VIVEKANADA VIDYALAYA MATRIC HR SEC SCHOOL

PANNAIKADU PIRIVU
KODAIKANAL

12 - STD TH

ACCOUNTANCY THEORY MATERIAL

(NEW EDITION 2021-22)

NAME : __________________________

REG NO : __________________________

PREPARED BY

P.VAHEESWARAN M.COM., M.PHIL. DCA.,

B.ED
PG ASSISTANT OF COMMERCE & ACCOUNTANCY
VIVEKANANDA VIDYALAYA MATRIC HR SEC SCHOOL
PANNAIKADU PIRIVU, KODAIKANAL MAIN ROAD,
DINDIGUL DISTRICT.

CELL: 9791324143

EMAIL: [email protected]

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 1

 contents
UNIT TOPIC

1 ACCOUNTS FROM INCOMEPELTE RECORDS

2 ACCOUNTS OF NOT FOR PROFIT ORGANIZATION

3 ACCOUNTS OF PARTNERSHIP FIRMS

4 GOODWILL IN PARTNERSHIP

5 ADMISSION OF PARTNER

6 RETIREMENT OF PARTNER

7 COMPANY ACCOUNTS

8 FINANCIAL STATEMENT ANALYSIS

9 RATIO ANALYSIS

10 COMPUTERIZED ACCOUNTI GN SYSTEM - TALLY

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 2

 CHAPTER – 1 ;
ACCOUNTS FROM INCOMPLETE RECORDS

I. CHOOSE THE CORRECT ANSWER:

1. Incomplete records are generally maintained by
(a) A company (b) Government
(c) Small sized sole trader business (d) Multinational enterprises
2. Statement of affairs is a
(a) Statement of income and expenditure (b) Statement of assets and liabilities
(c) Summary of cash transactions (d) Summary of credit transactions
3. Opening statement of affairs is usually prepared to find out the
(a) Capital in the beginning of the year (b) Capital at the end of the year
(c) Profit made during the year (d) Loss occurred during the year
4. The excess of assets over liabilities is
(a) Loss (b) Cash (c) Capital (d) Profit
5. Which of the following items relating to bills payable is transferred to total creditors account?
(a) Opening balance of bills payable (b) Closing balance of bills payable
(c) Bills payable accepted during the year (d) Cash paid for bills payable
6. The amount of credit sales can be computed from
(a) Total debtors account (b) Total creditors account
(c) Bills receivable account (d) Bills payable account
7. Which one of the following statements is not true in relation to incomplete records?
(a) It is an unscientific method of recording transactions
(b) Records are maintained only for cash and personal accounts
(c) It is suitable for all types of organisations
(d) Tax authorities do not accept
8. What is the amount of capital of the proprietor, if his assets are Rs. 85,000 and liabilities are Rs. 21,000?
(a) Rs.85,000 (b) Rs.1,06,000 (c) Rs. 21,000 (d) Rs.64,000
9. When capital in the beginning is Rs. 10,000, drawings during the year is Rs. 6,000, profit made during the
year is Rs. 2,000 and the additional capital introduced is Rs.3,000, find out the amount of capital at the end.
(a) Rs. 9,000 (b) Rs. 11,000 (c) Rs. 21,000 (d) Rs. 3,000
Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 3
10. Opening balance of debtors: Rs. 30,000, cash received: Rs. 1,00,000, credit sales: Rs. 90,000; closing
balance of debtors is
(a)Rs. 30,000 b) Rs. 1,30,000 c) Rs. 40,000 d) Rs. 20,000
II VERY SHORT ANSWER QUESTIONS
1. What is meant by incomplete records?
When accounting records are not strictly maintained according to double
entry system, these records are called incomplete records.
2. State the accounts generally maintained by small sized sole trader
when double entry accounting system is not followed.
 Generally cash and personal accounts are maintained fully.
 Real and Nominal accounts are not maintained.
3. What is a statement of affairs?
 It is a statement showing the balances of assets and liabilities on a
particular date.
 It is prepared under single entry system to find out capital.
 Capital = Assets - Liabilities
III SHORT ANSWER QUESTIONS
1. What are the features of incomplete records?
(i) Nature:
 It is an unscientific way of recording transactions.
 Accounting principles are not followed properly.
(ii) Type of accounts maintained:
 Only cash and personal accounts are maintained fully.
 Real and nominal accounts are not maintained properly.
(iii) Lack of uniformity:
 Different organisations record their transactions according to their needs
and conveniences.
2. What are the limitations of incomplete records?
i). Lack of proper maintenance of records:
 It is an unscientific way of maintaining records.
 Real and nominal accounts are not maintained properly.

