Particulars Amount Particulars Amount Bills of exchange General reserve Surplus Brokerage Charge 35,000 25,000 30,000 25,000 Patents Debenture Bad debts recovered Sales returned 25,000 40,000 5,000 15,000 Ans: Trial Balance Total: 1,00,000 25. Prepare the Trial Balance of Anusha and Anjana Company for the fiscal year 2075/076 from the following particulars. Particulars Amount Particulars Amount Capital Purchase Debtor Bills payable 160,000 116,000 40,000 6,000 Opening stock Furniture Sales Interest received 80,000 16,000 80,000 26,000 Ans: Trial Balance Total: 2,72,000, Suspense account Dr. Rs. 20,000
265 Trial Balance 26. Prepare a Trial Balance of Rashila Trading Company at the end of Ashad, 2075 from the followings. Opening stock Purchase Interest Expenses Creditors Rent Expenses 30,000 2,70,000 15,000 80,000 15,000 Capital Salaries Sales Payable Amount Bank Balance 50,000 10,000 2,50,000 20,000 60,000 (Ans: Total Rs. 4,00,000) 27. Prepare a trial balance of Nepal National Trading Limited of the fiscal year ended Asadh 31, 2075 from the following particulars. Capital Purchased Creditors Purchased Returned Bank overdraft 3,00,000 2,15,000 20,000 5,000 25,000 Opening stock Sales Furniture Salaries Sales returned 1,20,000 2,00,000 55,000 1,45,000 15,000 (Ans: Total Rs. 5,50,000) 28. Prepare a Trial Balance of Raj Kamal Industry for the fiscal year ended on Asadh last 2075/76. Capital Sales Sales returned Creditors Bank overdraft 3,50,000 1,00,000 1,000 10,000 15,000 Opening stock Purchase Purchase returned Debtor Land and building 40,000 2,00,000 5,000 50,000 1,89,000 (Ans: Total Rs. 4,80,000) 29. Prepare Trial Balance of Kunal Guest House as on 31st, Asadh, 2075, from the following particulars. Capital Purchase Sales Drawings Machinery & Equipment 3,22,000 9,70,000 12,00,000 83,000 3,71,000 Bank Loan Creditors Depreciation Reserve Fund Bills Receivable 56,000 1,50,000 1,65,000 91,000 2,30,000 (Ans: Total Rs. 18,19,000) 30. Prepare a Trial Balance of Shagun Company of 31st Asadh, 2075 from the, following transaction. Purchase Furniture Purchase Return Bills Receivable Debtor 2,50,000 30,000 15,000 8,000 5,000 Sales Bank Loan Depreciation Discount Received Sales Return 2,12,000 80,000 12,000 5,000 7,000 (Ans: Total Rs. 3,12,000)
266 Aakar’s Office Practice and Accountancy - 9 31. Prepare a Trial Balance of Kathmandu Cold Store for the fiscal year end of Asar 2074/2075 from the following particulars. Capital Sales Sales Return Stationery Rs. 1,70,000/- Rs. 4,95,000/- Rs. 14,000/- Rs. 63,000/- Purchase Opening stock Salaries Bank overdraft Rs. 2,35,000/- Rs. 80,000/- Rs. 3,50,000/- Rs. 77,000/- (Ans: Total Rs. 7,42,000) 32. The following trial balance is incorrect and incomplete. Redraft the trial balance correctly. Particulars Debit Credit Bank Loan 1,04,000 Sales Return 32,000 Plant and Machinery 60,000 Capital 5,14,700 Sales Promotion Expenses 25,000 Furniture 1,00,000 Drawings 14,000 Load and Building 36,000 Reserve 19,000 Suppliers 3,14,000 Electrical Fittings 72,000 Motor Car Repairs 46,000 Opening Stock 62,500 Cash 54,200 Customers 450,000 Total 9,51,700 9,51,700 Project Work a. Make a trial balance after observing and analyzing the journal and ledger of any two social organization. b. Observe the trial balance of your school.
