Office Practice and Accounting 10

Approved by Government of Nepal, Ministry of Education, Curriculum
Development Centre, Sanothimi, Bhaktapur as an additional material






Office Practice




and Accounting
















10














Author
Pramod Parajuli

Office Practice


and Accounting 10






Publisher
Green Books

Copyright
Author (2074 BS)

Edition
First : B.S. 2074 (2017 AD)
Reprint : B.S. 2075 (2018 AD)
Layout
The Focus Computer
focus.dipendra@gmail.com


Printed in Nepal

Preface







I have a distinct pleasure in placing the book ‘Office Practice and Accounting’
for the students of grade–X. This book covers both the theory and numerical
problems with sufficient illustrations. The objective behind writing this book is
to provide a complete subject matter required to cover the syllabus prescribed
by CDC, Nepal. I hope this book will help to impart the students an insight into
the subject, explaining the complexities involved in a simplified manner and

helping them to achieve academic goals. I have attempted to make this book
simple, logical and natural.
For an easier navigation and understanding, various topics are divided into
chapters, units and sub-units that help students to understand the subject

matter in easy way. I hope, not only students but teachers as well as persons
interested in accounting also will be benefitted from this book.

I would like to thank to Green Books team for the publication and distribution
of this book. Focus Computer deserves the words of appreciation for the
computer work. I am greatfull to Mr. Gautam Siwakoti for his invaluable
suggestions. Similarly, I would also like to express my hearty thanks to my
spouse Uma for her great sacrifice and patience which is the great source of
encouragement to bring this book in this from.

Finally, I request to the teachers, students and readers to express their views as
well as their suggestions for further improvements of the book.



Author

Optional Second Account




Specification Grid- 2065
Time: 2.15 hrs. F.M. : 75
P.M. : 24
Knowledge and Application Higher ability
S.N. Contents understanding Number of Marks
questions
VSA SA LA VSA SA LA VSA SA LA
1 Office Procedure 1 1 5
2. Filing 1 1 5
3. Trade 1 1 2 1 + 5 = 6
4. Financial Institution 1 1 2 1+10=11
5. Trial Balance 1 1 5
6. Final Account 1 2 3 1+5+5=11
7. Government ac- 1 1 2 1+5=6
counting
8. Journal voucher 1 1 10
9. Bank Cash Book, 1 1 1 3 1+10+5=16
Budget sheet and
Monthly statement
Total 5 2 1 – 3 2 3 16 75
Types of Questions Number of Questions Marks Time Allocation
• Very short answer type 5 1 × 5 = 5 9 minute
• Short answer type 8 5 × 8 = 40 72 minute
• Long answer type 3 10 × 3 = 30 54 minute
Total 16 75 2 hr. 15 min.
Note :
• Preparing one specimen of Goshwara Voucher is sufficient.
• Students should either prepare the formats for practical questions or use ready made forms in
their own management. The concerned exam center should avail the formats so far as possible.
• The concerned District Education Office should manage the practical exams for private students.
• The practical Exam is of 25 marks for regular and private examinee.
• Questions related to problem solving can be asked form the following chapters.
– Goswara Voucher – Trial - Balance – Final Account
– Bank Cash Book – Budget Sheet – Statement of Expenditure (any 3)

For practical activities, students are asked to work in following areas:
S.N. Subject Area Regular Private students
1. Home works 5 mars -
2. Preparation of Report 5 marks 10 marks
3. Problem solving (any three) 15 marks 15 marsk
• Students can be asked to prepare Educational Report giving relative topic/subject as above

Content




Unit 1 : Office Procedure 1 - 9
Unit 2 : Filing 10 - 21

Unit 3 : Trade 22 - 35

Unit 4 : Financial Institutions 36 - 61
Unit 5 : Trial Balance 62 - 80

Unit 6 : Final Account 81 - 116
Unit 7 : Government Account 117 - 165

Unit 8 : Journal Voucher 166 - 237

Unit 9 : Bank Cash Book 238 - 269
Unit 10 : Budget Sheet 270 - 281

Unit 11 : Monthly Statement of Expenditure 282 - 314



UNIT
1 Office Procedures
































Learning objectives :


After the completion of this unit, students will be able
to understand :

• the meaning of office procedure.
• the meaning and consideration for drafting memo.
• the meaning, importance and types of resolution.

• the meaning and types of report.
• considerations for drafting a report.




















Office Practice and Accounting 10 1

1 Office Procedures












Commonly office is understood as a place where all sorts of clerical works are performed
and where all kinds of papers are dealt with. But office should be understood as an
important function of business like other functions such as production, marketing,
accounting and financing. The term 'office' should be defined to represent office work
rather than the place where the office work is done. In other words, the term 'office'
should be interpreted widely to represent functions which it performs rather than the
place where they are performed.

Office procedures are clearly defined practices that everyone who works in an office
follows. It sets the standard for how staff work together in the office. It is often a set of
rules or polices guiding the operations of an office. To put office system in practice, it
is essential to break them into small parts or procedures. These parts can be called the
steps in a system. Thus office procedures are a series of steps to be taken for doing a
particular work in the office as per the office system. For example, purchasing of new
plant in office is to be done on the basis of planned system.
In other words, office procedure refers to a manner of performing certain type of
official activities. It is a planned sequence of operations for handling recurring business
transactions uniformly and consistently. Office procedures are the specific techniques
and ways for making right decision by authoritative level collecting opinions and
suggestions from the staff. They are the internal means of communication, which
simplify the office operation and bring co-ordination in various units or departments
for the achievement of set goals. A set of procedures helps to organize daily activities
smoothly in the office.

According to Carl Heyel, ‘A procedure is a series of logical steps by which all
repetitive business action is initiated, performed, controlled and finished.’


Office managers or heads usually write office procedures to ensure that all the
employees clearly understand the guidelines. Some office procedures are written
for entire office while some are written for groups of employees working within the
same office. Nepali civil servants are managed by the 'CIVIL SERVICE CODES AnD
RULES' which is the guideline for office procedure in government office of Nepal.

Written procedures have the advantages of being definite and always being a hand
for reference. A written procedure is a guide to a newcomer when introduced to a
position. Following points should be considered while preparing office procedures:


2 Office Practice and Accounting 10

• Work should be performed in the easiest way
• Work should be performed simply and efficiently.
• Work should be performed effectively.
• Decision should be flexible. Besides this, authority should listen to employees
to make decision participatory.
• Decision makers should believe each other.

Tippani/Memo

A Tippani or memo is a note to assist the memory. It's a written note or communication
between people working for the same organization.


According to S. Taylor, "Memo is a written communication from one person to
another (or a group of people) within the same organization.



Tippani is prepared by lower
level staff and submitted to
the higher level staff. It is
a upward communication Executive level
system specially for the
amendment of rules and Way of communication Middle level
regulations and drafted
when the lower level staff
have no authorities to take Operating level
decision. It helps upper
level staff to know the real Fig. Tippani as upward communication
situation of the organization
on a given problem or issue.
On the other hand, lower level staff can give the view, suggestion or opinion to his/
her seniors by means of the Tippani.
So, Tippani (Memo) is an internal short note or letter in which information is
exchanged among superiors and subordinates relating to day-day functions within
the organization.

Objectives and Importance of Tippani
Tippani is drafted with a view to give suggestion, idea, opinion and to seek approval
for decision making process from lower level to upper level. That's why it has the
following objectives and advantages:
a. To provide healthy opinion, suggestion, idea to the concerned authorities
b. To clarify the ambiguity and unclear existing rules and regulations

c. To ensure the participation of lower level staff in decision making process

Office Practice and Accounting 10 3

d. To maintain a good relationship between superiors and subordinates
e. To act as future reference
f. To provide information for decision on similar cases


Structure/Parts of a Tippani
Parts of Tippani may vary per the nature of the organization but commonly following
are the parts of a Tippani.
a. Subject: At the top of the Tippani, subject is written in different style to attract
the attention. Subject is written to address the objectives.
b. Body: It is the main part of a Tippani, and it explains why the Tippani is being
drafted.

c. Opinion and Suggestions: It is the part where the lower level staff provides
suggestions or gives opinion on the given issue or subject.

d. Decision: Positive or negative decision is taken by the final authorities after
reading the Tippani and suggestions and opinions on the issue.

Drafting a Tippani
Since Tippani is drafted at lower level, a number of points are to be considered while
drafting it. Language, order, space, page set up, etc. are taken into consideration
while drafting Tippani. It is an important clerical task and needs good skill. Generally,
the following important points should be considered while drafting a Tippani :

a. Structure of Tippani should be kept in mind i.e. subject, should be at the top of
the Tippani.
b. It is presented to the upper level so language should be polite and clear.

c. It should be drafted within the boundary of existing laws, rules, regulations
and facts.

d. If suggestions and opinions are given, they should be logical.
e. It should be backed by necessary documents for evidences.
f. If decisions are made before on similar cases, it should be mentioned clearly.
g. A Tippani should be verified and signed by the concerned authorities.

h. Each page of Tippani should be signed before presenting to the upper level.
i. Tippani should not be too long and ambiguous words should be avoided.
Here is a sample of Tippani written in an office by its manager to all concerned
employees.