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 4

 (ii) Difficulty in preparing trial balance:
 The accounting records are incompleted.
 Hence, it is difficult to prepare trial balance.
(iii) Errors and Frauds:
 Errors and frauds cannot be easily detected from partial records.
3. State the differences between double entry system and incomplete
records.

S. Basic Double Entry System Incomplete Records

no
1 Accounts All accounts are maintained Only personal and nominal
accounts are maintained.
2 Suitable It is suitable for all accounts It is only suitable for sole
trading and partnership Firms.
3 Trial balance It can be prepared easily. It is difficult to prepare it.
4 Reliability It is reliable. It is not reliable.

4. State the procedure for calculating profit or loss through statement

of affairs.
 The difference between the closing and opening capital are taken as profit
or loss of the business.
 Due adjustments are to be made for Drawings (+) and Additional capital (-).
Statement of Profit or Loss for the year ended __________
Particulars Rs.
Closing Capital xxx
+ Drawings xxx
xxx
- Additional Capital xxx
Adjusted Closing Capital xxx
- Opening Capital xxx
Profit or Loss xxx
 If adjusted closing capital is more than the opening capital – Profit.
 If adjusted closing capital is lesser than the opening capital – Loss.

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 5

5. Differentiate between statement of affairs and balance sheet.

S. Basic Statement of Affairs Balance Sheet

no

1 Reliable It is not reliable. It is reliable.

2 Accounting It is prepared form single It is prepared by double

System entry system entry system

3 Missing items It is very difficult to trace it. It trace very easily

4 Basis It is not fully based ledger It is based fully ledger.

6. How is the amount of credit sale ascertained from incomplete

records?
By preparing total debtors accounts credit sale can be prepared.

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Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 6

 CHAPTER – 2 ACCOUNTS OF NOT-PROFIT
ORGANIZATIONS

I. CHOOSE THE CORRECT ANSWER:

1. Receipts and payments account is a
(a) Nominal A/c (b) Real A/c (c) Personal A/c (d) Representative personal account
2. Receipts and payments account records receipts and payments of
(a) Revenue nature only (b) Capital nature only
(c) Both revenue and capital nature (d) None of the above
3. Balance of receipts and payments account indicates the
(a) Loss incurred during the period (b) Excess of income over expenditure of the period
(c) Total cash payments during the period (d) Cash and bank balance as on the date
4. Income and expenditure account is a
(a) Nominal A/c (b) Real A/c (c) Personal A/c (d) Representative personal account
5. Income and Expenditure Account is prepared to find out
(a) Profit or loss (b) Cash and bank balance
(c) Surplus or deficit (d) Financial position
6. Which of the following should not be recorded in the income and expenditure account?
(a) Sale of old news papers (b) Loss on sale of asset
(c) Honorarium paid to the secretary (d) Sale proceeds of furniture
7. Subscription due but not received for the current year is
(a) An asset (b) A liability (c) An expense (d) An item to be ignored
8. Legacy is a
(a) Revenue expenditure (b) Capital expenditure (c) Revenue receipt (d) Capital receipt
9. Donations received for a specific purpose is
(a) Revenue receipt (b) Capital receipt (c) Revenue expenditure (d) Capital expenditure
10. There are 500 members in a club each paying Rs. 100 as annual subscription. Subscription due but not
received for the current year is Rs. 200; Subscription received in advance is Rs. 300. Find out the
amount of subscription to be shown in the income and expenditure account.
a) Rs. 50,000 b) Rs. 50,200 c) Rs. 49,900 d) Rs. 49,800