267 Government Accounting System Trial Balance Unit Government Accounting System CDC Syllabus 13.1 Introduction and Brief Evaluation 4 Periods 13 Nagadi (Cash) Jinshi (Property) Dharauti (Security) Income Awarje (Income Ledger) Vinjalik Awarje (Expenses Ledger) Job Ending Month Ending Year Ending Shyaha Shresta Pranali Shyaha (Journal) Awarje (Ledger) Dhapot (Balance) After studying this unit, students will be able to : know the meaning government account, state the features of government accounting, explain historical development of government accounting in Nepal, explain the types of accounting system used in Nepal, differentiate government accounting and business accounting. Learning Objectives
268 Aakar’s Office Practice and Accountancy - 9 1. Introduction Financial administration is an essence of an organization. Whether it is government or non-government organization, accounting is its major component. Accounting provides the entire financial information to the financial management by identifying, recording, classifying and summarising the financial transactions, and interpreting their results. Then the general management takes decisions on the basis of such information, specially in financial matters. Thus, accounting is an important portion of every organizational entity, which identifies records, classifies and summarizes the financial transactions and interprets the results thereof. It is the compulsory duty of the government of every country to maintain rule and order and peace and security to develop every sector on the equitable basis and establish and develop the sound defence system and maintain due stability in all the sectors of the national economy in the country. For this, the government establishes various ministries, departments, constitutional bodies and a number of subordinating offices under them. It also conducts various government activities through these offices and sometimes some special projects are also conducted in different sectors of social life. A number of financial resources are used in the conduct of such regular activities and the special projects. The government should make a number of systematic records of the financial activities in order to see the performance efficiency, control fraud and leakage of resources, see the application of the budgetary rules in controlling expenditures and so forth. It is the government accounting, which helps the government to satisfy all such objectives. Thus, a government accounting refers to the accounting used in government offices to satisfy the objectives of controlling the government expenses and financial resources, measuring the efficiency of the government offices and projects, and to determine the accountability of the concerned authority in the conduct of such activities. In this regard, Oshisami & Dean have defined government accounting as: “The process of recording, analysing, classifying, summarising, communicating and interpreting financial information about government in aggregate and in detail, reflecting all transactions involving the receipt, transfer and disposition of government funds and property.” Key Point Government accounting is the systematic and scientific process of recording, classifying and summarizing the government revenue and expenditure for the proper utilization of public fund in development and administrative works. Office of Auditor General
269 Government Accounting System 2. Objectives of Government Accounting Government accounting refers to the accounting, which is used in the government offices. It is viewed to serve the government by providing necessary financial information from time to time in order to control the frauds and leakage of financial resources and determine the accountability of the government bodies. It acts as an important tools of financial administration. Government accounting has various, objectives. The common and important objectives of a government accounting mentioned as below: i. To keep the accurate and complete records of all the financial transactions of the government offices. ii. To regulate the government expenditures within the budget limit and collect the government revenue from the budget prescription. iii. To provide necessary information about different government funds, their utilization and expenses for different government activities and project. iv. To provide necessary financial data, statistics and figures of government revenue and expenditures which are necessary for the preparation of financial statement and forth-coming budget? v. To make the proper control over the stores and inventory of materials and other capital assets and safeguarding them from misuse, damage, theft etc. by keeping their up-to-date records. vi. To facilitate auditing by making it simple and less expensive as it records the complete and real records of the financial transactions of the government. 3. Historical Development of Government Accounting in Nepal There is not any evidential proof about the origin of accounting system in Nepal. Lichchhavi and Malla periods were of great importance from the viewpoint of financial administration. During the Lichchhavi period, the government revenues were collected from Panchali (local government body), Guthi (trust), Jinsi Kar (property tax), Sharmdan (voluntary work), etc. and expenditures were made for war, renovation, construction and repairs of temples, tapes, ponds, holy-shrines and worshiping expenses, etc. During Malla period, with the beginning of a trade relation with Tibet, revenues from customs and trade were also added in the line of government revenue and expenses were incurred on the same head but to larger and more frequent extent. Thus, accounting is found to have started form the Lichhavi period in a form according to the need and knowledge of the ruler and then continued onward to the Malla period. But such an accounting system was not scientific and long lasting.