4 Office Practice and Accounting 10

Government of Nepal
Ministry of Forest and Soil Conservation
Kathmandu , Nepal.
Date: 2073/11/18
Subject: Approval for shifting the district office.
Tippani and order:
The letter of application, forwarded to this ministry by Village Development
Committee and Sthaniya Upabhokta Samuha to shift the office from Ramfok to
Barbote on 2073/9/11 is attached herewith.
The situation shows Ramfok is less populated place than Barbote. Besides this, Barbote
is well linked with road which proves that more people will be benefited with easy
road access. The study shows Ramfok is out of road link and situated very far from
the main bazaar.
It is clear that shifting of the office obviously increases the budget but the local people
are ready and agreed to volunteer one day from each house to shift the office and set
the infrastructure required. Their contribution seems sufficient and feasible to shift
the office. Due to these contributions of local people, the limit of annual budget will
not be affected.
After a field study and listening to the high demand from local people, I forward it
for the approval to shift the office from currently situated place Ramfok to new place
Barbote.
............................
Signature
Section Officer
I forward it after agreeing with the statement for approval.
............................
Signature
Under Secretary
As per the report of field study and current situation of local place, it seems feasible to
shift the office from Ramfok to Barbote. There is nothing against the prevailing rules
and regulations and no extra financial burden to government so it is recommended
for approval.



............................ ............................
Signature Signature
Secretary Joint Secretary











Office Practice and Accounting 10 5

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lzIfssf] tna eQff, kmlg{r/sf] Joj:yfsf] vr{;d]t ePsf] s'/f k|:t't lgj]bgaf6 :ki6 x'G5 .
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;/sf/nfO{ s'g} yk cfly{s ef/;d]t gkg]{ b]lvPsfn] o;} z}lIfs jif{b]lv lghL If]qdf sIff ( / !) ;~rfng ug{ Ps}k6s
:jLs[lt lbg plrt b]vL :jLs[ltsf nflu k]; ub{5' .
b:tvt ;b/
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Adopted from textbook class 10 (h=lz=;f=s]=ln)

Resolution/Prastav

Resolution is one of the major office procedures. It is the proposal forwarded to a
meeting for discussion and decision. While many matters coming before a meeting
may be dealt with by discussion generally the decision taken by the meeting is recorded
in the form of a resolution. It is the matter of discussion put forward in written form
in meeting on which decision is, normally, made on majority basis. Resolution may
be in favor or against the subject so, if discussion is not concluded and decision is not
made, amendment can be made.




6 Office Practice and Accounting 10

Objectives and Importance of Resolution
Resolution is presented in meeting to take decision in a democratic way. It is prepared
to fulfill the following objectives.
i. To collect and present the problems and issues of organization in logical way in
meeting
ii. To seek solution to the problem in open form and take the decision in a
democratic way
iii. To reach in conclusion on any issue or problem through consensus as far as
possible
iv. To make amendments to unclear rules and regulations
v. To provide documentary evidence on given issue or subject

Types of Resolution
According to the Nepal Company Act- 2063, resolution is divided into two types:


1. Ordinary/General Resolutions:
A resolution is said to be ordinary when it can be presented in every meeting or
can be decided by simple majority of the members in meeting. Example of ordinary
resolution are:
– Declaration of dividend
– Appointment of directors and auditors
– Determination of remuneration of directors, auditors, etc.

2. Special Resolutions:

A special resolution is one which is presented in general meeting for discussion and
decision is made by special majority but not by simple majority of the members
in meeting. Resolution is to be said as special resolution which is mentioned in
memorandum and the article of association of the organization/ company.
Examples of special resolution are:
– Amendment in memorandum and articles of associations
– Amount of capital alteration
– Liquidation of company
– Conversion of company from private to public and vice–versa
– All the proposals presented in extra–ordinary meeting
– Issuance of bonus shares

Report/Pratibedan

Simply, report is an account given or opinion formally expressed, after investigation
or consideration. It is considered to be formal and is required to give an account of

Office Practice and Accounting 10 7

the matter covered or to state an opinion on it. It is a statement prepared to present
facts relating to planning, coordinating, performance and general state of summary
of performance and statement or description of things that have already occurred.


Objectives / Importance of Report
Reports have the following objectives or functions

– To measure the executive performance
– To help to adopt the change and analyze the impact of business dynamism
action for better planning
– To provide bases for controlling and setting standard for corrective action
– To provide sufficient ground and suggestions for improvements
– To make inter–firm and intra–firm comparison for better decisions

Characteristics / Features of Report

The common characteristics of a good report are highlighted here.
1. Factual : A good report represents a series of facts obtained through investigation.
Impartial recording of facts that serves the purpose is essential in report writing.
2. Comprehensive : It is complete with nothing of relevance omitted and nothing
irrelevant included.
3. Objectives : Report is always guided by its objectives. Openions and preferences
are kept out unless asked for. Interpretations in the report are based on facts
and figures.
4. Logical : A good report shows logical thought processes based on an outline or
mind map developed well before writing the report.
5. Consistent : The report is consistent with the purpose. Also there is consistency
in the use of same pattern of heading and sub-heading, numbering and spacing.
6. Concise : A good report avoids long explanations. It limits redundancy to the
required level.
7. Clear : A good report is written in simple, easy to read style. It avoids confusing
expressions and helps the reader to understand the content easily with different
graphs, chart, table, etc.

Consideration for Drafting Report

Report is the outcome of study, research and survey. It provides the bases for plan,
policy, rules, regulation and decision. Report should be prepared in systematic and
logical order. It should be prepared by skilled person strictly following the structure
of report. Generally, the following points should be taken into consideration while
preparing a report:
1. Title : Title of the report is mentioned at the top of the report. Researchers/
readers focus on title at first and only go through the content. The title should


8 Office Practice and Accounting 10

be simple and attractive in language and should not be too long.
2. Time frame : It is very important to consider the time available for the preparation
of report. Outdated report has no value; it is just wastage of resources.
3. Purpose : Report is always directed by purpose. So it is very important that
report should address its purpose. If report diverts from its objective/purpose,
it is useless.
4. Order : A logical order is to be followed while presenting the facts, figures and
data. A series and sequence of information makes a report more useful.
5. Language : Language of the report should be simple, complete and polite. Use
of jargon, ambiguous words should be avoided while drafting a report.
6. Structure : Structure of the report is guided by its objectives and area of the
study. Educational report is presented and structured in different way in
comparison to annual report.
7. Presentation : All the facts, figures, information, findings, suggestions,
recommendations should be mentioned in planned way to avoid the confusion
among the readers.
8. Closing : For the validity of the report, report writer and the concerned officer
should put the signature and date.

Types of Report
Reports may be of various types depending on the nature, subject and objectives of
the study. Most commonly reports are of two types–individual report and general
report. The following reports are widely used reports.
1. Annual Report : This report is prepared by government bodies, constitutional
bodies, associations, business organizations at the end of the year to know the
activities, achievement and performance. Financial report at the end of the year
of an institute is also an annual report.
2. Audit Report : An audit is an examination of such records to establish their
reliability and reliability of statement drawn from them. It is a systematic
examination of financial statements records and related operations to determine
adherence to generally accepted accounting principles, management policies or
stated requirements. Audit report is the report prepared by an auditor after
auditing. It ensures the accuracy and reliability of the financial transactions.
In case of government office, audit report is prepared by the office of auditor
general whereas an independent auditor appointed by general meeting is
responsible for the auditing and audit report in private companies.
3. Government Report : Report prepared by government for its own purpose or
to inform the people on plans, progress, expenditure is known as government
report. Government prepares the report on various sectors such as report on
health, report on agriculture, report on education, report on financial matters,
report on other development activities, etc.


Office Practice and Accounting 10 9

4. Commission/Committee Report : Sometimes committee or commissions are
formed for special purpose and a special report is prepared on the case or issue
which is known as committee/commission report. For example, a high employee
turnover may be investigated forming a committee in business office where a
special commission can be formed to study human rights by government.
5. Routine Report : A routine report is one which is prepared from time to time to
record and present facts and figures. For example, a report of production may
be prepared every week.
6. Educational/Academic Report : A research report which is prepared by
students as per their syllabus is known as educational or academic report. It
can be prepared after completion of certain academic level, after completion
of academic tour, after completion of certain research assigned. Theses after,
completion of Masters Degree, M. Phil. or Ph.D. are good examples of academic
report.



EXERCISE


Give short answer to the following questions.

1. What is Tippani? Mention the points to be considered while drafting it.
2. What is a report? Mention the points to be considered while drafting a report.
3. What is resolution? Explain its types.
4. Explain any five types of report.
5. What is meant by office procedure? Mention the objectives of preparing a
Tippani.
6. Explain different types of office procedures.
7. Why is resolution forwarded in the meeting? Mention the lists of general and
special resolution.
8. What is report? Mention the reasons for drafting a report.
9. Mention the objective of office procedures.