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 7

II Very short answer questions
1. State the meaning of not–for–profit organisation.
 Some organisations are established for the purpose of rendering services
to the public without any profit motive.
 These organisations are called not–for–profit organisation.
 Examples: Art, Culture, Education, Sports, etc.
2. What is receipts and payments account?
 It is a summary of cash and bank transactions of not–for–profit
organisations prepared at the end of each financial year.
 It is a real account in nature.
 It begins with the opening of cash and bank balances.
3. What is legacy?
⧫ A gift made to a not–for–profit organisation by a will, is called legacy.
⧫ It is a capital receipt.
4. Write a short note on life membership fees.
 Amount received towards life membership fee from members.
 It is a capital receipt.
 It is non-recurring in nature.
5. Give four examples for capital receipts of not–for–profit
organisation.
 Sale of fixed assets
 Legacy
 Life member fees
 Endowment fund
6. Give four examples for revenue receipts of not–for–profit
organisation.
 Interest on fixed deposit
 Sale of old sports material
 Interest on investment
 Subscription

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 8

III SHORT ANSWER QUESTIONS:
1. What is income and expenditure account?
 It is nominal account.
 It is prepared to find out Surplus or Deficit relating to a particular year.
 It is just like preparing profit and loss account.
 Only revenue income and expenditure items are recorded.
 Depreciation and Outstanding expenses are also recorded.
2. State the differences between Receipts and Payments Account and
Income and Expenditure Account.

S. Basic Receipt and Payment Income and

no Account Expenditure Account

1 Nature of account It is real account It is nominal account

2 Basis It is based on cash system It is based on accrual system

3 Opening and It commence opening and

There is no opening and
Closing balance closing balance. closing balance
4 Nature of items It contains actual receipt It contains only revenue
and payment expenses and incomes.

3. How annual subscription is dealt with in the final accounts of not–

for–profit organisation?
The annual subscription is dealt with in the final accounts of following as:
 Treatment in Income and Expenditure Account
 Treatment in Balance Sheet
i).

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 9

 ii).

4. How the following items are dealt with in the final accounts of not–
for–profit organisation?
a) Sale of sports materials b) Life membership fees
c) Tournament fund
a) Sale of sports materials:
 Consumable items such as sports material, stationary medicines etc.,
consumed during the year.
 Consumption = opening stock + Purchase - Closing Stock
b) Life membership fees:
 Amount received towards life membership fee from members.
 It is a capital receipt.
 It is non-recurring in nature.
c) Tournament fund
 If there are any specific funds such as tournament fund, prize fund
etc….

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Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 10

 CHAPTER – 3 ACCOUNTS OF PARTNERSHIP FIRM -
FUNDAMENTALS

I. CHOOSE THE CORRECT ANSWER:

1. In the absence of a partnership deed, profits of the firm will be shared by the partners in
(a) Equal ratio (b) Capital ratio (c) Both (a) and (b) (d) None of these
2. In the absence of an agreement among the partners, interest on capital is
(a) Not allowed (b) Allowed at bank rate
(c) Allowed @ 5% per annum (d) Allowed @ 6% per annum
3. As per the Indian Partnership Act, 1932, the rate of interest allowed on loans advanced by partners is
(a) 8% per annum (b) 12% per annum (c) 5% per annum (d) 6% per annum
4. Which of the following is shown in Profit and loss appropriation account?
(a) Office expenses (b) Salary of staff
(c) Partners’ salary (d) Interest on bank loan
5. When fixed capital method is adopted by a partnership firm, which of the following items will appear in
capital account?
(a) Additional capital introduced (b) Interest on capital
(c) Interest on drawings (d) Share of profit
6. When a partner withdraws regularly a fixed sum of money at the middle of every month, period for which
interest is to be calculated on the drawings on an average is
(a) 5.5 moths (b) 6 months (c) 12 months (d) 6.5 months
7. Which of the following is the incorrect pair?
(a) Interest on drawings – Debited to capital account (b) Interest on capital – Credited to capital account
(c) Interest on loan – Debited to capital account (d) Share of profit – Credited to capital account
8. In the absence of an agreement, partners are entitled to
(a) Salary (b) Commission (c) Interest on loan (d) Interest on capital
9. Pick the odd one out
(a) Partners share profits and losses equally (b) Interest on partners’ capital is allowed at 7% per annum
(c) No salary or remuneration is allowed (d) Interest on loan from partners is allowed at 6% per annum.
10. Profit after interest on drawings, interest on capital and remuneration is Rs. 10,500. Geetha, a partner, is
entitled to receive commission @ 5% on profits after charging such commission. Find out commission.
(a) Rs. 50 (b) Rs. 150 (c) Rs. 550 (d) Rs. 500