270 Aakar’s Office Practice and Accountancy - 9 The need of accounting was felt necessary with the increase of transactions, in course of time. Later, in the beginning of the unification of Nepal in 1825 B.S., it is believed that a memorandum record of government revenues and expenditures as an accounting system was developed to maintain. In this regard, two books called Laldhadda and Mothdhadda were introduced in the years 1871 and 1879 B.S. respectively. The book Laldhadda was used to record the government revenues and administrative expenditures whereas the book Mothdhadda for recording the transactions of Kipat Byabstha (land management). These two books have proven to be the foundation for the origin and development of accounting system in Nepal. In the year 1925 B.S., an office, called, ‘Nepal Kitabkhana’ was formed to register the name of the government employees and to record the salaries paid to them, which is still in use to record the salary transactions and the pension transactions of the retired government employees. The accounting record of salary expenses used to be recorded in Kaushi Tosha Khana, a section under Kitab Khana. Again, with the passage of time, transactions were also increased in different sectors like land revenue in the name of Malpot (land tax), revenue from forest, trade and customs, etc. in the revenue side and war, peace and security, religious activities, salaries to the government employees, administrative expenses, government subsides, pension expenses and other developmental expenditures on the expenditure side. Such an increase in government transactions led the development of accounting system in the country. Towards 1936 B.S. Khardar, Gunwanta, a senior official of that time, introduced a new sort of accounting system called Shyaha Shresta Pranali, with a view to record the government revenues and expenditures in a simple, uniform and systematic way so as to exhibit revenues and expenditures in a simple, uniform and systematic way, and to exhibit the actual position of the government revenue and expenditure. This system remained in practice in the country till 2022/23 fiscal year and ultimately replaced by the New Accounting System of Government of Nepal. Even though Shyaha Shresta Pranali was comparatively more systematic and scientific accounting system, it could not cover the numerous and complicated transactions in the Terai-region of the country. As a result, in about 1968 B.S. Faram Shresta Pranali (Form Accounting System) was introduced and brought into practice in the Terai region. It had 51 different forms to record and report the transactions and thus named as Faram Shresta Pranali. In this way, after 1968 B.S. and until the implementation of New Accounting System of Government of Nepal, there were two accounting systems, Shyaha Shresta Pranali in the Mountainous region and Faram Shresta Pranali in the Terai region and Kathmandu valley. Since, the autocratic Rana rulers did not give any importance to the accounting system and to the entire financial administration, the accounting system could not be developed during the period of Rana-Regime. After the historical movement of 2007 B.S., the autocratic Rana Regime was overthrown and democratic government was established in the country. Since, then
271 Government Accounting System the government seemed to be more responsible for the people, the government declared budget system for the first time, in the country, in 2008 B.S. to let the people know about the government’s projected revenues and expenditures. Again, economic planning was started from 2013 B.S. for the balanced economic development of the country. But because of the lack of appropriate accounting system, the necessary data, figures, and other financial information could not be obtained for the preparation of a sound budget and economic plans and for their implementation. Thus, the government felt the necessity of an appropriate accounting system for recording the government transactions. But due to the political instability and lack of the guiding rules during the first decade of the democratic era, such an accounting system could not be introduced. Thus, in the year 2016 an Act called “Procedural Rules for Government Fund Expenditure 2016 was passed and enacted by the government in order to establish the uniformity in financial administration. On the other hand, the Auditor General was appointed as per the `Constitution of Nepal 2015’ as a constitutional body to check the frauds and misappropriation of government budget and to audit the accounting thereto. After the enactment of the Act “Procedural Rules for Government Fund Expenditure 2016”, Bhuktani Shresta Pranali (Payment Accounting System) was introduced in 2017 B.S., which was based on the principle of double entry system. But within a very short period, it was proven to be insufficient to cover the government transactions, specially the revenues, foreign aids and donation and budget transfer, etc. Thus, it was replaced, in a short time, by New Accounting System, which is still in use throughout the country. Even though the political system was changed from multiparty democratic system to partyless Panchayat System, it did not disturb the development of accounting. Because of some serous limitations of the Payment Accounting System, a new accounting system was introduced as per the recommendation of `Accounting Committee 2017’. It replaced the Payment Accounting System and all other old accounting systems. It is completely based on the principle of double accounting system. This system is used, nowadays throughout the country. Payment Accounting System was replaced by the New Accounting System in the fiscal year 2019/020 as per the recommendation of the ‘Accounting Committee 2017’. It was aimed to remove the difficulties and limitations of old accounting systems and even of the Payment Accounting System and to establish uniformity in account keeping throughout the country. 4. Types of Accounting System used in Nepal In Nepal, various accounting systems used in government offices from the ancient time. The following are the commonly used accounting systems in Nepal from the ancient time:
272 Aakar’s Office Practice and Accountancy - 9 i. Wasil Banki Shresta Pranali It was a simple accounting system under, which revenues ware recorded on one side pages and the expenditures on the other. So as to determine the balance between the totals of revenues and incomes of a government office for a certain period. The offices having very small quantity of activities or temporary government projects used to maintain this sort of accounting in order to fine out the balance of budget releases after a certain period or after the completion of a project. The book of account under this accounting was the first and final book of the office. The accounts ware closed, under this system, either on the expiry of the fiscal year. i.e. year termination or on the completion of the job or project. Its serious limitations ware that it was based on single entry system, there was no provision of classification of income and or expenses and it was the first as well as the final record of the transaction. Thus, it could not remain in use for a long time. ii. Shyaha Shresta Pranali Shyaha Shresta Pranali was that pranali, which maintained three different books of account for different types of transactions and could show the income, expenditure and balance, at a time, in a classified way. This system was more reliable, advance and scientific than the prevailing systems of accounting. It was propounded in 1936 B.S. by Khardar Gunbanta, the senior official of that time in order to make the records of the transactions in a classified way. It was remained in practice for about 86 years in the country. Three different books were found used in recording the transaction under this system. They are, briefly, discussed below: a. Shyaha It was the first book under Shyaha Shresh Pranali. It was in some extent, similar to the journal book of modern accounting system. It was prepared in ‘T’ form made by folding and pressing the paper, specially, the traditional Nepali Kagaj. Left side of the paper was used to record the income or receipt and the right side for expenditure or payment. Both the sides ware totalled and balanced on daily and cumulative basis. The daily totals were underlined by a single straight line, called ‘Terij’ or sub-total and the cumulative total upto the date were underlined by two parallel lines, called ‘Berij’. Thus, Terij was meant for sub total of the transactions of a day and ‘Berij’, for the grand total upto the also date of the period. There was a provision of classified recoding in the Shyaha for the cash, property and security deposit transactions. Thus, it was of mainly, tree types. They are: i. Nagadi Shyaha (cash shyaha), ii. Jinsi Shyaha (property shyaha), iii. Dharauti Shyaha (deposit shyaha) Nagadi (Cash) Jinshi (Property) Dharauti (Security) Income Awarje (Income Ledger) Vinjalik Awarje (Expenses Ledger) Job Ending Month Ending Year Ending Shyaha Shresta Pranali Shyaha (Journal) Awarje (Ledger) Dhapot (Balance)
273 Government Accounting System b. Awarje A shyaha could be closed under two terms i.e. monthly and yearly. Thus, there were to ways of closing a shyaha monthly closing and yearly closing. Transactions presented under income and expenditure head separately. It used to be taken from the first book shyaha and thus it was said to be a posting. It was of two types: (a) income awarje and (b) expenditure (minjalik) awarje. i. Income Awarje The awarje, which was maintained for recording the incomes of the government was said to be income awarje. ii. Minjalik Awarje (Expenditure Awarje) The awarje which was maintained for posting the various expenditures as known as minjalik awarje. c. Dhapot Dhapot was the final summarized statement of all the transactions of a project or job in a period. It was meant to present the summarized information based on the records of the transactions occurred during a specific period: say a month, a year or even for a certain job or project. Thus, it was in some extent, similar to the balance sheet of the modern accounting system. It was also of three types as according to its term of closing. They were Monthly Termination Dhapot, Year Termination Dhapot and Job Termination Dhapot. iii. Faram Shresta Pranali (Form Accounting System) Shyaha Shresta Pranali was an adance and more scientific system of accounting in its period. It could not meet the accounting need of the Terai-region and the cities because of the variety and large volume of transactions. A new accounting system was introduced and brought into practice in the Terai-region in about 1968 B.S. to record the varieties of transactions by using a number of forms. This accounting system is said to be the Faram Shresta Pranali. There were altogether 51 different forms used under this system. iv. Bhuktani Shresta Pranali (Payment Accounting System) After the historical peoples movement in 2007, the autocratic Rana Regime was overthrown and democratic government was formed in the country. It because more responsible toward the people of the county, specially in the transparency of the government affairs. Thus, the government declared Budget System in 2008 and again for the balanced development of the country, it started economic planning, but the necessary statistics and other financial information could not be supplied