One short question of 5 marks will be asked from this unit.


















10 Office Practice and Accounting 10

UNIT
2 Filing
































Learning objectives:

After the completion of this unit, students will be able
to understand :
• meaning and definition of filing.
• objectives and importance of filing.
• method of filing.
• understand classification and systems of filing.
• meaning and importance of indexing.






















Office Practice and Accounting 10 11

2 Filing













A good filing system is the symbol of the success of an office. It is the process of
collecting and arranging the original records or their copies in such a way that
whenever needed, they could be located immediately.
It is the systematic and scientific collection and preservation of important documents
in a proper form and place so that they can be found at the time of requirement
without any delay and difficulty. It is the method or way of keeping important official
documents in a logical sequence for future references.


George R. Terry, “Filing means the systematic and scientific collection, store
and management of letters, documents and records of past and present for
future reference so that they can be safe and easily obtainable at the time of
necessity.”




According to J. C. Denyer, "Filing is the process of classifying, arranging and
storing records so that they can be located when required."



According to Mills and Standingford : "Filing is the activity of keeping the
records serial wise and safe by which the records can be located whenever
needed."

Thus we can say that filing is a method by which letters, records , documents, etc are
retained scientifically in such a sequence that at the time of need they can be located
easily. And the filing system involves:
– Systematic and scientific arrangement of documents.
– Logical classification of documents.
– Scientific and serial wise preservation of documents.
– Timely retrieval of documents.

Need/Importance and Objectives of Filing
The primary need of filing is for the preservation of documents for future reference in



12 Office Practice and Accounting 10

a systematic manner. Besides this, due to following reasons filing is essential for the
organizations:
1. Efficient correspondence : Establishing a good and orderly filing system,
correspondence becomes more efficient because all the information related to it
is available immediately from the concerned files.
2. Ready references : A satisfactory filing system helps the concerned employee
in studying all the concerned papers and documents and locating the old
references. Similarly it provides reference for the correspondence with suppliers,
customers, government, etc. Previous letters like circulars, references, orders,
complaints, inquiries, etc. are taken as reference while making decision with
stated parties.
3. Documentary evidences : Carefully maintained letters and documents can be
used as a documentary evidence in case of any dispute. The second party is also
unable to refute the validity of the written documents.
4. Important and valuable information : By studying old records, management
can obtain valuable information for policy and decision making purpose because
the previous experience proves very useful in providing new directions to the
future program.
5. Safety records : The main objective or importance of filing is to maintain the
information contained in the files safely so that it is not moved here and there,
or lost, nor be destroyed by pests, heat, sun, rain, seepage, etc. An ideal filing
system ensures the safety of the preserved documents.
6. Statutory requirements: Filing keeps all the records safely which are useful
to fulfill the statutory requirements. It means, filing fulfills various legal
obligations of an organization as it maintains records as prescribed by law.
7. Facility in planning and control: Filing makes past and present records
available to the management. The management formulates future plans on the
basis of those records. The management also evaluates enterprise activities and
takes corrective action on the basis of filing system.
8. Prompt decisions : A good filing system helps the management in taking
prompt and right decision because all the information and facts required for
decision making processes are readily available to them as per need.

Types of Filing

For the convenience of study, filing can be divided into two types which are :
A. Traditional Filing
B. Modern Filing


A. Traditional filing:
The filing system which has been used since long back in traditional way not using
scientific system and modern equipment is known as traditional filing. This system

Office Practice and Accounting 10 13

is not suitable for modern and large scale organization. Baggage filling, Misil filing,
spike filing, box filing are commonly used traditional filing systems. These are still
used by some of the organizations in Nepal.


1. Misil File:
Misil filing refers to the system of filing
in which all the documents and papers
relating to a particular case or issue
are collected in a single file. Under this
method, all the documents relating to a
specific case are punched at the top left
corner and filed together with a thin lace
in a pile from top to bottom. Then they
are wrapped with fresh Nepali kagaj or
cotton cloth. Each Misil is given a Misil number or code and is arranged in order of
the given number like Misil No. 1 Misil No. 2 and so on. Misil is a language of court
and, of course, this filing system is popularly used in court and police station.


Advantages:
• It is very simple and easy to use and understand.
• With the help of given numbers, files are easy to locate.
• It is suitable for small organizations due to its economical nature.
• Documents are arranged subject wise so, it is flexible in nature.

Disadvantages:

• It is not scientific in nature.
• Punching may cause the disappearance of letters or words.
• Due to its limited flexibility and unscientific nature, it is not suitable for large and
modern organizations.
• Documents are not safe in this method.

2. Box File:
This is one of the oldest methods of keeping the
papers or documents safe. In this system boxes
made with wood or cardboard 3 to 4 inches deep
are used for filing the documents. In these boxes
a spring clip is fixed on the inside top which
keeps the paper properly pressed downwards.
Documents are kept loosely one after another in
order of dates in piled manner. In order to separate
the documents and to locate them there are some



14 Office Practice and Accounting 10

indicating cards in it which are fixed in alphabetical order. Documents beginning
with the alphabetical letter of that indicating card are placed behind it. The portion of
each indication card bearing its alphabetical letter is visible at a glance.


Advantages:
• It is very easy and simple to use.
• It requires very limited resources so it is economical.
• Documents are kept in loose form, due to which it is easy to take them out.
• Documents are safe in this system.

Disadvantages:

• There is high chance of misplacement of documents.
• Not suitable for large and modern organizations.
• It is not scientific method of filing.

Modern Filing
Modern filing system is improvement over traditional filing system. With increased
transactions of business, official documents also increase. For the changed situation
only the new methods of filing are best suited. The new method of filing which
preserves, arranges and ensures the quick location of documents, is known as modern
filing.
1. Horizontal Filing

Under this method, the documents are inserted in
files or folders and folders are kept in drawers in
horizontal positions one upon the other. Since the
papers are kept in folders in the horizontal positions
they are maintained in chronological order. The
letters relating to each individual are placed date
wise, with the latest at the top. The letters of the
various correspondents beginning with the same
letters are arranged phonetically.

Advantages

i. Simple Method : This method is simple to
understand and easy to operate.
ii. Flexible Method : It is flexible as the number of files can be increased or
decreased as per the requirement.
iii. Safe : This method provides safety to the documents because they are tied with
the lace or trapped with metal arch.



Office Practice and Accounting 10 15

iv. Economical : It is economical method as it does not require more filing tools
and manpower with special knowledge.
v. Space Friendly : It occupies less space in office as the files are arranged making
pile.

Disadvantages

i. Time consuming : It is more time consuming because it requires time for
punching, fastening and loosening the clip or lace. It is also difficult to locate
the particular file as the files are arranged making pile
ii. Unsuitable for large organizations : It is unsuitable to an organization having
large volume of transactions because of its limitation of holding the documents.
iii. Chances of words or letter missing : The important words or figures in the
documents disappear due to careless punching.
iv. Less secret : This system does not provide enough secrecy.

2. Vertical Filing

Vertical file is also known as upright filing system.
Under this system a cabinet with deep drawers, folders
and guide cards are used. All the correspondence is
kept in upright or vertical position. The document
remains unfastened as against the flat filing system
where they are carefully fastened. Owing to the
indicator cards being pasted on the standing files, it
becomes very easy to trace the papers, the record and
its reference.


Advantages
i. Safe method : It is safe method of filing because it provides safety for the
documents as they are preserved in special drawer or cabinet made of steel or
wood.
ii. Suitable for large organizations : It is suitable for large-scale organization
having huge number of documents.

iii. Flexible : It is comparatively more flexible than other methods of modern filing.
iv. Secret : It maintains secrecy of the documents because all the files are kept in a
drawer with locking system.
v. Quick location : It provides quick location of documents because the folders
are arranged vertically with index.







16 Office Practice and Accounting 10

Disadvantages
i. Expensive : It is comparatively costlier than other methods as it requires more
filing equipments. Besides this, trained filing clerk and separate guide cards are
needed to locate the position of files and folders.
ii. Consumes more space: It consumes more space, as big cabinets as well as
drawers are required for filing.
iii. Chances of losing documents : It might create the problem of losing documents
because the documents are kept loosely into the folder.
iv. Not suitable for small offices : Due to its expensive nature, it is not suitable for
small offices where documents are less.



Bases Horizontal Vertical
1. Meaning Files are arranged in flat or Files are arranged in upright
sleeping position. position.
2. Safety The documents are The documents are neither laid
punched and tied with a nor punched. So it is less secure
lace. So, it ensures the safety than horizontal.
of documents.
3. Economy This method is less Special filing equipments
expensive since there is are needed which make this
no use of expensive filing system more expensive than
equipments. horizontal.
4. Flexibility This method is less flexible This method is highly flexible.
in comparison to vertical
system.
5. Suitability This system is suitable for This system is especially
small organization as well suitable for large scale
as large scale organization. organizations.
6. Space This method consumes less This method requires more
space. space with comparison to
horizontal method.
7. Time While locating documents, It consumes less time to take
more time is consumed. out the documents
8. Secrecy Due to its open system, it is Special cabinets are used
less secure. to keep the folders which
maintains high security.