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 11

II VERY SHORT ANSWER QUESTIONS
1. Define partnership.
The relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all.
- Indian Partnership Act, 1932
2. What is a partnership deed?
 It is a document in writing that contains the terms of the agreement
among the parents.
 It is also called Articles of Partnership.
3. What is meant by fixed capital method?
❖ The capital of the partners is not altered and remains generally fixed.
❖ Two accounts are maintained for each partner
 Capital account
 Current account
4. What is the journal entry to be passed for providing interest on
capital to a partner?

Date Particulars LF Debit Credit

Rs. Rs.
Interest in capital a/c Dr xxx
To Partners capital a/c xxx
(Being interest on capital provided)

5. Why is Profit and loss appropriation account prepared?

It is prepared for the purpose of adjusting the transaction relating to the
amount due to and amount due from partners.
III SHORT ANSWER QUESTIONS
1. State the features of partnership.
 It is an association two or more person.
 Minimum 2 and Maximum number of members 50 limited.
 They agreement may be oral or written.
 It’s carried on by all or any of them acting for all.

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 12

2. State any six contents of a partnership deed.
 Name of the firm and nature and place of business
 Date of commencement and duration of business
 Names and addresses of all partners
 Capital contributed by each partner
 Profit sharing ratio
 Amount of drawings allowed to each partner
3. State the differences between fixed capital method and fluctuating
capital method.

S. Basic Fixed Capital Method Fluctuating Method

no
1 Number of Two accounts are maintained Only one account capital
Accounts i). capital account account maintained.
ii). current account
2 Change in The amount of capital not The amount of capital
Capital changes from period to period changes from period to period
3 Closing It always show the credit It always show the debit or
Balance balance credit balance
4 Adjustments All adjustments done in All adjustments done in
current account capital account
4. Write a brief note on the applications of the provisions of the Indian
Partnership Act, 1932 in the absence of partnership deed.
(i) Remuneration to partners:
No salary or remuneration is allowed to any partner. [Section 13(a)]
(ii) Profit sharing ratio:
Profits and losses are to be shared equally. [Section 13(b)]
(iii) Interest on capital:
No interest is allowed on the capital. [Section 13(c)]
(iv) Interest on loans advanced by partners to the firm:
Interest on loan is to be allowed at the rate of 6%. [Section 13(d)]
(v) Interest on drawings:
No interest is charged on the drawings of the partners.