274 Aakar’s Office Practice and Accountancy - 9 by the existing accounting systems. Then, the government felt the necessity of an accounting system based on double entry principle for making the complete record of the government fund expenditures. According to the ‘Constitution of Nepal 2015’, and act called ‘Procedural Rules For Government Fund Expenditure 2016,’ was passed and enacted in 2016. Then Bhuktani Shresta Pranali was introduced in the government offices of Nepal in 2017 as the outcome of that act. As this system was basically related to expenditure aspect, it was called Kharcha Shresta Parnali. v. Naya Shresta Pranali (New Accounting System) Payment accounting system, although, was scientific and based on the principle of double entry system, could not fulfil the accounting need of the government offices because of its serious limitations and practical difficulties, such as lack of the provision of budget transfer, non-unifomity of advance transactions, concentrations only towards the payments, etc. Besides, the Payment Accounting System could not show the actual position of the foreign aid and donation and the picture of their utilization to the foreign countries because of the lack of such a provision under this system. Hence, for the improvement, decentralisation, and modernisation of the accounting system in the country, the government formed a committee in the name of ‘Account Committee 2017’ on the 20th Magh, 2017. It was of 4 members: i. Accountant General of Government, ii. Under Secretary, Ministry of Finance, Foreign Aid Department, Government of Nepal. iii. Account Specialist, UNO. iv. Public Administration Advisor of U.S. Aid. The committee studied, in detail, about such an accounting system, for 288 days and presented a draft to the finance secretary on the 18th of Kartik 2018 B.S. by suggesting a New Accounting System for the country. This system was quite a new system of accounting. It was first implemented in the offices of Kathmandu Valley from the fiscal year 2019, then in the offices Narayan zone and the rest of Bagmati zone from the fiscal year 020/021 and again added the offices of Janakpur and Gondaki zone from the fiscal year 021/022, and finally, all over the country from the fiscal year 2025/026. 5. Differences between Government Accounting and Business Accounting The differences between government accounting and business accounting are presented here:
275 Government Accounting System Government Accounting Commercial Accounting 1. The main purpose of the government is to provide administrative and financial service to the general public. So, it prepares accounts of government revenues and their expenditures. 1. The main purpose of commercial firm is to perform business activities to earn profit. For this purpose, they prepare Trading Account, Profit and Loss A/c and Balance Sheet. 2. It is based on budget. All expenses of government offices are pre-determined on the basis of budget. Similarly, revenues are also projected by the budget. 2. It is not necessary to prepare all statements of accounts on the basis of a budget head. However, budgets are used to compare the actual performance with the budgeted performance. 3. The main purpose of governments accounting is to reflect the plans and policies of the government in financial terms. 3. The main purpose of business account is to find out the profit earned or loss suffered during a financial year. 4. It has to be maintained as per the government rules and regulations. 4. It is not based on government rules and regulations. Rather it is based on the Generally Accepted Accounting Principles (GAAP) evolved over the years. 5. It is prepared on cash basis i.e. only cash receipts and cash payments. 5. It is prepared on cash as well as accrual basis. 6. It has the system of central level and operating level accounting. 6. It does not divide the accounting system under different levels. 7. The Office of Auditor General audits books of account kept under government accounting. 7. A professional auditor can audit who is licensed from the Office of Auditor General. Glossary Accrual : credit/not in cash Constitution : main laws of the country Budget : estimated income and expenditure Revenue : income of government office
276 Aakar’s Office Practice and Accountancy - 9 Exercise A. Answer the following questions in one sentence. 1. What does government accounting mean? 2. What is meant by laldhadda? 3. What is meant by Mothdhadda? 4. When was an office called kitbkhana established in Nepal? 5. When did Kharidar Guuqwanta propound Shyaha Shresta Pranali? 6. When was the new accounting system introduced in Nepal? B. Give short answers to the following question. 7. Briefly mention the historical development of government accounting in Nepal. 8. Distinguish between government accounting and business accounting. 9. Write the objectives of Government Accounting? Project Work a. Visit to any two government offices of your locality. Find out the type of Government Accounting System used by government officials. b. Make the list of forms and formats used by government offices of your locality.
277 Model Questions and Appendix Model-1 Full Marks: 75 Time: 2:15 hrs. Pass Marks: 24 Candidates are requested to answer in their own words as far as practicable. Credit shall be given to creatively not rote learning. Attempt all the questions: GROUP : A A. Answer the following questions in one sentence. 5×1=5 1. What is meant by industry? 2. Define record. 3. What is meant by dispatch of mail? 4. What is meant by disposal of record? 5. Define Endorsement of the Minute. GROUP : B B. Give the short answer to the following questions. 6. Explain any five qualities of Office Assistant. 5 7. Write any five differences between Single Entry System and Double Entry Book-keeping System. 5 8. Explain any five parts of a good letter. 5 9. Explain about the historical development of government accounting in Nepal. 5 10. Explain the development process of postal services in Nepal. 5 11. Journalize the following transactions of SP and TP Company, Chitwan. 5 i. On 2073-06-03 Commenced business with Rs. 40,00,000 and furniture Rs. 1,00,000. ii. On 2073-06-10 Purchased goods from Ram company in cash Rs. 15,000 and credit Rs. 10,000. iii. On 2073-06-14 Goods sold to Amit Stores Rs. 90,000 and received Rs. 20,000 cash only. iv. On 2073-06-22 Paid for salary Rs. 30,000. v. On 2073-06-26 Withdraw cash from bank Rs. 10,000.
