Office Practice and Accounting 10

7. From the following particulars, prepare profit and loss account as on
30–12–2072.


Particulars Amount Particulars Amount
Wages 3,100 Sales 29,400
Opening stock 1,700 Return outwards 1,500

Carriage 600 Capital 20,000
Purchase 12,200 6% loan (Cr.) 1,000

Return inwards 2,000 Bank overdraft 300
Carriage outwards 900 Creditors 1,800
Fuel and power 400 Debtors 4,500

Cash in hand 620 Drawings 1,500
Cash at bank 700 Insurance 180
Premises 9,000 Sundry expenses 900

Lands 3,000 Salaries 4,500
Machinery 6,00 Patents 2,200
Depriciation 1270

Gross profit 15400


Solution

Profit and Loss Account
For the year ending 30 Chaitra, 2072

Dr. Cr.
Particulars Amount Particulars Amount
To Carriage outward 900 By Gross profit b/d 15,400

To Salaries 4,500
To Sundry expenses 900
To Insurance 180

To Interest 600
To Depreciation 1270
To Net profit 7,590
15,400 15,400


Office Practice and Accounting 10 95

8. Prepare Profit and loss account from the following details.



Gross profit 2,50,000
Bad debts 1,350
Advertisement 3,800
Legal expenses 3,600
Stationery 250
Insurance 3,000
Discount 100
Commission received 1,500
Repair 2,000
Salaries 80000
Office rent 12000
General expenses 14,000



Solution :


Profit and Loss Account
For the year ending … … …
Dr. Cr.
Particulars Amount Rs. Particulars Amount Rs
To salaries 80,000 By gross profit b/d 250000

To office rent 12000 By commission 1,500
To general expenses 14,000
To insurance 3,000

To legal expenses 3,600
To stationery 250
To discount 100

To bad debts 1,350
To advertisement 3,800

To repairs 2,000
To net profit 1,31,400
251500 251500






96 Office Practice and Accounting 10

9. Prepare a profit and loss account of Khanal and Company for the fiscal
year 2071/72 from the following transactions.
Gross profit Rs. 4,50,000 Salary Rs. 90,000

Advertisement Rs. 5,000 Interest Rs. 15,000
Stationery Rs. 7,000 Discount received Rs. 9,000

Depreciation Rs. 2,000 Legal charge Rs. 3,000

Solution :


Profit and Loss Account
Khanal and Company
for the year ended 31st Asar, 2072
Dr. Cr.

Particulars Amount Particulars Amount
To Advertisement expenses 5,000 By Gross profit 4,50,000
To Stationery 7,000 By Discount received 9,000
To Depreciation 2,000

To Salary 90,000
To Interest 15,000

To Legal charge 3,000
To Net profit c/d 3,37,000
Total 4,59,000 Total 4,59,000



10. Prepare a Profit and Loss Account of Kamal Industry Limited for the
end of Ashad 2072 from the following particulars:
Gross profit 1,00,000 Salaries 40,000

Trade expenses 5,000 Bank charges 500
Commission received 10,000 Discount on sales 3,000
House rent received 25,000 Interest expenses 15,000

Interest received 2,000 Traveling expenses 11,000








Office Practice and Accounting 10 97

Solution:


Profit and Loss Account
Kamal Industry Limited
For the year ended 31st Ashadh 2072
Dr. Cr.

Particulars Amount Particulars Amount
To Salaries 40,000 By Gross profit 1,00,000
To Trade expenditure 5,000 By Commission received 10,000

To Bank charge 500 By Rent received 25,000
To Discount on sale 3,000 By Interest received 2,000
To Traveling expenses 11,000

To Interest expenses 15,000
To Net profit 62,500


Total 1,37,000 Total 1,37,000



11. From the following particulars prepare profit and loss account of
Gitanjali Hardware for the fiscal year 2072/073.

Gross loss Rs. 52,000
House rent Rs. 5,000
Discount Rs. 2,500

Interest on development bond Rs. 15,000
Bad debts recovered Rs. 25,000
Advertisement Rs. 1,500

Commission received Rs. 2,500
Printing expenses Rs. 500















98 Office Practice and Accounting 10

Solution:


Gitanjali Hardware
Profit and Loss Account
for the fiscal year 2072/073
Dr. Cr.
Particulars Amount Particulars Amount
To Gross loss 52,000 By Interest on dev. bond 15,000
To House rent 5,000 By Bad debt. recovered 25,000
To Discount 2500 By Commission received 25000
To Advertisement 1500 By Net loss 19000
To Printing 500
expenses
61,500 61,500


Balance Sheet
A balance sheet is a list of the assets and liabilities of a business at a particular date. It is a
statement of financial position in terms of the Capital, Assets and Liabilities of a business
entity. It shows the financial position of any business firm. It is also called position
statement as it shows the entire financial position of the organization at a glance. A trader
needs to know if his business will continue to provide an income for the foreseeable
future. A balance sheet can provide a good indication of the answer to the question.

Unlike a trading and profit and loss account, a balance sheet is not part of double
entry system. After the nominal account balance have been transferred to the trading
and profit and loss account, the only balance left in the ledger are those for assets and
liabilities. The balance sheet is a list of these balance.
Although a balance sheet is not an account, the trading and profit and loss account
and balance sheet are known collectively as the final accounts of a business. It has two
sides –left hand side (Capital and Liabilities) and right hand side (Assets). The capital
and liabilities side contains the credit balances of all personal accounts while assets
side contains debit balances of real and personal accounts. The two sides of balance
sheet must always agree.

Objectives
Objectives of balance sheet are presented as follows:
• To know the financial position of organization at specific time.
• To meet the legal obligation.
• To provide detail information about share capital, revenue and surplus, assets
and other liabilities.


Office Practice and Accounting 10 99

• To know about strength and weakness of the business
• To make easy borrowing of funds and loan
• To formulate plans and policies

• To help the management for decision making process
• To complete an accounting cycle
• To provide the data for financial analysis

Advantages and importance
The advantages and importances of balance sheet are listed as follows:
i. It helps to know the financial position of a firm.
ii. It provides the information about assets, liabilities and capital.
iii. It helps to test the liquidity, solvency, efficiency and profitability of the business.
iv. It helps to know the strength and weakness of the business.
v. It helps to fix the purchase consideration of the business.
vi. It helps to provide data and information for decision making process.
vii. It helps to formulate plans and policies for business issues.

Items to be recorded in balance sheet (Assets and Liabilities)

1. Assets

i. Current assets: Cash and the assets which can be converted into cash within
one year are called current assets. Bank balance, marketable securities, debtors,
closing stock, prepaid expenses, short-term investment, accrued income, all
receivables, etc. are current assets. Currents assets are of two types liquid
assets and non-liquid assets. Liquid assets are those that can be converted into
cash when ever needed within one year without any loss. Cash, bank, debtors,
marketable securities, etc. are liquid assets and non-liquid assets can be
converted into cash within one year but exact value may or may not be realised.
Closing stock, prepaid (advance) expenses etc. are non-liquid assets.
ii. Fixed assets: Assets which last more than one year are known as fixed assets.
Furniture, land and building, vehicle, machinery are the examples of fixed
assets.
iii. Fictitious assets: Assets which do not have physical shape but give the benefit
to the firm are known as fictitious assets. Preliminary expenses, goodwill,
patent, underwriting commission, copy right, etc are fictitious assets. They are
also termed as nominal assets and intangible assets.
iv. Investment: Investment is an expenditure on different assets or properties to
earn interest, dividend, income or other benefits. Purchase of securities, share,
debenture, bond, etc. are examples of investment. Investments are made for
resale purpose for benefit.



100 Office Practice and Accounting 10

2. Liabilities

i. Capital: Capital is the sum of assets invested in business. Net profit and interest
on capital increases the capital whereas net loss and drawing decreases the
capital. Capital is also known as shareholder’s equity.
ii Fixed or long-term liabilities: Those financial liabilities which are to be paid
after long period of time, generally more than one year, are called long term
liabilities. Bank loan, debentures, mortgage, bond are long-term liabilities.
iii. Current liabilities: Those financial liabilities which are to be paid within
a year are called current liabilities. Creditors, bank overdraft, all payables,
outstanding expenses, income received in advance, provision for taxation,
proposed dividend, short-term loan etc. are current liabilities.


Specimen of Balance Sheet


Balance Sheet of ............
As on ................

Liabilities Assets Liabilities Assets
Capital xxx Goodwill xxx
Add: Net profit xxx Land and Building xxx
Less: Net loss xxx Plant and Machinery xxx
Less: Drawing xxx Leasehold premises xxx
Add: Additional Capital xxx Furniture and fixture xxx
Add: Interest on Capital xxx xxx Patent, copyright, Trade mark xxx
General Reserve xxx Live stock, vehicles xxx
Reserve fund xxx Investment xxx
Other reserve xxx Closing stock xxx
Debenture xxx Cash in hand xxx
Mortgage Loan xxx Cash at bank xxx
Long term loan xxx Debtors xxx
Bank overdraft xxx Bills receivable xxx
Creditors xxx Prepaid expenses xxx
Bills payable xxx
Received in advance xxx
Outstanding expenses xxx
Provision for Taxation xxx
Total xxx Total xxx







Office Practice and Accounting 10 101

Differences between trial balance and balance sheet


Trial Balance Balance Sheet
1. Trial balance columns are headed 1. Balance sheet columns are headed
by Dr. and Cr. by Liabilities and Assets.
2. It is a codified summary of all 2. It is a statement showing closing
ledger balances-personal, real and balances of personal and real
nominal. accounts.
3. It is the first step in the final 3. It is the last step in the final
account. account.
4. It establishes the arithmetical 4. It reveals the true and financial
accuracy of the accounting. position.
5. Trial balance is prepared monthly, 5. Balance sheet is prepared normally
quarterly, half yearly, yearly, etc. only once a year.
6. Trial balance is not accepted by the 6. Balance sheet is accepted by the
court as evidence. court as documentary evidence.
7. To complete the accounting cycle, 7. To complete an accounting cycle,
trial balance is not necessarily balance sheet is essential.
prepared. 8. The arrangement of assets and
8. There is no order as to the liabilities are made in order of
arrangement of ledger balance in liquidity or permanency.
a trial balance.