Methods of classification.
The action of placing some personal units in a special category on the basis of
similarity or similar qualities is called classification. The categorization of documents

Office Practice and Accounting 10 17

or records on a common basis is called the classification of files. The main objective
of filing is to provide the required papers and documents easily and quickly at the
time of necessity. To achieve this objective, it is essential to classify various papers and
documents in such a way that they are made easily available. By proper classification
the required files and documents can be located quickly and easily.
The easy location of record depends upon how carefully they have been kept. If the
documents related to a particular heading or subject have been classified properly
under one head, these can be easily located. Another benefit of classification is that
letters classified under the same head need similar kind of protection and maintenance
and their life span is also the same. The common and popular classification method of
filing are explained below.


1. Alphabetical classification
Every file has a name or a heading.
Under this method the classification
of the files is done on the basis of the
first letter of classification for prompt
identification of documents, guide
cards can be used. This is also known
as dictionary arrangement as first
letters are arranged alphabetically.
For example, the files of the customers
whose name starts with the letter ‘A’
shall be placed in A group and so on
. If many names occur from the same
alphabet subsequent letters are used
as Aa, Ab, Ac...... Az.

Advantages :

i. This method is very simple and easy to understand.
ii. It is flexible method; useless files can be removed and new files can easily be
added.
iii. For the use of file separate index is not required; it is self-indexing method.

iii. It is economical filing method.
v. It is equally suitable for small and large scale organizations.

Disadvantages :

i. This method lacks the secrecy.
ii. It is not suitable for the organization having a large number of documents and
files.


18 Office Practice and Accounting 10

iv If wrong letter is written and placed, it is very difficult to find.
v. It is difficult to decide in advance how much space will be required to keep the
files beginning with same letters.
vi. It is a time consuming method.


2. Numerical filing
Under this method, a serial
number is allotted to each
file and all the files are kept
in a shelf according to their
serial number. If a person has
more than one file, such files
are assigned with decimal
numbers like 15.1, 15.2, 15.3
and so on and such files are
also arranged along with
main file. This method is
specially used by libraries,
traffic police, insurance companies, etc. A separate index is prepared for the name of
the persons or firms for the quick location of required files and documents.

Advantages :

i. There is greater accuracy in filing.
ii. It is a flexible method since it has unlimited scope for expansion.
iii. Index can be used for other purpose for example, address list.

iv. This method maintains secrecy.
v. Easy referencing because the file number can be used as a reference.

Disadvantages :

i. It is a time consuming method of filing.
ii. A separate index is needed which increases the cost.
iii. A minor mistake in filing or index may cause a lot of inconvenience.

iv. Can't be used by other than qualified staff which is not suitable for small scale
organizations.

3. Geographical classification

Under this system, the files are classified on the basis of regions. Such classification
may be town-wise, district-wise, state-wise, country-wise or continent-wise. This


Office Practice and Accounting 10 19

method is very useful for those organizations which have scattered their customers
far and wide. Several district
and town guides may be used
for quicker reference of the file.
Separate almirahs or shelves are
fixed for different regions and
all the files relating to that region
are stored at one place fixed for
the purpose. In order to divide
the geographical groups into
sub-groups the alphabetical or
the numerical system can also be
used along with this system.

Advantages

i. It is very simple to understand and operate.
ii. Letter can be placed in the files without the help of an index.
iii Alphabetic and numeric arrangement can be applied.
iv. Speedy location of files and folders is possible.

Disadvantages
i. Poor geographical knowledge brings continuous error.
ii. Secrecy can't be maintained due to the use of name of region .
iii. Various guide cards are needed which is not suitable in small organizations.

4. Subjective classification

Under this system, files are
classified on the basis of their
subjects. For example, files
relating to salary are kept
separately and those relating
to advertisements in a different
place. The letters and documents
are classified according to their
subjects and further arranged
systematically in the drawer or
cabinet. Subjective filing is very
useful in courts, police station,
libraries, etc. where different
subjects are to be arranged.
Guide cards can also be used for quick location and identification of files. Files relating
to different subjects can also be sub-divided in alphabetic order if needed.


20 Office Practice and Accounting 10

Advantages

i. This method is very popular due to its simplicity.
ii. It is a flexible method because unlimited files can be added.
iii. This method is suitable to those offices which deal with different cases.
iv. The files can be easily located if only the subject of the letter is known.

Disadvantages
i. Under the system secrecy cannot be maintained.
ii. Its greatest drawback is that it is difficult to classify.
iii. It is not a useful method for miscellaneous paper .
iv. An index is needed which makes the system costly.



Indexing



Meaning and Concept
Simply, index is the signal which helps to
find the documents or files promptly. The
term indexing means pointer or indicator or
guide to something. In record management,
indexing may be defined as an indicator or
guide for locating files, folders and other
documents. It is a ready guide to locate the
required information. It can be described as
a method of providing indicators for a body
of data or collection of records. Indexing is an
inseparable part of an ideal filing system. By indexing , the whole record of the files is
available and if a file is misplaced it can be located promptly.


According to J. C. Denyer, "An indexing is anything that indicates or points
out. Its prime function is to act as a guide to a body of data or a collection of
records."


So in the context of information and references indexing is understood as a method
by which a person who needs some information can have an access to it.

The objectives, importance and use of indexing.

i. Indexing helps to locate the required files and documents easily.
ii. It helps to save time, cost and clerical efforts of an office.


Office Practice and Accounting 10 21

iii. It ensures easy cross-referancing.
iv. A good indexing system helps to increase the goodwill of an office.

v. It serves as an essential aid to the filing system
vi. Good indexing not only provides location of records, but also serves as a
reference for minor information regarding the file. For example, name, address,
telephone no., etc. of a person or organization can be obtained from the index.
vii. It also helps to reduce fatigue and boredom of employees while searching for
information.



EXERCISE


Give short answer to the following questions.

1. What is filing? Explain its objectives.
2. Give the meaning of filing and explain its methods.

3. What is alphabetical filing system? Mention merits and demerits of it.
4. What is subject filing method? Mention advantages and disadvantages of it.
5. What is vertical filing? Mention its merits and demerits.
6. What is horizontal filing? Mention its merits and demerits.

7 Define geographical filing method and mention its merits and demerits.
8. What is geographical filing? Mention its merits and demerits.
9. What is indexing? Mention its importance in filing.
10. What are the modern filing systems? Explain any one with its merits and
demerits.

One short question of 5 marks will be asked from this unit.






















22 Office Practice and Accounting 10

UNIT
3 Trade
























Learning objectives :

After the completion of this unit, students will be able
to understand :
• the meaning and definition of trade.
• the procedures of home trade.
• the procedures of foreign trade.
• the terms and conditions of home trade and foreign
trade.
• the meaning and importance of invoice.
• the significance of World Trade Organization
(WTO).
• the significance of South Asian Free Trade Area
(SAFTA).





















Office Practice and Accounting 10 23

3 Trade













Trade
Trade is the form of business activities in which purpose of financial earning and
benefit is sought. It refers to the sale, transfer or exchange of goods and services
and constitutes the central activities around which the other business functions like
banking, transportations, insurance, packaging, ware housing and advertising cluster.
Thus, economic function of trade is to buy goods in the place where they are made
and to sell them to the place where they are required.
Trade can be divided into two parts:
i. Home Trade
ii. Foreign trade

Home (or Internal) Trade
Home trade refers to the act of buying and selling of the goods and services within
the geographical territory of a country. It is quite simple in nature. Payment can be
made in the country’s own currency or in form of bank draft, cheque, telegraphic
transfer, etc. This trade is also known as internal or domestic trade. Home trade can
be performed as retail and wholesale trade. Home trade generally takes the following
course.
The goods turned out by producers are sold in bulk to wholesale merchants. These
wholesale merchants sell them to retail merchants. The latter distribute them over
the length and breadth of the country among the actual consumers through their
numerous establishments infesting every nook and corner of the land.
It is obvious from the above that home trade may be either wholesale trade or retail
trade. Wholesale trade or retail trade refers to the selling of goods in bulk. Producers
of goods sell them generally to big merchants, called wholesale merchants, who sell
the goods in bulk to small shopkeepers, called retail merchants. Retail trade refers to
the selling of goods in small quantities to actual consumers. Neither the producers
nor the wholesale merchants have direct contact with actual consumers of goods.
The consumers purchase goods in small quantities to their requirements from retail
traders. Middlemen, wholesale merchants and retail merchants thus intervene
between the producers of goods and their actual consumers. Hence they are known
as middlemen. Middlemen increase the price of the goods that pass through their
hands.