278 Aakar’s Office Practice and Accountancy - 9 12. Prepare the Cash A/c and Shyam’s A/c from the following transactions. 2.5+2.5 i. On 2072-06-03 Started business with cash balance Rs 10,00,000, Bank Balance Rs. 10,00,000 and furniture Rs. 4,00,000. ii. On 2072-06-06 Sales goods to Shyam Stores Rs. 50,000 iii. On 2072-06-13 Deposit cash Rs. 50,000 into bank. iv. On 2072-06-17 Purchase goods in cash Rs. 6,00,000. v. On 2072-06-22 Cash received from Shyam Stores Rs. 49,500 in full settlement. 13. Draft a Trial Balance of Chitwan Stores as on 30th Jestha, 2073 from the given information. 5 Captial Rs. 45,00,000 Accured income Rs. 5,00,000 Creditors Rs. 5,00,000 Net profit Rs. 5,00,000 Furniture Rs. 10,00,000 Reserve fund Rs. 1,00,000 Rent Rs. 1,00,000 Plant and Machinery Rs. 40,00,000 GROUP : C C. Write long answer to the following questions. 14. What are office resources? Explain the types of office resources with an examples. 1.5+8.5 15. What is sole trading concern? Explain any four advantages and any four disadvantages of it. 2+4+4 16. Enter the following transactions in a cash book with cash, discount and bank columns of Amita Traders. 10 2016, March: 05, Opening balance cash in hand Rs. 10,00,000 and bank balance Rs. 8,00,000. 10, Paid cash to A to Z Co. Rs. 99,000 and received discount Rs. 1,000 in full settlement. 13, Cash sales Rs. 1,00,000 and credit purchase Rs. 20,000. 15, Cash received from ABC against bad debt previously written off as Rs. 50,000. 18, Cash paid Rs. 80,000 to Ramesh in full settlement of Rs. 82,000. 20, Paid cash to Santosh Stores Rs. 20,000 and received discount Rs. 1,500. 22, Machinery purchased by cash Rs. 50,000. 26, Cash deposited into bank Rs. 20,000. 28, Purchase goods for cash Rs. 50,000. 30, Salary paid to staff by cheque Rs. 1,40,000.
279 Model Questions and Appendix Bibliography Agrawala, A.N. : ‘The Higher Science of Accountancy’, Allahabad, Kitab Mahal. Arora, S.P. (2000) : Office Organization and Management, New Delhi, Bikash Publishing House Pvt. Ltd. Batliboi, J.R. : ‘Double Entry Book Keeping’, Bombay, Standard Accounting Publications. Bhusan, Y.K. (1995) : ‘Business Organization and Management’, New Delhi, S. Chand & Song. Grewal, T.S. : ‘Double Entry Book Keeping’, New Delhi, S. Chand and Company Ltd. Janak Shikshya : ‘Office Management and Account (Grade 10)’, Bhaktapur, CDC. Porter, GA, Curtis L. Norton : ‘Financial Accounting (3rd Edition)’, Harcourt College Publishers. Saxena, S. (2003) : ‘Business Studies’, Delhi, S. Chand. Saxena, S.C. : ‘Business Administration and Management’. Sharma, R.K. Gupta, Shashi (1995) : ‘Business Organization and Office Management’, Kathmandu, Athrai Prakashan. Shelakar, S.A. (1982) : ‘Modern Business Organization and Management System Approach’, Himalayan Publishing House. Taylor, Shirley (2004) : ‘Model Business Letters, Email and other Business Documents’, New Delhi, Person Education. Tulsian, P.C. (2003) : ‘Introduction to Accountancy’’ New Delhi, Tata McGraw-Hill. Websites : www.moecdc.gov.np | www.moe.gov.np Economic Report (2016) : Nepal Rastra Bank Company Act 2063 : Company Registrar Office K.C., Fatta Bahadur (2061) : ‘Organization and Management in Nepal’, MK Publisher Shrestha, K.N. (2060) : ‘Business Organization and Office Management’, Kathmandu, Nabin Prakashan
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