Similarities between Trial Balance and Balance Sheet

1. Trial balance and balance sheet both are statement but not account.
2. Both are prepared on a particular date.
3. Both of these statements are prepared on the basis of ledger balances.
4. Both of these statements should be balanced to ensure the accuracy of the books
of accounts.
5. ‘To’ and ‘By’ is avoided in both statements.
6. Both of these can be prepared either in ‘T’ format of vertical format.














102 Office Practice and Accounting 10

Illustrations

12. Prepare a balance sheet of Riddhi Siddhi Company for the year ending
2072 from the following information:
Capital 7,78,000
Land and building 6,80,000
Machinery 65,000
Reserve fund 40,000

Bills payable 72,000
Loan 50,000
Net loss 1,00,000
Goodwill 30,000
Bank overdraft 34,000

Balance Sheet
Riddhi Siddhi Company
As on 31st Chaitra 2072

Capital and Liabilities Amount Assets Amount
Capital 7,78,000 Machinery 65,000
Less:- Net loss 1,00,000 6,78,000 Land and Building 6,80,000
Bills payable 72,000 Goodwill 30,000

Bank overdraft 34,000 Closing stock 99,000
Loan 50,000

Reserve fund 40,000
Total 8,74,000 Total 8,74,000


13. From the following information prepare a Balance Sheet of Adarsha

Company Ltd. for the accounting year of 2015.

Closing stock Rs. 30,000, Capital Rs. 5,08,000, Outstanding Expenses Rs. 4,500,Net
profit Rs. 20800, Cash at Bank Rs. 87000, Cash in Hand Rs. 9000, Creditors Rs. 12000,
Bank overdraft Rs. 35000, Machinery Rs. 52000, Prepaid expenses Rs. 6700, Debtors
Rs. 14000, Drawings Rs. 5500, Interest on capital Rs. 3,500, Reserve fund Rs. 3200,
Land and building Rs. 3,00,000Provision for tax Rs. 2500, Vehicle Rs. 85300.





Office Practice and Accounting 10 103

Balance Sheet
Adarsha Company Ltd.
As on 31 December 2015

Capital and Liabilities Amount Assets Amount
Capital 508000 Land and building 300000
Add: net profit 20800 Vehicle 85300
Add: interest on capital 3500 Machinery 52000
Less: drawing 5500 526800 Cash in hand 9000

Outstanding Expenses 4500 Cash at bank 87000
Creditors 12000 Prepaid expenses 6700
Bank overdraft 35000 Debtors 14000
Reserve fund 3200 Closing stock 30000
Provision for tax 2500
584000 Total 584000


14. Prepare balance sheet from the following ledger balance.


Capital 95,000

Drawings 4,000
Investment 34,000
Bank overdraft 12000
Debtors 6,700

Creditors 17,500
Plants and machinery 16360
Cash in hand 9,840
Cash at bank 6600
Furniture and fixtures 10,000

Office equipment 44,000
Net profit 22000













104 Office Practice and Accounting 10

Solution :


Balance sheet of …
An on ………

Capital and Liabilities Amount Rs. Assets Amount Rs.
Capital 95,000 Cash in hand 9,840
Add Net profit 22000 Cash at bank 6,600
117000 Debtors 6,700

Less drawings 4,000 1,13,000 Investment 34,000
Creditors 17,500 Furniture and 15,000
Bank overdraft 12,000 Fixtures 10,000
Office equipments 44,000
Plant and machinery 16360
1,42,500 1,42,500

15. Prepare Balance Sheet as on 31st Asar 2070 of Sagarmatha Dairy Pvt.
Ltd. from the following particulars.

Capital Rs. 1,20,000
Vehicles Rs. 1,00,000

Bankers Rs. 7,000
Net profit Rs. 22,000
Closing stock Rs. 28,000

Accrued rent Rs. 10,000
Goodwill Rs. 16,000
Outstanding salary Rs. 5,000

Balance Sheet
Sagarmatha Dairy Pvt. Ltd.
As on 31st Asar 2070

Capital and Liabilities Amount Assets Amount
Capital 1,20,000 Vehicle 1,00,000
Add. Net profit 22,000 1,42,000 Closing stock 28,000
Outstanding Salary 5,000 Accrued rent 10,000

Bankers 7,000 Goodwill 16,000
Total 1,54,000 Total 1,54,000



Office Practice and Accounting 10 105

16. From the following particulars, prepare a balance sheet of a trader as
on 31st Chaitra, 2070.


Capital Rs. 170,000 Net profit Rs. 84,000
Machinery Rs.41,600 Debtors Rs. 156,000
Building Rs. 48,000 Creditors Rs. 1,00,000
Cash in hand Rs. 16,400 Stock in trade Rs. 34,000
Cash at bank Rs. 40,000 Furniture Rs. 18,000

Solution:


Balance Sheet
As on 31st Chaitra 2070
Capital and Liabilities Amount Assets Amount
Capital 170,000 Building 48,000
Add: Net profit 84,000 2,54,000 Machinery 41,600
Creditors 1,00,000 Furniture 18,000
Stock in trade 34,000

Debtors 1,56,000
Cash at bank 40,000
Cash in hand 16,400
Total` 3,54,,000 Total 3,54,000



17. From the following particulars, prepare trading account, profit and loss
account for the year ended 30th Chaitra 2071 and the balance sheet as
on that date, in the books of Parajuli and Sisters.
























106 Office Practice and Accounting 10

Particulars Debit (Rs.) Credit (Rs)
Opening stock 5,000 –
Purchase and sales 25,000 40,000
Wages 4,000 –

Carriage inward 200 –
Carriage outward 300 –
Cash in hand 400 –

Cash at bank 7,600 –
Salaries 2,400 –
Rent 1,200 –

Insurance 600 –
Discount 100 –

Furniture 10,000 –
Debtors and creditors 5,000 4,000
Printing and stationery 500 –

Office expenses 1,000 –
Capital – 20,000
Drawings 700 –
64,000 64,000



Adjustments:

i. Closing stock Rs. 6,000 ii. Outstanding salary Rs. 400
iii. Prepaid rent Rs. 100 iv. Depreciate furniture by 10%




















Office Practice and Accounting 10 107

Parajuli and Sisters
Trading and Profit and Loss Account
For the year ending 30 Chaitra 2071
Dr. Cr.
Particulars Amount Particulars Amount
To Opening stock 5,000 By Sales 40,000
To Purchase 25,000 By Closing stock 6,000
To Wages 4,000
To Carriage inward 200
To Gross profit 11,800
46,000 46,000
To Carriage outward 300 By Gross profit b/d 11,800
To Salaries 2,400
Add: outstanding 400 2,800
To Rent 1,200
Less: prepaid 100 1,100
To Insurance 600
To Discount 100
To Printing and stationery 500
To Office expenses 1,000
To Depreciation 1,000
To Net profit 4,400
11,800 11,800




Parajuli and Sisters.
Balance Sheet
As on 30 Chaitra 2071

Capital and Liabilities Amount Assets Amount
Capital 20,000 Furniture 10,000
Add: Net profit 4,400 Less: Depreciation 1,000 9,000
24,400 Cash in hand 400

Less: Drawing 700 23,700 Cash at bank 7,600
Outstanding salaries 400 Debtors 5,000
Creditors 4,000 Prepaid rent 100

Closing stock 6,000
28,100 28,100




108 Office Practice and Accounting 10

Exercise
1. How is the net profit or net loss adjusted in the balance sheet?
2. Why is profit and loss account prepared?
3. How is gross profit determined?
4. Why is final accounts prepared?
5. What is fixed asset? Give one example of fixed asset.
6. What do you mean by prepaid expenses?
7. In which business account indirect expenses are included?
8. What type of assets are goodwill and patent?
9. Name any two items which come under direct expenses.
10. What is meant by outstanding expense?


Practical Problems
1. From the following particulars, prepare profit and loss account of
Binesh Store for the year end 30th Chaitra 2071.
Salaries 50,000
Sales expenses 10,000
Office expenses 12,000
House rent 30,000
Gross profit 1,25,000
Legal charge 5,000
Interest received 22,000
Dividend received 6,000
Export duty 8,000
Ans: Net Profit Rs. 38,000
2. You are required to prepare profit and loss account from the following
balances of a business house for the year 2070.