24 Office Practice and Accounting 10

Foreign (or External) Trade

Foreign trade refers to the trade carried on between the citizens of two or more
countries of the world. It is an act of exchange of goods and services outside the
geographical territory of a country. It involves the exchange of goods and services in
foreign currencies. It is divisible into import trade , export trade and entrepot trade.
The purchase of goods from a foreign country is known as importing and the sale of
goods to a foreign country as exporting. In entrepot trade, goods are bought from a
country in order to sell them to some other country.

Foreign trade of the world exists because certain countries are especially fit for
producing certain articles which can be produced by other countries either with great
difficulty or not at all. It has, therefore, been found advantageous that each country
should produce only those goods which can be produce cheaply and exchanged her
surplus product with the goods produced by other countries as per requirement.
It is the application of division of labour on an international scale which has given
rise to foreign trade. Foreign trade enables each country of the world to satisfy the
large number of its wants more economically than is otherwise possible and thus
contributes to material prosperity appreciably.


Procedure/Course of home trade:
Procedure refers to the activities to be fulfilled during the course of home trade. There
are certain steps which are common in home trade, known as procedures. These
procedures are as follows:

i. Enquiry of goods : Enquiry is the first step of home trade. A buyer seeks the
information about the goods or service s/he wants to buy. Inquiry about quality,
price, credit facilities, mode of payment, discount, etc. is done by buyer through
different sources such as letter, telephone, Internet, etc.
ii. Quotation : The reply given to an inquiry is known as a letter of quotation, and
the price quoted there on known as quotation. A letter of quotation must give
the correct description of the goods which can be supplied, their prices, the
terms of payments, the time of delivery and other conditions.
iii. Placing an order : The buyer would compare the quotation which he receives
from various sellers and would place an order with the firm with whose
quotations and terms he is most satisfied. An order must be complete in itself.
It should mention full details regarding the goods and other conditions, the
quality and quantity of goods, time and place of delivery and other particulars
which the buyer wants particularly to emphasize.
iv. Acknowledgment of the order : It is the process of giving information to buyer
by seller that he received the purchase order. Generally letter of acknowledgment
contains all the particulars contained in the order so that the purchaser may
correct any mistake that might have crept unnoticed.
v. Collection and packing of goods : The seller collects the goods to be sent to
buyer after the letter of acknowledgment. If he does not have sufficient goods, he

Office Practice and Accounting 10 25

collects from other suppliers. After collection of goods, packaging department
will pack the goods carefully as per the negotiation and agreement between
buyer and seller if any.
vi. Preparation of invoice: When the goods are ready for dispatch, the seller
prepares a statement of the amount payable to him by the buyer. This statement
is known as invoice. The object of the invoice is to explain to the buyer the
various items of which the total amount, he has to pay, is made up. Most
commonly, at the end of invoice' E & O. E' is written which is the abbreviated
from of 'Errors and omission expected'.
vii. Dispatching of good: After the goods have been carefully packed and invoice
is prepared, the seller arranges for their dispatch to the buyer. Goods may be
dispatched using different means of transport. It is the agreement between
buyer and seller to choose the means of transportation for dispatch of goods. In
absence of any definite instruction or agreement, seller should exercise his own
judgement.
viii. Complains and returns: If the buyers find that the goods are not of the same
quantity or quality as they wanted or that they have been damaged in transit,
they make a complaint to the seller. If the complaint is reasonable and logical,
the seller either adjusts the amount of invoice or compensates the buyer with
extra amount of goods taking return the goods on which complaints have been
made.
ix. Payment: After the buyer has received the goods, he will make arrangement for
the payment to the seller. Cash, cheque, money order, bill of exchange, etc. can
be the modes of payment which depends upon the terms and conditions agreed
earlier.

Terms and conditions of home trade

The buyers and the sellers should follow certain rules and regulations to avoid
possible misunderstanding. In a contract of sale, several conditions and warranties
are included. These all are known as terms and conditions which govern the contract
for the sale of goods. They must be carefully observed by both parties so as to avoid
possible unpleasant situation that may occur in future. The terms and conditions cover
right of the seller and buyer, quality and quantity of goods, means of transportation,
credit facilities, discount rate, payment mode, etc. These are explained below :
i. Types and qualities of goods: It signifies the identity of goods to be purchased
and sold. Buyer and seller both parties should be clear about the quantity,
quality, colour, size, type, brand, trademark or any other specification of goods.
ii. Price of goods: It is obvious that price of the goods plays the key role in
agreement of the trade and negotiation. Under this term, price of goods and net
payable amount should be agreed before the delivery of goods. The supplier
should supply the goods at the price of proforma invoice.





26 Office Practice and Accounting 10

iii. Terms of payment: The buyer and seller should have clear-cut agreement about
the terms of payment of goods. Goods may be sold on cash or credit. So, mode
of payment, discount rate, credit period, etc. must be cleared.
iv. Insurance : Insurance may be defined as a contract whereby one party agrees
to pay to another a sum of money in exchange for the same consideration on
the happening of a certain event. It is another important term which should be
clearly mentioned in the agreement. It should be clear between the two parties
(buyer and seller) about the party that will bear the insurance premium of the
goods.
v. Discount : Discount is the amount of rebate or concession given by the seller
while receiving payments of the goods. There are two types of discounts i.e.
cash discount and trade discount. Therefore, both the buyer and seller must be
confirmed about the types and rate of discount of payment.
vi. Means and mode of payments : Means and its mode are very important in
trade. Buyer and seller must be clear about the means of payment. Cash, cheque,
T.T., draft are popular means of payment and its mode of payment. Both parties
can negotiate as per their need and convenience.

Documents used in home trade
To avoid misunderstandings which may occur in course of transaction and used as
evidence of settling the disputes, some important paper works are done in home trade.
These paper works used in home trade by buyer and seller are called documents in
home trade. Some of the common documents which are used by buyer and seller in
home trade are as follows:-
a. Letter of inquiry : It is issued by buyer to possible seller to know the details of
required goods.
b. Quotation : It is the reply of inquiry letter by seller to buyer.
c. Price list : It is also issued by seller to buyer giving the detail price of goods
available for sale.
d. Order letter : It is the letter sent by buyer to seller after being satisfied with
goods and other terms and conditions.
e. Letter of acknowledgment: It is a kind of letter sent by seller to buyer which
conforms that the seller has received an order and accepted the same.
f. Delivery note : It is also sent by seller to buyer and it is the confirmation of
goods sent on the basis of terms and conditions.
g. Invoice : It is bill of goods sent along with dispatched goods by seller to buyer.
It also acts as evidence to claim the amount of goods supplied, specifications of
goods and means of payment.
h. Receipt of goods: It is a confirmation letter issued by transport company to
seller which ensures the goods are being dispatched to buyer.



Office Practice and Accounting 10 27

Procedures of foreign trade

The process to be followed to conduct the foreign trade is known as procedure of
foreign trade which is very much similar to those procedures of home trade. In some
cases like way of delivering goods and making invoices and payments system are
somehow different. Some commonly accepted procedures of the foreign trade are as
follows :

i. Enquiry of goods : Enquiry is the first step of home trade. A buyer seeks the
information about the goods or service he wants to buy. Inquiry about quality,
price, credit futilities, mode of payment, discount etc is done by buyer through
different sources such as letter, telephone, Internet, etc.
ii. Quotation : The reply given to an enquiry is known as a letter of quotation, and
the price quoted thereon are known as quotation. A letter of quotation must
give the correct description of the goods which can be supplied, their prices, the
terms of payments, the time of delivery and other conditions.

iii. Placing an order : The buyer would compare the quotation which he recodes
from various sellers and would place an order with the firm with whose
quotations and terms he is most satisfied. An order must be complete itself.
It should mention full details regarding the goods and other conditions, the
quality and quantity of goods, time and place of delivery and other particulars
which the buyer wants particularly to emphasize.
iv. Acknowledgment of the order : It is the process of giving information to buyer
by seller that he received the purchase order. Generally letter of acknowledgment
contains the entire particular contained in the order so that the purchaser may
correct any mistake that might have crept unnoticed.
v. Preparation of invoice : When the goods are ready for dispatch, the seller
prepares a statement of the amount payable to him by the buyer. This statement
is known as invoice. The object of the invoice is to explain to the buyer the
various items of which the total amount, he has to pay, is made up. Most
commonly, at the end of invoice' E & O. E' is written which is the abbreviated
from of 'Errors and omission Expected'.
vi. Letter of credit : A letter of credit is a document issued by a banker authorizing
the bank to which it is addressed to honor the bills of the person named to the
extent of certain amount. It is widely used means of payment in foreign trade.
Importer should open the letter of credit in local bank and local bank assures
the foreign bank to pay a promised amount of money after delivery of goods.
Exporter gets the payment from his local bank after delivery of goods and after
reviving goods by importer, the importer's bank pays the amount to exporter's
bank.
vii. Bill of landing : It is another important document used in foreign trade. It is
an official receipt given by a shipping company, acknowledging the receipt of
goods and bound the ship. It is always prepared in triplicate. It contains the
name of the ship, and other important details of the goods consigned. This



28 Office Practice and Accounting 10

bill of landing can be used in different means of transport differently such as
Airway bill under airways, Railway bill/receipt under railway transport.