Particulars Amount Particulars Amount
Interest on loan 5,000 Office expenses 2,000
Commission 500 Advertisement 20,000
Bad debts 5,000 Rent and rates 5,000
Gross profit 1,85,000 Carriage out 1,000
Loss in accident 2,000 Printing and stationery 500
Other income received 2,500 Telephone 2,000
Gain on sale of fixed assets 2,000 Legal fee 1,500
Depreciation on furniture 5,000


Ans: Net Profit Rs. 1,40,500

Office Practice and Accounting 10 109

3. Prepare trading account of Green Compnay from the following
particulars for the year ending 30th Chaitra 2070.
Total sales 12,00,000
Sales return 50,000
Electricity 40,000
Carriage in 30,000
Purchase 10,00,000
Import duty 15,000
Stock at end 3,00,000
Direct labour 25,000
Ans: Gross Profit Rs. 3,40,000/-
4. From the following particulars, prepare a profit and loss account of
Pathibhara General Store for the fiscal year 2068/69 and find out net
profit or net loss.
Particulars Amount

Salary 95,000
Insurance premium 15,000
Stationery 13,000
Dividend received 18,000
Carriage outward 4,000
Discount received 11,000
Doubtful debt 19,000
Gross profit 1,49,000
Ans: Net Profit Rs. 32,000
5. From the following particulars prepare profit and loss account of Joshi
Furniture for the fiscal year 2068/069:
Gross loss Rs. 52,000
House rent Rs. 5,000

Discount Rs. 2,500
Interest on development bond Rs. 15,000
Bad debts recovered Rs. 25,000
Advertisement Rs. 1,500
Commission received Rs. 2,500
Printing expenses Rs. 500
Ans: Net Loss 19,000






110 Office Practice and Accounting 10

6. Pepare profit and loss account of Pashupati Grill Industry as on 31 Asar
2070 from the following transactions:
Particulars Amount (Rs.)
Gross Loss 2,00,000
Advertisement 15,000
Purchase discount 16,000
Rent received 50,000
House rent 60,000
Salary 90,000
Received bonus 34,000
Ans: Net Loss Rs. 2,65,000


7. Prepare a Profit and Loss Account of Z Company on 31th July 2013 as
following transactions:
Particulars Amount (Rs.) Particulars Amount (Rs.)
Gross profit 5,00,000 Salary 25,000
Carriage out 1,000 Dividend received 3,000
Advertisement 6,000 Interest revived 4,000
Rent expenses 12,000 Discount 5,000
Ans: Net Profit 458000


8. Prepare profit and loss account of D and D Store as on 30th Asar 2071
from the following particulars.
Gross profit - 400, 000
Depreciation - 24, 000
Dividend received - 30, 000
Selling expenses - 50, 000
Interest received - 20,000
Doubtful debt - 15, 000
Salary - 90, 000
Stationery - 16, 000
Ans: Net Profit 2,55,000

9. From the following information prepare a profit and loss account of Himal
Traders for the year ended 31st Chaitra 2065.
Particulars Amount (Rs) Particulars Amount (Rs)
Salary 50,000 Gross profit 2,60,000
Communication 5,000 Insurance 24,000
Rent received 36,000 Provision for bad debts 4,000

Office Practice and Accounting 10 111

Interest on drawing 3,000 Commission received 9,000
Depreciation 15,000 Advertisement 25,000
Ans: Net Profit 1,93,000
10. Prepare a profit and loss account of Laxmi Company as on 31st Chaitra
from the following transactions.
Bad debts recovered 95,000
Commission earned 40,000
Gross profit 30,000
Sundry income 35,000
Office rent 30,000
Interest from investment 50,000
Dividend received 45,000
Salary 2,00,000
Ans: Net Profit 65,000


11. Prepare profit and loss account of Baltra Company for the year ended
31st Ashad, 2071 according to the following particulars.
Gross loss 2,25,000
Discount on sale 60,000
Rent from tenant 18,000
Audit fee 6,000
Discount on purchase 34,000
Staff salary 75,000
Interest on deposit 10,000
Ans: Net Loss 3,04,000
12. Prepare profit and loss account of Mechi Furniture Industry for the
fiscal year last of Ashar 2071/072 from the given particulars.

Particulars Amount (Rs.)
Gross loss 1,75,000
Salaries 70,000
Received house rent 30,000
Commission received 10,000
Stationery 19,000
Purchase discount 12,000
Advertisement 15,000
Carriage outward 20,000
Ans: Net loss 2,47,000






112 Office Practice and Accounting 10

13. From the following particulars, prepare balance sheet as on 31 Dec. 2014


Particular Dr (Rs) Cr. (Rs)
Capital – 40,000
Drawings 4400 –
Creditors and Debtors 6400 4200
Cash 360 –
Bank 7200 –
Furniture 3700 –
Plant 10,0000 –
Net profit – 1660
General reserve – 1000
Closing stock 14800 –
46860 46860

Ans: Balance sheet Rs. 42460
14. The following balances have been extracted from the books of Sanju
and Sangeet Ltd. as on 31 Ashad 2073.

Particular Dr. (Rs) Cr. (Rs)
Inventory 30,000 –
Share capital – 2,50, 000
Account receivable 50,000 –
Net profit – 76,500
Plant and equipment 2,25,000 –
Goodwill 14500 –
Land and building 135,000 –
Cash 10,000 –
Account payable – 39000
Reserve fund – 50,000
Bank loan – 50,000
Advance expenses 127500 –
Bank overdraft – 23500
Investment 12000 730,000
Drawing 15,000 –
Creditor – 1,30,000

Required: Balance sheet
Ans: Balance Sheet Rs 6,04,000




Office Practice and Accounting 10 113

15. Prepare balance–sheet of XYZ company Ltd. from the following
information, as on 31 Dec. 2015.


Goodwill Rs 10000 Land Rs. 30,000
Capital 90,000 Bank 10,000
Outstanding expenses 600 Creditors 31,500
Cash 40,500 Receivables 6,500
Net profit 46,300 Payables 5350
Debtors 25,000 Advance income 1250
Drawings 5000 Closing stock 40,000
Furniture 8,000

Ans: Balance sheet Rs. 1,70,000
16. You are required to prepare a balance sheet of a trader as on 31, Ashadh
2072 from the following balances.


Particulars Amount Particulars Amount
Capital Rs. 2,00,000 Vehicles Rs. 55000
Bank 40,000 Creditors Rs. 15,000
Bill payables 35,000 Overdraft Rs. 20,000
Business premises 60,000 Trademark Rs. 20,000
Bad debt 54,000 Investment Rs. 25000
Closing stock 50,000 Drawings 3000
Interest on capital 1000 Copy right 9000

Ans: Balance sheet Rs 2,68,000
17. You are given the following balances.


Particulars Amount Particulars Amount
Capital 32,500 Motor van. 4,000
Furniture 1,250 Machinery 8500
Bank (Cr.) 3000 Building 10,000
Loan for ‘A’ 3000 Sundry debtors 11000
Profit and loss (Cr.) 500 Sundry creditors 7500
Drawing 2,500 Patent 3750
Bill receivable 3500 Stock 6000
Bill payable 4,000

Required: Balance sheet as on 31 December 2016.
Ans: Balance sheet Rs 48,000


114 Office Practice and Accounting 10

18. Prepare balance sheet as on 31 Ashadh 2070 from the following information.


Particulars Amount Particulars Amount
Capital 119,400 Profit 65028
Drawing 10550 Prepaid insurance 750
Closing stock 128960 Machinery 28500
Furniture 8073 Debtors 58425
Outstanding expenses 200 Bill receivable 9500
Loan 20,000 Cash at bank 18970
Creditors 59,630 Cash in hand 530


Ans: Balance sheet Rs 2,53,708.
19. Prepare balance sheet of Nisha and Sons as on 31 Ashad from the
following information.

Capital 5,00,000
Outstanding salary 1,10,000
General reserve 70,000
Cash at bank 4,00,000
Closing stock 1,75,000
Net profit 30,000
Plant and machinery 1,10,000
Furnitures 25,000

Ans: Balance Sheet Rs. 710,000


20. Prepare a balance sheet of Mechi Furniture Industry, as on Asar end of
2070 from the following particulars:
Particulars Amount (Rs)
Capital 10,40,000
Goodwill 37,000
Outstanding wages 72,000
Furniture 3,25,000
Reserve fund 68,000
Pre-paid expenses 58,000
Machine 6,80,000
Net loss 80,000
Ans: Balance Sheet Total 1100,000



Office Practice and Accounting 10 115

21. Prepare balance sheet as on 31st Asar 2071 of ABC Pvt. Ltd from the
following particulars:
Capital Rs. 1,20,000
Vehicles Rs. 1,00,000
Bankers Rs. 7,000
Net profit Rs. 22,000
Closing stock Rs. 28,000
Accrued rent Rs. 10,000
Goodwill Rs. 16,000
Outstanding salary Rs. 5,000
Ans: Balance sheet Rs. 1,54,000
22. Prepare balance sheet of Singha Bahini Traders for the fiscal year
2069/2070 from the given particulars:

Particulars Amount (Rs.)
Capital 5,00,000
Furniture 2,25,000
Machinery 1,82,000
Net profit 1,75,000
Accrued income 3,00,000
Debtors 1,93,000
Bank loan 80,000
Reserve fund 1,45,000
Ans: Balance sheet Rs. 9,00,000


23. Prepare a Balance Sheet of Times Company Limited as on last Asar,
2070 as following transactions:

Particulars Amount (Rs.)
Capital 75,000
Net profit 1,25,000
Creditors 40,000
Bank 1,80,000
Furniture 20,000
Goodwill 25,000
Closing stocks 15,000
Ans: Balance Sheet Rs. 240000
24. Prepare a balance sheet of Baral House as on 31st Dec 2016 from the
following particulars.
Investment 3,00,000
Net profit 75,000
Capital 6,10,000


116 Office Practice and Accounting 10

Cash in hand 55,000
Debtors 2,00,000
Drawing 60,000
Creditors 80,000
Goodwill 150,000
Ans: Balance sheet Rs. 7,05,000

25. Prepare a balance sheet of Surkhet Stores for the year ended 31st
December 2016 from the following particulars.
Capital 3,60,000
Bank overdraft 80,000
Machinery and equipment 3,35,000
Goodwill 30,000
Bank Loan 60,000
Investment 2,30,000
Bank 30,000
Reserve fund 1,25,00
Ans: Balance Sheet Rs. 6,25,000

26. Form the following particulars, prepare balance sheet of Palpali Dhaka
Udhyog, Palpa for the year ended 31st December, 2014.
Capital 1,50,000
Outstanding bills 60,000
Freehold premises 2,00,000
Machinery and equipment 60,000
Prepaid expenses 55,000
Debtors 45,000
Bank overdraft 90,000
Net profit 60,000
Ans: Balance Sheet Rs. 3,60,000
27. Prepare a balance sheet of Mahakali Guest House Pvt. Ltd. as on 2072
Ashar 31 according to the following particulars:
Particulars Amount (Rs.)
Capital 7,52,000
Debtors 25,000
Goodwill 13,000
Bank over draft 60,000
Net profit 1,38,000
Reserve fund 50,000
Furnitures 4,00,000
Land and building 5,62,000
Ans: Balance Sheet Rs. 10,00,000
One very short question of 1 mark and two short numerical questions
of 5 marks each will be asked from this unit.

Office Practice and Accounting 10 117

UNIT
7 Government Account

























Learning objectives:


After the completion of this unit, students will be able
to understand :
• introduction of Government Accounting System.

• meaning, features and objective of New Accounting.
• levels of New Accounting System.
• difference between Central Level and Operating
Level Accounting.
• office of the Auditor General and Comptroller
General.
• forms used under New Accounting System.
• classification of Budget Expenditures.






















118 Office Practice and Accounting 10

7 Government Account
















Introduction
Accounting is the art of recording, classifying and summarizing of financial activities
to know the financial result as per requirement. It is an art of recording transactions
according to sizes, nature and types of organizations. Accounting can be classified
into two categories as such:-

i. Government Accounting
ii. Commercial Accounting

Government Accounting
Government accounting refers to the recording of all revenue and expenditure
that belongs to government. It is the process of collecting, recording, classifying,
summarizing, interpreting and reporting to the concerned authority, all those financial
transactions made by a government body.


According to Oshisami and Dean, "Government Accounting is the process
of recording, analyzing, classifying, summarizing, communicating and
interpreting financial information about government in aggregate and in detail,
reflecting all transactions involving the receipts, transfer and disposition of
government fund and property."


The principles and procedures of government accounting are governed by government
financial rules, regulations and acts that may provide the relevant information for
formulation of plans and policies for taking the important financial decision. It helps
to analyze the financial transactions of governmental body.
The accounting system which is being used by government of Nepal since 2019
BS is government accounting. It is also known 'New Accounting System'. It was
implemented in the offices of Kathmandu valley since the 2019BS and since 2025 BS,
it was introduced and implemented throughout the country. This accounting system
brought uniformity in accounting all over the country. The government accounting
is maintained by the government in Nepal classified into two levels i.e. central level
accounting and operating level accounting.

Office Practice and Accounting 10 119

Commercial/Business Accounting

Business accounting is the accounting system used by business organizations to record
all financial transactions relating to the business. The prime objective of commercial
accounting is profit and it is prepared on the basis of Generally Accepted Accounting
Principles (GAAP) and regulations of organization itself.
Differences between Government Accounting and Commercial/ Business Accounting

Government Accounting Commercial Accounting
Government accounting is maintained Commercial accounting is maintained
for the use of government offices and for the use of business organizations
general public. and its owners.
The main purpose of commercial
The main purpose of government
accounting is to provide accounting is to generate profit and
administrative and financial service to prepare financial statement to know
profit or loss and the financial position
general public.
of the business
Government accounting strictly
follows the budgeting system of Commercial accounting has its own
budgeting and estimation.
government.
Government accounting is classified Commercial accounting does not have
into two levels i.e. central level provision of central and operating
accounting and operating level
accounting. levels.
Office of Auditor General audits Independent and professional
the book of accounts in government registered auditor audits the books of
accounting. account in commercial accounting.

Government accounting is prepared Commercial accounting is prepared
on cash basis. Credit transactions on accrual basis, that implies cash as
are not recorded in government well as credit transactions. Both are
accounting. recorded in commercial accounting.


New Accounting System

Accounting system being used in Nepal i.e. Syaha Shresta Pranali , Form Shresta
Pranali and Bhuktani Shresta Pranali, proved incomplete, unsuitable and lacked
uniformity. Due to these all, need of complete and uniform accounting system was
felt. In other words, existing accounting system could not keep all revenues and
expenditures of the government in a systematic and scientific way. In this situation, to
make recommendation for a systematic and scientific accounting system, an account
committee was formed on Magh 20, 2017 B.S. The committee headed by Account
General and other members of the committee were:


120 Office Practice and Accounting 10

- Under secretary, Foreign Aid Department, Ministry of Finance (MOF)
- Public Administration Advisor of USAID and
- Accounting specialist of UNO
After a detailed and long study of 288 days, the committee reported a draft with
suggestion and recommendation for scientific, modern, improved and decentralized
accounting system in Nepal.

The draft was approved by Auditor General on 20 Magh, 2018 BS and by Government
of Nepal on 2 Chaitra 2018 BS. After the approval, the government implemented
that system of accounting since the fiscal year 2019/2020 BS, which was called 'New
Accounting System'. This system is still in practice today. It is popularly known as
Government of Nepal's Accounting system. It was implemented in the offices of
Kathmandu valley since the fiscal year 2019/2020 BS. Further, it was implemented in
Bagmati and Narayani zones in the fiscal year 2020/2021 B.S. Since. Shrawan 2025 BS,
it was introduced and implemented throughout the country. This accounting system
brought uniformity in accounting all over the country.

Objectives and importance of New Accounting System

New Accounting System was developed to remove all drawbacks of payment
accounting system and bring uniformity in system throughout the country. The
importance of New Accounting System is given below:
i. Based on double entry system: New accounting system is based on double
entry system of book keeping where every financial transaction has two aspects
debit and credit. So it is modern and scientific in nature.
ii. Helps in formulation of plans and policies: By supplying necessary data
and information, it helps in formulation of plans and policies. It also provides
suggestions and guidance to the government for preparation of proper financial
plan.
iii. Emphasis on banking transactions: It is based on banking transactions. Every
government office should deposit all revenues into bank and payments should
be made through cheque except petty cash expenses.
iv. Based on financial act and rules: It is based on financial acts and rules. All
the revenues and expenditures of government are recorded according to the
financial rule and act. So, it minimizes corruption and misuse.
v. Based on budget head: The new accounting system has classified budgets into
different headings for making expenditure of public funds. This provides the
clear guideline to keep the expenditure within budget limit.
vi. Helpful for audit: In new accounting system, there is a compulsory system of
audit. It helps to prevent the misuse of government revenues and its properties.
vii. Inter head budget transfer: In this system, the surplus amount of a budget
head can be transferred from one budget head to another budget head taking
the permission of either Finance Ministry or concerned authority.

Office Practice and Accounting 10 121

Features or characteristics of new accounting systems
The following are the basic features of new accounting system:

i. Based on double entry system of book-keeping: New accounting system is
based on double entry system of book keeping where every financial transaction
has two aspects debit and credit. So it is modern and scientific in nature.
ii. Uniformity and simplicity: New accounting system brought uniformity in
accounting all over the country. Besides this, it is simple and easy to understand.
Uniformity in accounting throughout the country has been achieved. Person
having simple knowledge of accounting principle can handle this account.
iii. Flexibility: New accounting system is very flexible in nature. As per the
demand of transactions and with the pace of time it can be adjusted. Many
times amendments have been made in this system from its implementation
phase to date.
iv. Secrecy: Use of different types of forms, slips, vouchers, receipts, books in
different transactions, secrecy is ensured in new accounting system.
v. Emphasis on banking transactions: It is based on banking transactions. Every
government office should deposit all revenues into bank and payments should
be made through cheque except petty cash expenses.
vi. Use of different forms: In new accounting system, different types of forms
known as Auditor General Forms (AGF) are used to record different types of
transactions. Some forms are used only in operating level offices and some
are used in central level offices. All the forms are prepared by Department of
Auditor General. For e.g. Journal Voucher (AGF No. 10), Bank Cash Book (AGF
No. 5), Budget Sheet (AGF No. 8) are some of the.
vii. Inter head budget transfer: In this system, the surplus amount of a budget
head can be transferred from one budget head to another budget head taking
the permission of either finance ministry or concerned authority.
viii. Based on budget head: The new accounting system has classidfied budgets
into different headings for making expenditure of public funds. This provides
clear guideline to keep the expenditure within budget limit.
ix. Compulsory auditing: In new accounting system, there is a compulsory
system of audit. It helps to prevent the misuse of government revenues and its
properties.
x. Principle of decentralization: Decentralization is the process of giving rights,
responsibilities and accountabilities to lower level staff. Under the new
accounting system, government offices have been classified into two levels



122 Office Practice and Accounting 10

i.e. central and operating levels. Central level offices maintain the central level
accounting and operating level maintains operating level accounting. Central
level offices do not interfere in regular accounting work of operational level
offices but require regular submission of accounting reports and statements.
xi. Use of brackets: Another unique feature of new accounting system is use of
brackets, mainly in budget sheet, bank cash book to show the amount to be
credited and to be deducted, bracket is used.