WTO

The current institutional framework of the global trading system – the WTO – was
created on 1 January 1995 replacing the then General Agreement on Trade and Tariffs
(GATT). WTO is a global trade organization of all member countries. Prior to this,trade
rules had been developing under GATT to meet the evolving needs of the participating
countries and the global community. GATT entered into force in January 1948 by
23 founding member countries (officially “contracting parties”) to salvage what was
left of the original proposition called the Havana declaration, whose objective was
to establish the International Trade Organization. GATT was instrumental in the
creation of a strong multilateral trading system that introduced successive rounds
of more liberalized, more stable and predictable trading rules. The original GATT
rules have been modified to address new international trade challenges but the basic
principles have never changed. One major area of modification occurred with respect
to the treatment of developing countries when Trade and Development was added
to the original rules. This ministerial decision was adopted at the end of the Uruguay
Round, which offers least developed countries extra flexibility in implementing WTO
agreements. Another major reform occurred in the Uruguay Round, when the entire
system was revised and updated to meet the challenges of introducing new areas into
negotiations. The revised set of rules is now known as GATT 1994 to differentiate
it from the original rules i.e. GATT 1947. During the period of 1948 to 1994, GATT
presided over eight multilateral liberalization rounds. Several early rounds were most
focused on reducing tariffs and it was not until the Tokyo Round that the non-tariff
barriers and other issues were introduced into the negotiations. The longest round so
far, the Uruguay Round, introduced negotiations of 15 subjects including three new
areas: agriculture, services and intellectual property.
In addition, the Uruguay Round resulted in the establishment of the WTO that
replaced GATT as a separate international agency.
Nepal applied for membership of GATT in 1989 as necessitated by its geopolitical
feature. During 1990s, the process of liberalization gained momentum and Nepal
applied for membership of WTO. The fifth Ministerial Conference of WTO held in
Cancoon in September 2003 approved Nepal’s accession and on 23 April 2004, Nepal
got the membership and became 147th member of WTO .


Functions of WTO
a. Its major function is to administer and implement trade agreement.
b. Acts as a forum for trade negotiations.
c. It settles the trade disputes among its members.
d. It reviews national trade policy of member countries and advises if neccesary.
e. Assist developing countries and least developed countries(LDCs) through
technical help .

Office Practice and Accounting 10 29

f. It also performs different trade related work with the help of other international
institutions such as IMF (International Monetary Fund), World Bank.

Principles of WTO
The general principle of WTO is to have freer and more predictable trade without
discrimination and being more beneficial for less developed countries. The most
important principles built into the foundation of the multilateral trading system are:

• Trade without discrimination
• Most-favored nation (MFN) : Treating other nations equally – a tariff reduction
granted to one country that has to also be extended to all countries in the GATT;
this is a multilateralization of the bilateral liberalization.
• National treatment : Treating foreigners and locals equally – countries should
not discriminate between its own and foreign products once they have crossed
the border and entered the market.
• Freer trade : Gradually through negotiation – the objective is to gradually
reduce trade barriers as one of the most obvious means of encouraging trade.
• Predictability : Binding commitments – provide stability and predictability
which in turn widens business opportunities; a change in binding has high
opportunity costs.
• Promoting fair competition : A system of rules dedicated to open, fair and
undistorted competition.
• Encouraging development and economic reform : Contributes to development,
special assistance and trade concession for developing countries, flexibility in
WTO agreements.

South Asian Free Trade Area (SAFTA)

The South Asian Free Trade Area (SAFTA) is an agreement among Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan, Afghanistan and Sri Lanka signed on 6
January 2004 to eliminate tariffs and trade barriers on products and services.

To alleviate poverty and promote economic prosperity in SAARC member countries
the government of Sri Lanka proposed the necessity to expand inter-regional trade
in this region at SAARC's 6th ministerial conference held in Sri Lanka in 1991. This
proposal was agreed by other member countries and signed in the agreement on
South Asian Preferential Trade Agreement (SAPTA) on 7th SAARC conference in
Dhaka, Bangladesh. SAPTA was approved and implemented in 7th December 1995.
There was a provision for continuous reduction in custom duties to promote regional
trade in SAPTA. Later, with the objectives of promoting mutual co-operations among
the member countries in regional trade and other sector, it was proposed to convert
SAPTA into SAFTA in 10th SAARC summit held in Colombo, Sri Lanka in 1998. In
order to promote trade and development in SAARC, SAFTA was approved on 12th
SAARC summit held in Islamabad, Pakistan on 6th January 2004. The noble objective



30 Office Practice and Accounting 10

of SAFTA is to develop the South Asian Countries as free trade region.

Objectives and Principles of SAFTA

Objectives
The objectives of this agreement are to promote and enhance mutual trade and
economic co-operation among member countries. The objectives of the agreement
which are explicitly given in the Article 3 are as follows:

a. Eliminating barriers to trade in, and facilitating the cross-border movement of
goods between the territories of the Contracting States;
b. Promoting conditions of fair competition in the free trade area, and ensuring
equitable benefits to all Contracting States, taking into account their respective
levels and pattern of economic development;
c. Creating effective mechanism for the implementation and application of this
Agreement, for its joint administration and for the resolution of disputes; and
d. Establishing a framework for further regional cooperation to expand and
enhance the mutual benefits of this Agreement.

Principles:

As given in the Article 3, SAFTA will be governed in accordance with the following
principles:

a. SAFTA will be governed by the provisions of this Agreement and also by the
rules, regulations, decisions, understandings and protocols to be agreed upon
within its framework by the Contracting States;
b. The Contracting States affirm their existing rights and obligations with respect
to each other under Marrakesh Agreement Establishing the World Trade
Organization and other Treaties/Agreements to which such Contracting States
are signatories;
c. SAFTA shall be based and applied on the principles of overall reciprocity and
mutuality of advantages in such a way as to benefit equitably all Contracting
States, taking into account their respective levels of economic and industrial
development, the pattern of their external trade and tariff policies and systems;
d. SAFTA shall involve the free movement of goods, between countries through,
inter alia, the elimination of tariffs, para tariffs and non-tariff restrictions on the
movement of goods, and any other equivalent measures;
e. SAFTA shall entail adoption of trade facilitation and other measures, and the
progressive harmonization of legislations by the Contracting States in the
relevant areas; and
f. The special needs of the Least Developed Contracting States shall be clearly
recognized by adopting concrete preferential measures in their favors on a non-
reciprocal basis.


Office Practice and Accounting 10 31

Invoice

Invoice is a document sent by the seller to buyer along with the goods. it is an account
specifying detailed particulars as to quantity, quality and prices of goods sold to
another, the contents of each package and the charges thereupon. Invoice occupies a
very important place in foreign trade. As soon as goods are dispatched by a producer
or export agent to a foreign buyer, an invoice is prepared in triplicate and sent to the
buyer. Obviously, it is prepared by the seller mentioning the quantity and quality
of goods, per unit price, total amount, discount and other particulars. An invoice
indicates the buyer about the amount to be paid with pre-agreed mood of payment.

In consignment trade, the consignor forwards invoice to consignee. Invoice, used in
consignment trade is known as Performa invoice, which indicates the selling price at
which consignee should sell the goods.

Specimen of Invoice



Green Books

Publishers and Distributor
Balkumari, Lalitpur
Invoice No. : ............. Date : ........................
Name of buyer : ....................................................................................................................
Address : ............................................................... Contact No. : .......................................
S.N. Particular Rate Quantity Amount















....................................... .......................................
Buyer's Signature Authorized Signature
E & O.E.



Contents of Invoice
Commonly the following points are to be included in an invoice :
i. Name , address and contact details of the seller



32 Office Practice and Accounting 10

ii. The invoice number and the date of goods dispatched
iii. Name and address of the buyer
iv. Description, quantity, rate and amount of goods supplied
v. Rate of trade discount allowed
vi. Net payable amount
vii. Expenses incurred on behalf of the buyer
viii. Means and mode of transportation
ix. At the end “E. & O.E.” is written which is the abbreviated form of Error and
Omission Expected

Types of Invoice
Invoice can be of different types on the basis of conditions. The followings are the
main types of invoices used in foreign trade .
i. Loco Invoice : The word "Loco" refers to the word "Local". It indicates the price
of the goods lying in the seller’s warehouse. It does not include any item of
exprenses involved in the carriage of goods to the purchaser’s shop. All other
expenses are paid by the importer himself. It is also known as ex-factory or ex-
work price invoice. Foreign customers do not purchase goods on loco terms as
a general rule.
ii. Free on Board (F.O.B.) Invoice : As the name suggests, FOB price includes all
the expenses incurred till the goods are loaded on the board, the ship. Besides
cost of goods, FOB invoice includes packaging charges, transport charges to
port, export duty, duck charge and loading charges.
iii Cost and Freight (C & F) Invoice: It includes all the expenses incurred in
dispatch of the goods till the payment of the freight. It is prepared by adding
freight of ship to F.O.B. invoice. The relevant expenses incurred thereafter are
borne by the importer himself. This type of invoice is called C and F invoice.
iv. Cost, Insurance and Freight (CIF) Invoice : It includes all the expenses incurred
till the payment of the insurance premium. This price is obtained by adding
insurance to the C & F price. CIF price is very popular in foreign trade.
v. Franco or Free Invoice: The word "Franco" is meant as “Free". This invoice
includes all the possible expenses incurred till the goods reach the godown of
the importer. It includes free delivery to the buyer’s warehouse.