Types of Government Accounting

According to the new accounting system, the accounting system of government offices
is divided into two levels on the basis of nature of its work. They are: (i) Central level
accounting (ii) Operating level accounting.


Central Level Accounting
Central level accounting includes the accounting system of ministries, departments,
commissions and constitutional bodies. Central level offices refer to those government
offices, which receive budget from the Ministry of Finance and release them to
operating level offices. The accounting of central level offices is concerned with
recording the budget received from the Ministry of Finance and the release made
to operating level offices. When the budget is released to concerned operating level
offices, it is treated as advance and recorded in advance account. Each and every
operating level office should submit the statement of monthly expenditure to get the
budget release for second month which is received on the basis of expenditure report.
Commonly used accounting records or forms in central level accounting are journal
voucher, ledger, subsidiary books, bank statement, statement of advance given to
operating level offices, etc. A central level may not have large number of transactions
that’s why very few numbers of forms are used.


Operating Level Accounting
District office, zonal office and regional office are known as operating level office
according to new accounting system. They receive budget from concerned central level
offices and make expenditures on the basis of prescribed budget heads. Operating level
accounting refers to that accounting system which is maintained at operating level
offices. They receive imprest fund (revolving fund) and budget from central level offices
and execute them in administrative, operating and development works. The operating
level offices make expenditure from that fund and at the end of every month statement
of expenditures and other reports should be prepared and submitted to central levels.
The equal amount of monthly expenditures would be reimbursed by the central levels
in terms of budget release. Operating level offices are responsible to the concerned
central level offices from which they receive budget release. Commonly used accounting
records or forms in operating level accounting are journal voucher, bank cash book,
budget sheet, subsidiary ledger, petty cash fund, statement of expenditures etc.

Office Practice and Accounting 10 123

Differences between central and operating level accounting
The following are the main differences between central level and operating level
offices:


Central Level Accounting Operating Level Accounting
It includes the accounting system of It includes the accounting system of
ministries,departments,commissions district office, zonal office and regional
and constitutional bodies. office.

It is maintained at central level offices. It is maintained at operating level
offices.
It records budget received from It records the budget received from
Ministry of Finance and releases to the central level offices and the
operating level offices. expenditures made on different budget
heads.
They aim at controlling of budget. They aim at implementation of budget.
They are responsible to Ministry of They are responsible to the central
Finance so central level accounting offices so accounting reports are
reports are submitted to Ministry of submitted to the concerned central
Finance. level offices.
Under this system, only a few number Under this system, a large number of
of forms are used. accounting forms are used.
Along with central level, they also There is no need to maintain central
maintain operating level accounting to level accounting.
record their regular expenses.


Historical development of new accounting system in Nepal
History of government accounting of Nepal was first introduced in the Lichchhawi
period. To record the revenue and expenditure of the government, the recording
system came into practice. During this period, the different sources of collecting
government revenues were trusts (Guthis), property taxes (Jinsikar), voluntary labour
(Shramdan) from general public. The revenues were utilized on war, construction of
temples, expenses of royal family, salary of government employees, performing of
religious rites(Puja/Yagya), etc. With the extension of trade link with Tibet, revenues
from trade and customs were also added to the list of sources of revenue during the
Malla period.
After the unification of Nepal in 1825 B.S, Prithivi Narayan Shah tried to make
improvements in the accounting system. The milestone of that period in the field of
account was introduction of 'Laldhadda' (nfn98\8f) to record revenues and administrative
expenses in 1871 B.S, and ‘Mothdhadda’(df]798\8f) to record land and its revenue.
Establishment of Nijamati Kitab Khana in 1925 BS brought the system of recording


124 Office Practice and Accounting 10

the history of employees and detail about salary of the government offices. This office
is functioning still today. In 1936 BS Khardar Gunwant, a government employee,
introduced 'Syaha Shrestha Pranali' an accounting system to maintain government
revenues and expenditures. The Shyaha Srestha Pranali was an advanced form of
recording the transactions which remained in practice upto fiscal year 2022/23 BS.

After the establishment of democracy in 2007 BS, the government became more
responsible to maintain books of accounts. As a result, the budget system was started
in 2008 BS. In 2016 B.S. "Procedure Rule for Government Fund Expenditure 2016" was
enacted with a view to bringing uniformity in financial administration. Then, in Baisakh
2017 BS, Bhuktani Shresta Pranali was introduced. But Bhuktani Shresta Pranali could
not last long as new accounting system was introduced as per the recommendation
of accounts committee. So, on 20th Magh, 2017 an account committee was formed
to study and make suggestions for an appropriate and scientific accounting system.
After the detailed study for 288 days, the committee presented a draft to the finance
secretary which got recognition from the Auditor General and final approval from
king Mahendra in 2018 BS. This accounting system is known as 'New Accounting
System" of Government of Nepal, which was scientific and systematic. This system
has been followed by Government of Nepal since the fiscal year 2019/20 and still is in
practice these days.


Forms used in government offices under new accounting system


For primary entry
1 Cash payment slips (AGF No.–6)
2. Cash receipt (AGF No.–11)
3. Journal voucher (AGF No.–10)

For accounts or ledger

1. Bank cash book (AGF N0.–5)
2. Budget Sheet (AGF No.–8)
3. Ledger account (AGF No.–22)
4. Cash receipt book (AGF No.–23)
5. Budget summary and expenditure control (AGF No.–24)

For reports
1. Requisition form for the reimbursement of cash payment (AGF No.–6A)
2. Monthly report regarding revenue (AGF No.–9)
3. Statement of expenditure (AGF No.–13)
4. Monthly report on unclear advance (AGF No.–14)
5. Statement of bank account (AGF No.–15)


Office Practice and Accounting 10 125

6. Summary of position fund (AGF No.–16)
7 Statement of budget sheet (AGF No.–17)
8. Statement of outstanding payment (AGF No.–18)
9. Monthly report of security deposit (AGF No.–19)
10. Statement of monthly report (AGF No.–25)

For miscellaneous record and report

1. Cash payment slip and cash receipt control (AGF No.–7)
2. Inquiry letter (AGF No. 12)
3. Statement of annual program (AGF No.–20)
4. Requisition form for four month release (AGF No.–21)

Office of Auditor General
The Office of the Auditor General of Nepal was established on 2016/03/15 B.S. [29 June,
1959 A.D.] after the appointment of auditor general pursuant to the then constitution.
The Office of the Auditor General (OAG) was established with the appointment of
the first auditor general as per the constitution of the Kingdom of Nepal, 1958. Prior
to establishment of office of auditor general, the institution named Kumari Chowk
Adda used to review the government accounts. It is assumed that Kumari Chowk
was established in the year 1769 with the aim of strengthening administrative system
after the unification of Nepal. It is also anticipated that there was also existence of
audit institution prior to unification.

According to the Constitution of Nepal, on the recommendation of the constitutional
council, the president appoints the auditor general. The functions, duties and powers
of the auditor general are specified in the Constitution(Part 22 ) which are as follows :
1. The accounts of all Federal and State Government Offices including the Office of
the President, Office of the Vice-President, Supreme Court, Federal Parliament,
State Assembly, State Government, Local level, Constitutional Bodies and
Offices thereof Courts, Office of the Attorney General, Nepal Army, Nepal
Police and Armed Police Force, Nepal shall be audited by the Auditor-General
in accordance with law, having regard to the regularity, economy, efficiency,
effectiveness and the propriety thereof.
2. The Auditor General shall be consulted in the matter of appointment of an
auditor to carry out the audit of a corporate body of which the Government
of Nepal or State Government owns more than fifty percent of the shares or
assets. The Auditor General may also issue necessary directives setting forth the
principles for carrying out the audit of such corporate body.
3. The Auditor General shall, at all times, have power to examine any books of



126 Office Practice and Accounting 10

accounts for the purpose of carrying out the functions under clause (1). It shall
be the duty of the concerned chief of office to provide all such documents and
information as may be demanded by the Auditor General or any of his or her
employees.
4. The accounts to be audited pursuant to clause (1) shall be maintained in the
form prescribed by the Auditor General, as provided for in the Federal law.
5. In addition to the accounts of the offices mentioned in clause (1), the Federal
law may also require the accounts of any other offices or bodies to be audited
by the Auditor General.

Audit Objectives and Policies


Audit objectives and policies of the Office of the Auditor General are:

• To promote public accountability and transparency.
• To bring forth economy in the mobilization of public resources and enhance
efficiency.
• To enhance effectiveness of public entities.
• To improve and assure clean practices in the working system of administrative,
financial and managerial system.
• To assist in compliance of the existing laws.

• To encourage abandonment of the discretionary work-style.
• To recommend practical suggestions for improvement by identifying
weaknesses and lacunae in the existing approaches, processes, practices and
legal provisions; and
• To encourage the practice of taking actions against delinquents and rewarding
the excellent performers.

Office of Finance Comptroller General

Financial Comptroller General Office (FCGO) is the main government agency
responsible for the treasury operation of Government of Nepal. This office is under
the ministry of finance and is headed by Financial Comptroller General. Office of
accountant general was established in 2008 BS to keep the record of government revenue
and expenditures. Further it was changed into the Office of Finance Comptroller
General in 2032 B.S. It is involved in giving suggestions, recommendations and
remedial measures regarding problem of financial administration to the government.
It prepares the central accounts on the basis of financial information collected from
various ministries and constitutional bodies. It performs the function of internal audit



Office Practice and Accounting 10 127

and gives direction for it. In other words, it prepares financial statements of all central
government offices including constitutional bodies.

Functions, Rights and Duties of Office of Finance Comptroller General

According to the 'Rules for Financial Administration 2056' the following are the main
functions, rights and duties of office of the Finance Comptroller General:

It helps to implement forms for keeping record of financial transactions of government
offices recommended by the Office of Auditor General.

It prepares the central accounts of government revenues, expenditures and financial
assistance on the basis of monthly statement collected from different ministries and
departments.

1. It keeps the records of consolidated fund (;+lrt sf]if), emergency fund and other
government funds.
2. It keeps the records of government investments and grants and aids received
from outsiders.
3. It inspects the inventories of government to minimize the manipulation.
4. It gives suggestions and advices to the government for the betterment of
financial administration.
5. It maintains the records of annual appropriation of budget of the government.
6. It keeps the records of non-regular expenditures of ministries and constitutional
bodies.
7. It performs the other functions as specified by Ministry of Finance.

Office of Treasury and Comptroller

The office of treasury and comptroller is established in all 75 districts from the fiscal
year 2038/39 B.S. for transferring the amount of approved budget from central level
to operating level offices of the government. This is an operating level office under
Finance Ministry. It is also responsible for internal auditing of annual appropriation
of budget. At the end of fiscal year, it prepares statements of district level office on
the basis of budget and sends to the central office. Office of Treasury and Comptroller
plays very important role to manage the funds in districts offices.

Functions, duties and rights of Treasury and Accounts Comptroller Office:

1. Releasing the initial revolving fund in the account of government offices in the
beginning month of current fiscal year.
2. Monitoring and supervising financial activities of offices of the concerned
district as per the prevailing rules and regulations according to the plans and
policies of comptroller general.





128 Office Practice and Accounting 10

3. Reimbursing the revolving fund equal to the amount shown in monthly
statement of expenditure received from concerned offices for the month and
releasing additional revolving as per the need.
4. Releasing the amount of budget to the district level government offices
according to the budget allocation and reporting to the office of comptroller
general through statement provided by bank.
5. Preparing integrated accounts of revenue vouchers sent by the office and
presenting reports to the concerned authority.
6. Making internal audit of revenues, budget releases, security deposits and other
funds created and maintained by all district level offices.
7. Increase the amount of the revolving fund, if the amount of revolving fund is
not sufficient to meet the need of concerned office.
8. Inspecting whether offices have deposited surplus amount of budget in
consolidated fund at the end of financial year or not, if not, it should direct them
to do so.
9. Preparing district wise statements on the basis of budget to forward to the
comptroller general.
10. Maintaining the bank account of government offices, stop the account if books
of account are not found up to date like, irregularities, not submitting the
report timely and not following rules and regulations according to financial
administration.

Auditing

The word Audit is derived from the Latin word ‘Audire’ which means to ‘hear’.
Auditing is a systematic examination of financial statements, records and related
operations to be determined in adherence to generally accepted accounting principles,
management policies or stated requirements. It refers to the act of checking the books
of account by an independent person for the purpose of providing true result of
operation presented by trading account, profit and loss account and balance sheet
detecting and preventing errors and frauds. Auditing may be defined as inspecting,
comparing, checking, reviewing, vouching, ascertaining, scrutinizing, examining and
verifying the books of accounts of a business corncern with a view to have a correct
and true idea of its financial state of affairs. It is the process which ascertains whether
personal and impersonal ledger balances are shown accurately or not, whether the
accounting is maintained properly or not, whether the frauds and errors have been
committed in the book of accounts or not and whether the full and complete accounting
have been maintained or not. For reliability and transparency, an independent and
professional person is appointed for auditing.









Office Practice and Accounting 10 129

According to Ronald A. Irish, “Auditing is a scientific and systematic
examination of books, vouchers and other financial and legal records in
order to verify and report upon the facts regarding the financial condition
disclosed by the balance sheet and the net income revealed by the profit and
loss account.”




According to Montgomery, “An auditing is a systemic examination of the
books, accounts and vouchers of business or her organization in order to
ascertain or verify and to report upon the fact regarding its financial operation
and the result thereof.”




According to Encyclopedia Britannia, “Auditing means an investigation of an
activity by someone connected with it to determine whether it is being carried
on in conformance with its objectives.”


So, auditing is systematic and scientific examination of financial record of business
concern to ensure its reliability, validity and trustworthiness by a qualified and
professional auditor.
Development of auditing in Nepal

Historical development of auditing began in Malla regime with the establishment
of Kumari Chowk Adda. Further it was converted by King Prithivi Narayan Shah as
Bahi Bujhaune Adda in 1828 B.S. But during the regime of Janga Bahadur Rana it was
again named as Kumari Chowk Adda assigned with the responsibility of examining
the account of revenue and expenditure of government. In 2015 B.S, office of auditor
general was established as constitutional body headed by auditor general, for auditing
books of account of government offices. On the recommendation of Auditor General,
forms (AGF) were implemented since the fiscal year 2031/32 B.S. for recording and
reporting financial activities.
The Constitution promulgated in 2047 brought a wide way for modern auditing.
Government Auditing Act, 2048 was implemented which brought great change in
the field of government audit. After the enactment of Company Act, 2063 company
should present a complete audit report to Company Registrar's Office as well as in
annual general meeting of the company.

Government Audit

Government audit is a systematic examination of financial or accounting records by
a specialized inspector, called an auditor, to verify their accuracy and truthfulness. It




130 Office Practice and Accounting 10

is an act of examining books of accounts maintained in government offices in regard
to, the regularity, economy, efficiency, effectiveness and the propriety thereof by the
office of auditor general.


“Government auditing is the act of checking financial and administrative
activities and other miscellaneous processes of government offices,
organizations and program by an independent professional so as to know
whether irregularities, inefficiency and mismanagement is there or not as well
it prepares and provides objectives cohesive and proper report along with
suggestion to improve them.” –UNO



Thus, government auditing is the objective, systematic, professional and independent
examination of financial, administrative and other operation of government office.


Advantages of auditing
Auditing is compulsory task both in government and non-government office. It is
essential for detection of errors and frauds and to prevent such errors and frauds. The
advantages or importance of auditing are as follows:

1. Helps to detect and correct errors: Errors are those mistakes which occur
unknowingly. Errors in books of accounts are the result of either lack of
knowledge of accounting principles or owing to oversight. Some examples
of such errors are – error of omission, error of commission, error principle,
compensating error, duplicating errors, etc. Auditing not only helps to detect
such errors but also helps to correct them.
2. Helps to detect and prevent frauds: Frauds are the mistakes committed knowingly.
It is committed with bad intention. Embezzlement of cash, misappropriation of
goods/assets is common type of fraud that occurs in organization. Auditor should
check the books of account properly and verify every bill, voucher, slip and other
financial documents to ensure the transparency.

3. Helps to maintain books of account regular: It is legal compulsion to keep the
book of account up to date in an organization. If accounts are not maintained
properly, it is questionable.

4. Helps to assess tax: Organizations should pay tax on the basis of volume
of transactions and profit. Only audited financial statement is accepted
as authorized document to determine the exact amount of tax liability of
organizations.

5. Helps in comparison and decision making: Managers should take long-term
and short-term decisions in organization for its advancement. Audited financial


Office Practice and Accounting 10 131

statements play supportive role while taking decisions. It also helps for vertical
and horizontal comparison.
6. Acts as evidence: Audited accounts are considered more reliable and formal
evidence in the court of law for settlement of any dispute.
7. Helps to increase goodwill: Regular auditing and audited financial statements
are considered as authorized documents to obtain loan from financial institutions.
The organizations whose financial statements are regularly audited, earn faith
and increase goodwill in society.


Types of audit


Internal audit:

An internal audit is a systemic examination of the books, accounts and vouchers
of organization, by the employee of the business itself. It is performed within an
organization to measure its strengths and weaknesses against its own procedures or
methods. The staff may or may not have professional qualification for the auditing of
accounts. The staff is permanent in nature and helps the business in early detection
of errors and frauds. The main function of internal audit is to ensure true result of
financial transaction to take into confidence the people and to correct the errors
and misuse in time. It helps to make efficient the financial administration through
the detection and corrections of frauds and errors. Internal auditing, also known as
continuous auditing, makes the grounds for final audit.
Under new accounting system of government of Nepal, internal auditing is
responsibility of District Treasury and Comptroller’s Office. District Treasury and
Comptroller’s Office was established in all 75 districts during the fiscal year 2038/39
B.S. After that responsibility of internal audit of government offices is being carried
out by the office.