Means of Payment

The agreed way of payment between the buyer and seller is known as medium of
payment. The financial instruments or tools used for settlements of debts and dues
are known as means of payments. Following are the popular means of payment :






Office Practice and Accounting 10 33

1. Cheque
A cheque is an unconditional written order issued by an accountholder (drawer) to
bank(drawee) to make payment of written amount to a party or person specified.
It is commonly used in home trade for making payment of larger amount of bill.
Comparatively payment through cheque is considered as safe and comfortable in
business. Normally, three types of cheque like Bearer Cheque, Order Cheque and
Crossed Cheque are used for making payment of bills.

2. Bank Draft

A bank draft may be defined as a cheque drawn by one bank either on another bank
or on its own branch. Under this method, the buyer deposits the required amount
along with bank charge in local bank and gets a draft made in the name of the seller.
The buyer sends the draft to the seller by post or courier. It is the most convenient
method which the commercial bank offers for remitting money from one place to
another. Usually a bank draft is payable on demand. It can be collected only through
a bank.


3. Telegraphic Transfer (T.T.)
T.T. is the quickest means for remitting a large sum of money in and outside the
country. T. T. is an order issued by a bank to another bank to pay a certain sum of
money to the specified person. Under this method, the buyer deposits the money
including T.T. charge at his local bank. The bank gives order to its branch through
telegraph, fax or e-mail to pay the amount to the person named in the order. After
receiving the information, the seller collects the amount of T.T. from his banker. It is
costlier than bank draft.


4. Letter of Credit (L.C.)
A letter of credit is a sort of guarantee issued by a bank certifying the financial position
of the party, in respect of which such letter is issued. Under this method, the importer
deposits certain amount, payable charge and foreign exchange charge in his local
bank and obtains the L.C. documents. When the exporter receives it, he dispatches
goods along with the invoices. The exporter presents the LC number to his local bank
and gets the payments .


5. Automated Teller Machine / Card (ATM)
Automated Teller Machine is computerized device outside a bank that supplies cash
or account information when the user inserts a cash card and keys in an identification
number. Using automated teller machine, customers can access their bank deposit or
credit accounts in order to make a variety of transactions such as cash withdrawals,
check balances, or recharge mobile phones. Today banks have been performing
computerized banking system. They are providing quick and easy banking services



34 Office Practice and Accounting 10

to their customers for withdrawals of money. To withdraw the saved money from the
banks at any time they are providing an electronic device called ATM card. To be an
ATM card holder and to enjoy the facility of ATM services a person should open an
account into the bank maintaining a minimum balance and to issue an ATM card the
bank will charge as per the rule of the bank. Charge may vary from bank to bank.
Along with a card the bank provides confidential pin number. ATM card holder will
be able to withdraw money from any ATMs located in branches of the concerned bank
or any other member banks which have computer network. This machine operates
with computerized system and card should be inserted to take the cash.


6. Electronic Transfer
Electronic transfer is the modern technique used by banks to transfer money from
one place/ branch to other place/branch. Electronic transfer refers to the way of
transferring money from one bank to another bank with the help of a telephone
or computer network. A much secured international telecommunication network
operated through computers is established for electronic transfer. This system is
modern, cheap and the most reliable system of transferring money of one bank to
another bank of different countries through SWIFT system. SWIFT refers to Society
for Worldwide International Financial Transaction.

7. Hundi
Hundi is one of the oldest forms of credit instrument. It is used as remittance
innstument to transfer money from one place to another. It is a written order, usually
unconditional, drawn by one person from another for payment, on demand or after
a specified time, of a certain sum of money, to a person named therein. Hundies may
be broadly classified into darshani hundi and muddhati (deposit) hundi. Darshani
hundies are demand documents and are payable on demand whereas deposit hundies
are time documents and are payable after sometime.




EXERCISE


Answer the following questions in one sentence.

1. Write the full form of CIF and FOB.
2. Write the full form of WTO.
3. Mention any two types of invoice.
4. Write the full form of A.T.M.
5. When did Nepal get the membership of WTO?
6. When was WTO established?
7. Write the full form of SWIFT.


Office Practice and Accounting 10 35

8. Write the full form of GATT.
9. List out the types of foreign trade.
10. Write the full form of SAFTA.

Give short answer to the following questions.

1. Why is trade necessary? Mention any four similarities between home trade and
foreign trade.
2. What is trade? Explain any four procedures of home trade in order.
3. Explain any five means of payment used in foreign trade.
4. Why is foreign trade necessary? Mention any four documents used in both
home trade and foreign trade.
5. Explain five types of invoice used in trade.
6. Explain any five terms and conditions of foreign trade.
7. 'Trade acts as a mediator between producer and consumer.' Justify the statement
and also explain three common means of payment used in trade.
8. Introduce WTO and mention its functions.
9. What is invoice? Mention its needs and importance in trade.
10. Introduce SAFTA and discuss its role in the South Asian countries.

One very short question of one mark and one short question of 5 marks
will be asked from this unit.




































36 Office Practice and Accounting 10

UNIT
4 Financial Institutions
























Learning objectives :

After the completion of this unit, students will be able
to understand :
• meaning and definition of financial institution.
• types of financial institutions.
• meaning and definition of bank.

• functions of bank.
• importance of bank.
• types of bank.
• meaning of cheque.
• meaning of insurance.
• functions of insurance.
• important terminology of insurance.
• types of insurance.

















Office Practice and Accounting 10 37

4 Financial Institutions















Meaning and Definition

Financial institutions are those institutions which mediate between the savers in the
communities and the users of these saving. Financial institutions deal with money and
monetary instruments. They collect scattered savings of public by offering different
deposit accounts and interest thereon. All banks, finance companies, co-operatives,
mutual funds ,micro finance are financial institutes.


A.T.K. Ukrant, “Financial institutions are investment intermediaries linking
the savers and users of capital.”



Nepal Rastra Bank Act 2012 defines financial institutions as, “Any institution
incorporated under the prevailing law that operates with the motive of
providing loan for agriculture, cooperative, industries and for any other
specific economic purpose by collecting deposits from public.”


Types of Financial Institutions:

Financial institutions can be classified as follows :


i. Bank ii. Finance Company
iii. Financial Co-operative iv. Insurance Company
v. Employees Provident Fund vi. Citizens Investment Trust


Bank

A bank is just like a shop. The important distinction between bank and an ordinary
shop is that shop deals with commodities whereas bank deals with money. A bank
borrows with one hand in order to lend with the other. It is an institution which
purchases and sells money, and transacts other financial business of like nature. A
bank simply comes out of the work of exchanging money, providing loan, accepting
deposit and transferring money.


38 Office Practice and Accounting 10

The word 'bank' is derived from the Italian word 'Banco' which refers to a bench.
In the ancient time, there were some money-lenders, who used to sit on a bench for
keeping, lending and exchanging of money. In the present context, bank is confined
not only to accepting deposits and disbursing loan. In addition to this, a bank may be
engaged in different types of functions such as remittance of money from one place
to another, exchange of currency, underwriting shares of newly established company,
providing bank guarantee, discounting bills, etc.
An organization, usually a corporation, chartered by a state or federal government,
which does most or all functions like receiving demand deposits and time deposits,
honoring instruments drawn on them, and paying interest on them; discounting
notes, making loans, and investing in securities; collecting checks, drafts, and notes;
certifying depositor's checks; and issuing drafts and cashier's checks is known as
bank.

Definition of Bank


In the words of Crowther, "The banker's business is to take debts of other
people to offer his own in exchange and thereby create money."



According to Horace White, "Bank is a manufacture of credit and money so
facilitating exchanges."




Types of Banks

A. Central Bank

In the monetary system of all countries, the central bank occupies an important
place. The central bank is an apex institution of the monetary system which seeks
to regulate the functioning of the commercial banks of the country. The central bank
enjoys a special status in the banking structure of the country. The principle on which
central bank is run differs from the ordinary banking principles. An ordinary bank is
run for profits. A central bank, on the other hand, is primarily meant to promote the
financial and economic stability of the country. It plays an active role in implementing
government’s economic policy in the country.
World’s first central bank established in 1668 AD is Riksbank of Sweede but the Bank
of England established in 1694 AD was the first to function as a true central bank in
1844 AD.
Nepal Rastra Bank is the central bank of Nepal. It was established in 2013 Baishakh
14 with an authorized capital of one crore, fully subscribed by the government under
Nepal Rastra Bank Act 2012 B.S.