Final audit
Final audit is systematic examination of financial statements in terms of efficiency,
effectiveness, reliability, regularity and economy by an independent and professional
auditor. Final audit is conducted after closing the accounting period of firms and
organizations and carried on until it is completed. Government accounts are audited
by the office of the auditor general. Besides, office of the auditor general is responsible
for making the final audit of constitutional body and corporations. Thus, the final audit
is the act of checking and examining the books of account at the end of fiscal year. All
types of organizations consisting of business, social, NGO/INGO, government office,


132 Office Practice and Accounting 10

constitutional bodies also have to get audited their accounts according to prevalent
rules and regulations compulsorily. Auditor in private business organizations is
appointed at general assembly of shareholder. He is professional, independent and
management has no control over his work.

Differences between internal audit and final audit:

Internal Audit Final Audit
1. Internal auditor is appointed by the 1. Final auditor is appointed by
management of the organization. shareholder’s general meeting.
2. Internal auditor is a staff of the 2. Final auditor is independent and
organization professional .
3. The rights, duties and 3. The rights, duties and
responsibilities of an internal responsibilities of final auditor are
auditor are determined by the determined by Company Act 2063
management. in case of private organizations
4. Objective of internal audit is 4. Objective of final audit is to
detecting errors, frauds and approve financial statement by
prevent at early stage and to
facilitate final audit. pointing out irregularities, if any.
5. District Treasury and Comptroller’s 5. Office of the Auditor General is
Office is responsible for internal responsible for making the final
auditing of government office. audit of government office.

6. Internal auditing is also known as 6. It is conducted after preparation of
continuous auditing and carried final account and after completion
out throughout the year. of accounting year.

Classification of Budget Expenditure

The New Accounting System of the government has classified the expenditure into
different types according to their nature. Such classification is made for recording,
controlling and maintaining uniformity in all government office easily. The new
budget head classification is brought by Office of the Comptroller General into
implementation from fiscal year 2068/69. The new classification of budget expenditure
is presented below:

C. No. Heads Explanation
20000 Expenditure
21000 Remuneration/ Amount paid to staff and executives against the
facilities works performed by them in an accounting year. But
remuneration paid in connection to capital formation is
not included on it.


Office Practice and Accounting 10 133

21100 Remuneration/ Amount paid to staff and executives is included in it. It
Facilities includes the payments in terms of cash or kind or both.
21110 Remuneration/ It includes the amount of salary, all types of allowances,
facilities contribution to employees provident fund, pension fund,
provided in insurance, etc.
cash
21111 Salary It includes the following expenses :
• Salary, employee provided fund, pension, annual
grade increase, insurance premium and incentive
reward offered to authorities and employee for their
services.
• Wages and remuneration paid to workers during a
project or to temporary workers.
• Amounts related to reserve house leave, sick leave,
exchange leave and festival expenses of employees.
21112 Local allowance It includes the amount of local allowance for working in
specified remote area.
2113 Dearness It includes the dearness allowance expenses payable to
allowance employees in accordance of decision of Government of
Nepal.
21114 Field allowance Amount of allowance paid to the government employees
at the time of visiting different place as per the decision
of government of Nepal.
21119 Other allowance All other allowances prescribed by government of Nepal
like meeting allowance, maternity allowance, overtime
allowance provided to the office assistant who are
employed at the time of Dashain and Tihar.
21120 Remuneration It includes :
& facilities • Remuneration & facilities provided in terms of kind.
provided in • Amount paid against the value of kind.
terms of kind
21121 Dress It includes dress allowance to employee and others
(like police, army, hospital staff. post man and other
government employee) for dress, boot, cap, shoes and
dress allowance for working mountainous region.
21122 Food It includes :
• Value of food items provided to police, army and
other government employees.








134 Office Practice and Accounting 10

21123 Medicine and It includes :
treatment • Amount paid for health insurance, medicine and
allowance treatment cost, transport charges and care taker
expenses as well as other expenses.
22000 Use of goods It includes :
and services • Rent of assets and services.

• Expenditure for the production of goods and services
which are not related to capital formation.
22100 Service charges Rent paid while acquiring assets and services on rent for
and rent government offices.
22100 Service charges Expenditures for utility services like water, electricity
and telephone charge.
22110 Services charges Expenditures for utility service like water electricity and
telephone charge.
22111 Water and • Electricity and water supply charges
electricity • Installation charges (electricity and waters)
charges • Deposits for installation of electricity and water
supply.
22112 Communication It includes the expenses on telephone, telegram, trunk
charges call, telex, internet charges, website expense, fax expense
and such communication related expenses. It also
includes expenses for letter, parcel ticket, registration;
return receipt, courier charges,etc.
22120 Rent It incorporates the rental charge paid against the lease
contract of building, go-down for purpose of government.
22121 Rent It includes the expenditures paid to the owner of house
and its premises. But rental charges paid for the building
with a purpose of public construction is included in
capital expenditure and rent of land is recorded in code
no. 28141.
22122 Other rent Rent paid against the use of vehicle, machine and
equipment as well as other capital assets in rent is
included in this code no. But if such rent is for public
construction then that is to be recorded in concerned
capital expenditure head.
22200 Operation and It includes operating expenses required for the operation
maintenance of vehicle and machinery equipment for official work.
expenditure of
capital assets





Office Practice and Accounting 10 135

22210 Operation and It includes the expenditures of lubricants and fuel used in
maintenance vehicles and the other expenditures required for regular
expenditure of maintenance charges.
capital assets
22211 Fuel Fuel includes fuel for vehicle used for official purpose
like fuel, lubricants etc.
Fuel used in other machine equipment and except
vehicles.
• But fuel used for construction work should be
charged to the concerned expenditure heads, not to
the fuel for other purpose.
22212 Operation and It includes wages and materials required for regular
maintenance repairs and maintenance of :
charge - Building - machinery

- Road - Vehicles
- Bridge - Furniture
- Equipment - irrigation channels
It includes the batteries and other parts required for the
vehicles but the repair which increases life and values
are not included in it.
But expenditure made for addition of building expansion
of roads, replacement of part of machines and vehicles are
not included in it. They are to be included in concerned
items.
22213 Insurance It includes :
• The insurance premium paid for the insurance of
canals, road, power house, building machinery etc.
• Insurance charges of vehicles and third parties.
But insurance charges during construction period are not
included in this head. Such expenses are to be included in
concerned capital expenditure head.
22300 Office material It includes the cost for the purchase of office materials,
and service service and books.
22310 Office material It includes the cost for the purchase of office materials,
and service service and books.












136 Office Practice and Accounting 10

22311 Office expenses It includes the following expenses :
• Publication expenses of government notice, auction
and contract related information.
• Bank charges, compensation and other similar types
of expenses.
• Stationery materials required for official operation
like purchase of paper, envelop, record file, ink,
pencil, etc.
• Printing expenses
• Disposable security and material items.
• Expenditure for books and newspapers.
• Transportation charges of office supplies.
22312 Feeding It includes the cost incurred while purchasing feeding
materials to materials.
animals and
birds
22313 Books and Cost of books purchased for libraries and educational
materials materials like books and sports materials which are
expenses freely distributed to public school.
22314 Fuel for other It includes expenditures for :
purpose • All types of batteries
• Expenditures for kerosene, gas, coal, and fire wood
used in administrative work.
But batteries required for vehicles are included in
concerned head i.e. 22212.
22320 Maintenance It incorporates
of constructed • The expenditures incurred for the repair and
public maintenance and painting of already constructed
properties public properties.
22321 Maintenance Regular maintenance and painting expenses of public
of constructed property like roads and highways, bridges, canal, power
public house, and government buildings.
properties
22400 Service and It includes
consultancy • Services charges paid for getting service and
expenditure consultancy.

22410 Consultancy It includes
and other • Service charges paid for getting/purchasing other
service charges services and consultancy.



Office Practice and Accounting 10 137

22411 Service and It includes
consultancy • Remuneration of experts, advisors etc.
expenditure • Expenditure of research and development which is not for
capital construction.
• Renew charges of software and other service charges.
22412 Other service • It includes
charge • Charges paid to those who are appointed in contract
or on term basis for the repair, maintenance and
operation of photo copy machine, computer, fax,
telephone machine security and maintenance of
garden primary health care facility and parcel
services, sanitation, driving service.
22500 Program It incorporates
expenditure • The expenses including materials and other expenses
required for producing goods.
• Allowance to resource person hired for training.
• Expenditure for conducting training and seminar
for skill development of employees as well as
expenditure for awareness notice and advertisement.
22510 Training and • All expenditures required to conduct training to
conference employees and other people.
22511 Employee It includes
training • The expenses incurred while providing training,
conducting workshop and conference to employee
for their skill development.
• Expenditure for traveling and daily allowance to the
participants and others.
22512 Skill It includes
development • Expenditure for providing training to public for
and public empowerment, awareness, skill development and
awareness income generation like allowance, stationary, tiffin
training and expenditure, TADA to trainers, resource person and
conference participants.

22520 Materials/ It includes
services and • Raw materials and production overheads incurred for
other program production of product which are to be sold later.
expnditure • All other program expenditures which are not
included already in program expenditure head.






138 Office Practice and Accounting 10

25521 Material/service • Raw materials, about and production overhead incurred
for production on material for converting into finished products to be
sold for cash later on.
• Cost of postage stamps, postcards.
• cost of animals, birds fisheries and other agriculture
products.
25522 Other program It includes
expenses • Cost of ritual function conducted by state protected
temples and maths.
• Cost of conducting audio-video program and mela.
22530 Medicine It includes the expenditures incurred for the purchased of
expenses medicine.
22531 Purchase of Medicine provided to hospital, primary health centers,
medicine health posts, Ayurved Aushadhyalyas and medicine used in
treatment of the patients as well transportation charges of
such medicine.
22600 Monitoring, It includes
evaluation • Expenditures for monitoring and evaluation of activities.
and traveling • Payment of traveling and daily allowance at the time
expenses of transferring employees inside/outside the country,
leader allowance, dress allowance while visiting foreign
countries, petty and contingency expenses.
22610 Monitoring, • It includes
evaluation • Expenditures for monitoring and evaluation.
and traveling • Payment of traveling allowance and daily allowance at the
expenses time of transferring employees inside/outside the country.
Leader allowance dress allowancing while visiting foreign
countries petty and contingency expenses.
22611 Monitoring It includes
expenditure • Expenditures for monitoring, evaluation and inspection
and report preparation.
22612 Traveling Traveling expenses refers to the expenditure paid to employees
expenses when transferred from one office to another. It includes :
• Fair charges including government tax
• Walking traveling on foot allowance
• Other related and approved expenses like airport tax,
insurance premium and other traveling expenses.
• Daily traveling allowances as per the government's rules.
22613 Traveling • Daily allowance, accommodation, and miscellaneous
expenses of expenses to be released from central finance budget for
VIPs and high level personality and members of delegates.
delegates
Office Practice and Accounting 10 139

22614 Other traveling • Traveling expenses for witness in case of government as
expenses plaintiff.
22700 Miscellaneous It includes :
expenses • Approved tea party expenses, recreation expenses and
expenditures related to parties.
• Expenditures for maintaining law and other.
• Expenditures for providing hospitality service to the
foreign delegates.
• Miscellaneous expenditures not chargeable to other
budget head
22900 Contingent This head is proposed only for providing budget of current
operating year in lump sum.
expenses
22910 Contingent This head is proposed only for providing budget of current
operating year in lump sum.
expenses
22911 Contingent It includes :
operating • Amount which can not be allocated specifically to any
expenses budget head but expenditure is to be made after allocating
in concerned heads only.
24000 Interest, service It incorporates the amount of interest which is to be paid by
charge and bank the govt. due to use of financial and visual assets.
commission
24100 Interest on It includes the amount of interest paid on foreign loan and
foreign loan service charges.
24200 Interest, service It includes the amount of interest, service charge and bank
charge and bank commission to be paid by the government to the central bank
commission of against internal debt collection.
internal loan
24210 Interest and It includes the amount of interest and service charge to be paid
service charge by the government to the central bank against internal debt
on internal loan collection.
24211 Interest of It includes the amount of interest to be paid by the government
internal loan to the central bank against internal debt collection.
24212 Service charge It includes the service charge and bank commission which is
and bank to be paid by the government to the central bank against the
commission of collection of internal debt.
internal debt
25000 Subsidies It incorporates operating subsidies provided to corporations
and other needy institutions.




140 Office Practice and Accounting 10

25100 Subsidy It includes Operating subsidy provided to non financial public
to public enterprises
enterprises
25110 Subsidy to It includes operating subsidy provided to non-financial public
nonfictional enterprise.
public
enterprises
25111 Operating It includes: operating subsidy provided to government and
subsidy to non- semi government non financial public enterprises.
financial public
enterprises
25112 Capital susidy It includes the subsidy provided by govt. to purchase
to nonfinancial furniture, vehicles, machinery and equipment, building, land
public and for construction of building, civil work and to produce
enterprises goods and services.
25120 Subsidy to Subsidies provided by the government for operating financial
financial public public enterprises.
enterprise
25121 Operating Subsidy to financial public for their operation for enterprises.
subsidies to
financial public
enterprises
25122 Capital Subsidy provided to financial public enterprises for the
subsidy to purchase of assets and construction of assets.
financial public
enterprises
25200 Subsidy to operating subsidy provided by government to private
business business sector.
25210 Subsidy to Operating subsidy provided by government to non financial
non financial private business.
business
25211 Operating It incorporates the subsidies provided by government to the
subsidy to non financial business for their operation.
non financial
business
25212 Capital subsidy It includes subsidy to non financial provide business for the
to non-financial purchase of capital assets and their construction.
business
25220 Subsidy to It includes the operating subsidies provided by government to
financial private financial institutions.
business



Office Practice and Accounting 10 141

25221 Operating It incorporates the operating subsidy provided by the
subsidy to government to private financial institutions.
financial
business
25222 Capital subsidy It includes the subsidy, donation, membership fees and renew
to financial expenditures.
business
26000 Grants It includes the amount which is pro0vided by one government
office to another government office or international
organizations.
26200 International It includes the subsidy, donation, membership fees and renew
membership expenditures.
fees and
assistance
26210 International It includes the subsidy, donation, membership fees and renew
membership expenditures.
fees and
assistance
26211 International It includes the subsidy, donation, membership fees and renew
membership expenditures provided to foreign countries/agencies.
fees and
assistance
26300 Grants to local It includes the grants provided by government to local bodies
bodies like VDCs, municipalities, district development committees.
26310 Operating it includes the grants provided to local bodies for their
grants to local operation.
bodies
26311 Unconditional It includes the grants provided to the local bodies for their
operating grants operation and for the operation of projects selected by local
to local bodies bodies themselves.
26312 Conditional It includes the grants provided to local bodies for the operation
operating grants of projects prescribed by government of Nepal.
to local bodies
26320 Unconditional It includes the capital grants provided by the government of
capital grants to Nepal to local bodies.
local bodies
26321 Unconditional It includes the capital grants provided by government of
capital grants to Nepal for the operation of project selected by local bodies.
local bodies
26322 Conditional Grants provided to local bodies for the operation of project
capital grants to selected by government of Nepal.
local bodies


142 Office Practice and Accounting 10

26400 Social service It includes
grants Operating grants provided to government offices, committees,
boards with conditions and without conditions.
Assistance and donations provided to other countries and
international organizations.
Memberships fees and renew charges of international
organization/agencies.
26410 Operating It includes
grants Operating grants provided to government offices, committees,
boards with conditions and without conditions.
Assistance and donations provided to other countries and
international organizations.
Memberships fees and renew charges of international
organization/agencies.
26411 Unconditional It includes
operating grants Unconditional grants provided to government agencies
to government (including agencies established under development committee
bodies act or under special act), board, committees, educational
committees and institutes and hospitals.
boards a. Food, clothing, food stuff and other facilities provided to
patients (hospital) and prisoners (jail).
26412 Conditional IIt includes
operation grants Unconditional grants provided to government agencies
to government (including agencies established under development committee
bodies, act or under special act), board, committees, educational
committees and institutes and hospitals.
boards a. Food, clothing, food stuff and other facilities provided to
patients and prisoners .
26413 Conditional It includes
operating Amount of compensation provided to the victims of natural
grants to other calamities and other causes.
institutions and Grant provided to non-government service organizations and
persons. religions organizations.

Financial assistance and rewards provided on behalf of
government of Nepal.
Other grants not mentioned in above head.
26420 Capital grants It includes the conditional and unconditional capital grants
provided to government agencies, committees and other
institutions.






Office Practice and Accounting 10 143

26421 Unconditional It includes unconditional capital grants provide to government
grants to agencies (including committee act or other specal act), boards,
government committees, educational institutions and hospitals.
agencies,
committees and
boards
26422 Conditional It includes conditional capital grants to government agencies
capital grants (includes offices established under development committee
act or other special act) boards, committees, educational
institutions and hospitals.
26423 Conditional It includes conditional capital grants proved to non government
capital grants organizations which renders service and other organizations
to other which are not mentioned in above heads.
institutions
27000 Social security Expenditures made by government in cash or kind for
providing social security.
27100 Social security Expenditures made by government in cash or kind for
providing social security for specified citizens.
27110 Social security It includes financial assistance provided by the government
of Nepal.
27111 Conditional It includes financial assistance or grants provided to senior
social security citizens, helpless citizens, widows and others.
27112 Conditional It includes :
other social Medical expenses provided to national figures and publics
assistance financial assistance provided to victims due to death/ other
reasons.
27200 Scholarship Grants provided in any terms to the students.
27210 Scholarship Grants provided in any terms to the students.
27211 Scholarship Grants in terms of cash or kind as scholarship to the students
studying in school, college and universities.
27300 Retirement It includes the expenditures incurred while providing facility
facility to retired employees.
27310 Retirement It includes the expenditures incurred while providing facility
facility to retired employees.
27311 Pension and Pension and allowance to the retired employees
disability Allowance to retired unable employees.
allowance
27312 Graduaty It includes the expenditure for providing graduity to retired
employees.






144 Office Practice and Accounting 10