Office Practice and Accounting 10 39

According to Vera Smith:
"The primary definition of central bank is a banking system in which a single
bank has either complete control or a residuary monopoly of note issue."


According to Kent:
"A Central Bank is an institute charged with the responsibility of managing the
expansion and contraction of the volume of money in the interest of general
public welfare."





According to A.C.L. Day:
“A central bank is to help control and stabilize the monetary and banking
system.”




Functions of Central Bank
The functions of the central bank are as follows :

1. It acts as a note issuing agency :
Central bank enjoys the monopoly of bank note issue, i.e. no bank other than
central bank is authorized by law to issue currency. It has its issue departments
which issue notes and coins in economy. Coins are manufactured in the
government mint but they are put into circulation through the central bank.
The central bank is required by law to keep certain amount of gold and foreign
securities against the issue of notes. In some countries, the amount of gold
and foreign securities bears a fixed proportion of total notes issued. In Nepal,
under the Nepal Rastra Bank Act 2058 B.S., the sole right of issuing notes rests
on Nepal Rastra Bank but it should obtain the permission of the government.
Nepal Rastra Bank should maintain 50% security of gold, silver and coins and
50% security of foreign currency to issue the notes but it can be reduced to 25%
in special case.
2. It acts as the banker’s bank :
All the banks in the country are bound by law to keep a certain portion of
their total deposits as reserves with the central bank. These reserves help the
central bank to control the issue of credit by commercial banks. They in return,
depend upon the central bank for support at the time of emergency. Nepal
Rastra Bank serves as a guardian of banking system in Nepal. New banks and
financial institutions are established by the permission of Nepal Rastra Bank. It
is responsible for regulating, controlling and developing banking system in the


40 Office Practice and Accounting 10

nation. All other banks in the country are bound either by law or by convention
to keep a certain proportion of their total deposits as reserve in central bank.
They also keep their spare cash in the central bank from which they can draw
when needed. The central bank provides the loan to them as per the necessity
and also provides the technical and economic advice in need. All types of banks
must follow the instruction given by central bank regarding interest rates,
deposits, loans, agency services, etc. This is how the central bank serves as a
banker of banks.
3. It acts as the banker to the government :
Another important function of central bank is to act as the banker to the
government. All the balances of the government are kept with the central bank.
On these balances the central bank pays no interest. The central bank receives
and makes all payments on behalf of the government. The central banks is
required to lend money to the government when it is called upon to do so.
Besides these, it provides foreign exchange resources to the government for
paying external debt and purchasing foreign goods or making other payments.
It buys and sells the government securities. It also acts as a financial advisor of
the government on economic, monetary, trade policy, foreign exchange policy,
etc. In fact, the central bank is the fiscal agent of the government.
4. It controls credit :
The most important function of the central bank is to control the credit creation
power of commercial banks in order to control inflationary and deflationary
pressure within the economy. For this purpose, it adopts quantitative and
qualitative method. Quantitative methods aim at controlling the cost and
quantity of credit by adopting bank rate policy, open market operations and by
variations in reserve ratio of commercial banks. Quantitative methods control
the use of direction of credit. These involve selective credit control and direct
actions.
5. It manages the exchange rate :
Central bank fixes the exchange rate of domestic currency in terms of foreign
currency. It also manages exchange control operations by supplying foreign
currencies to importers and persons visiting foreign countries in keeping with
the rules laid down by the government.
6. It acts as the clearing house :
As banker’s bank, the central bank acts as a clearing house for transfer and
settlement of mutual claims of commercial banks. Since the central bank holds
reserves of commercial banks, it transfers funds from one bank to another bank
to facilitate clearing of cheques.
7. It helps to promote economic development :
One of the major functions of central bank in developing countries like Nepal is
to promote economic development. It can help in both agricultural and industrial
development in the country. It can promote agricultural and industrial growth


Office Practice and Accounting 10 41

by providing finance and credit to these sectors. It adopts such a monetary
policy as is conducive to economic growth.
8. Acts as the lender of last resort : Central bank rescues commercial banks from a
sudden and large demand of cash. It is the duty of central bank to meet demand
for cash by a bank at the time of emergency when panic prevails among the
public and people’s confidence has been shaken and when other banks have
refused to supply credit.

B. Commercial Bank

A commercial bank is a business organization which deals in money; it borrows and
lends money. In this borrowing and lending of money, it makes profit. The difference
between money lenders and commercial banks should be clear. Money lender only
lends money to others from its own sources but commercial banks do both the lending
and borrowing business. A commercial bank raises its resources through borrowing
from the public in the forms of deposits and lends them to the businessman. Its
lending rate of interest is greater than the borrowing. It is because of this difference in
lending and borrowing rates of interest that it is able to make profits.

According to W. Leaf, “A commercial bank is the corporation which holds
itself out to receive from the public, deposit payable on demand by cheques.”



The first commercial bank of Nepal is Nepal Bank Limited which was established in
1994 BS. It is the first bank in the banking history of Nepal. Long after the establishment
of Nepal Bank, on 2022 Magh 10, Nepal Rastriya Banijya Bank and on 2024 Magh 7,
Agriculture Development Bank were established.

Functions of Commercial Banks

The main functions of commercial banks can be summed up as – to borrow and
to lend. To receive deposits and to advance loans are the two main functions of all
commercial banks. They borrow in the form of deposit and lend in various forms of
advances. Besides, there are miscellaneous functions which are discussed below :
1. Accepting deposit : The bank borrows in the form of deposits. This function
is very important because banks mainly depend on the funds deposited with
them by public. The bank accepts the deposits under the following accounts:
a. Current account : Any amount can be depositary withdrawn in current
account several times in a day. No, interest is allowed by bank to the account
holder in this account. Some banks do allow interest even in current account.
b. Saving account : This account is managed to collect the deposit of those who
want to deposit their small saving in a bank, which they need to withdraw




42 Office Practice and Accounting 10

only casually and not every now and then. The interest allowed on saving bank
deposits is certainly lower than that allowed on fixed account.
c. Fixed deposit account : These deposits are made for a fixed period of time,

a higher rate of interest is paid on fixed deposit. The amount deposited in this
account cannot be withdrawn before the expiry of the specified period. However,
a loan can be taken from the bank against the security of these deposits within
that period.

2. Advancing loans

Another function of commercial bank is to give loans to others. The banks make
profit by advancing loan. Bank provides loan through cash credit, overdraft,
demand loan, short loan, etc. General loans for individual are granted on the
securities of gold, silver, land, buildings, stocks, etc.

3. Transfer of money

Commercial banks transfer money from one place to another for their customers.
Bank remits the funds of the people by means of a bank draft or a cheque. Bank
may charge certain commission on transfer of money.

4. Open letter of credit (L.C.)

It opens letter of credit (L.C.) to promote and support the international trade. L.C.
is a document issued by a banker authorizing the bank to which it is addressed
to honour the bills of the person named to the extent of certain amount. It is a
guarantee issued by bank on behalf of its trusted customer.


5. Perform agency functions

Banks also act as agents of their customers and render service in that capacities.
Banks perform agency function by collecting and paying cheques, realizing
interest and dividend, by paying subscriptions and insurance premiums, by
purchasing and selling shares, debenture and securities on behalf of their
customers.


6. Miscellaneous functions
Besides these, it provides locker service, exchanges the foreign currency,
publishes the financial information, etc. for its regular and possible customer.





Office Practice and Accounting 10 43

Differences between central bank and commercial banks


Central Bank Commercial Bank
1. Central bank is the apex institution of Commercial banks are supportive
monetary system in a country. institutions and are part of monetary
system.
2. There is only one central bank in a There may be number of commercial
country. banks as per the size of economy of
the country.
3. Central bank is government owned Commercial banks can be
bank. government, semi-government and
private as well.
4. Central bank is only one authority to Commercial banks do not have
issue note. right to issue note.
5. Central bank controls the credit as per Commercial banks only create the
the need of the economy. credit.

6. Central bank is non-profit institution. Commercial banks are established
to earn profit.
7. Central bank is bank of the banks. Commercial banks are banks of
general public.



C. Development Bank

Some of the banks are established for special purpose rather than mere profit motive.
The bank which is established with view to assist in the development of special sector
like agriculture, industry, infrastructure, mines, communication, hydroelectricity
etc is called development bank. It provides the capital, technical and administrative
assistance for the development of such sectors. These banks are established to
recognize and develop the sectors where huge investment capital as well as technical
support is needed. Nepal Industrial Development Bank, Agriculture Development
Bank, Rural Development Bank are the examples of development banks in Nepal.
As per the Bank and Financial Institutions Act 2063, banks and financial institutions
are classified into four groups namely A, B, C and D. Development banks are classified
as ‘Grade B’ except Agriculture Development Bank which falls under ‘Grade A’. In the
history of development bank, Society General De Beljique established in Belgium in
1822 AD is the first development bank of Europe and the oldest development bank
in the world. Its objective was to provide financial support to the industrial sector of
the country.






44 Office Practice and Accounting 10