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 13

 CHAPTER – 4 GOODWILL IN PARTNERSHIP ACCOUNTS

I. CHOOSE THE CORRECT ANSWER:

1. Which of the following statements is true?
(a) Goodwill is an intangible asset (b) Goodwill is a current asset
(c) Goodwill is a fictitious asset (d) Goodwill cannot be acquired
2. Super profit is the difference between
(a) Capital employed and average profit (b) Assets and liabilities
(c) Average profit and normal profit (d) Current year’s profit and average profit
3. The average rate of return of similar concerns is considered as
(a) Average profit (b) Normal rate of return (c) Expected rate of return (d) None of these
4. Which of the following is true?
(a) Super profit = Total profit / number of years (b) Super profit = Weighted profit / number of years
(c) Super profit = Average profit – Normal profit (d) Super profit = Average profit × Years of purchase
5. Identify the incorrect pair
(a) Goodwill under Average profit method - Average profit × Number of years of purchase
(b) Goodwill under Super profit method - Super profit × Number of years of purchase
(c) Goodwill under Annuity method - Average profit × Present value annuity factor
(d) Goodwill under Weighted average - Weighted average profit × Number of years of profit method purchase
6. When the average profit is Rs. 25,000 and the normal profit is Rs. 15,000, super profit is
(a) Rs. 25,000 (b) Rs. 5,000 (c) Rs. 10,000 (d) Rs. 15,000
7. Book profit of 2017 is Rs. 35,000; non-recurring income included in the profit is Rs. 1,000 and abnormal
loss charged in the year 2017 was Rs. 2,000, then the adjusted profit is
(a) Rs. 36,000 (b) Rs. 35,000 (c) Rs. 38,000 (d) Rs. 34,000
8. The total capitalised value of a business is Rs. 1,00,000; assets are Rs. 1,50,000 and liabilities are
Rs. 80,000. The value of goodwill as per the capitalisation method will be
(a) Rs. 40,000 (b) Rs. 70,000 (c) Rs. 1,00,000 (d) Rs. 30,000

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II VERY SHORT ANSWER QUESTIONS
1. What is goodwill?
 It is the good name of the business.
 It is an intangible assets
 It has no physical existence
2. What is acquired goodwill?
 Goodwill acquired by making payment in cash or kind is called acquired
goodwill.
 It is also called purchased goodwill.
3. What is super profit?
 It is the excess of average profit over the nomral profit of a business.
 Super Profit = Average Profit - Normal Profit
4. What is normal rate of return?
It is the rate at which profit is earned by similar business entities in the
industry under normal circumstances.
5. State any two circumstances under which goodwill of a partnership
firm is valued.
 Change in profit sharing ratio
 Admission of a partner
 Retirement or death of a partner
 Dissolution of partnership firm
III SHORT ANSWER QUESTIONS
1. State any six factors determining goodwill.
 Profitability of the firm.
 Favorable location of the business enterprises.
 Good quality of goods or service offered.
 Efficiency of management.
 Degree of competition
 Tenure of the business enterprise

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2. How is goodwill calculated under the super profits method?

i). Average Profit = Total Profits

Number of Years

ii). Normal Profit = Capital Employed x NRR

iii). Super Profit = Average Profit - Normal Profit

iv). Goodwill = Super Profit x No. Year of Purchase

3. How is the value of goodwill calculated under the capitalization

method?

i). Capitalized Value of the business = Average Profits x 100

Number of Years

ii). Capital Employed = Fixed Asset + Current Asset – Current Liabilities

iii). Goodwill = Capitalized Value of business – Capital Employed

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 CHAPTER – 5 ADMISSION OF A PARTNER

I. CHOOSE THE CORRECT ANSWER:

1. Revaluation A/c is a
(a) Real A/c (b) Nominal A/c (c) Personal A/c (d) Impersonal A/c
2. On revaluation, the increase in the value of assets leads to
(a) Gain (b) Loss (c) Expense (d) None of these
3. The profit or loss on revaluation of assets and liabilities is transferred to the capital account of
(a) The old partners (b) The new partner (c) All the partners (d) The Sacrificing partners
4. If the old profit sharing ratio is more than the new profit sharing ratio of a partner, the difference is called
(a) Capital ratio (b) Sacrificing ratio (c) Gaining ratio (d) None of these
5. At the time of admission, the goodwill brought by the new partner may be credited to the capital accounts
(a) all the partners (b) the old partners (c) the new partner (d) the sacrificing partners
6. Which of the following statements is not true in relation to admission of a partner
(a) Generally mutual rights of the partners change
(b) The profits and losses of the previous years are distributed to the old partners
(c) The firm is reconstituted under a new agreement
(d) The existing agreement does not come to an end
7. Match List I with List II and select the correct answer using the codes given below:
List I List II
(i) Sacrificing ratio 1. Investment fluctuation fund
(ii) Old profit sharing ratio 2. Accumulated profit
(iii) Revaluation Account 3. Goodwill
(iv) Capital Account 4. Unrecorded liability
Codes:
(i) (ii) (iii) (iv)
(a) 1 2 3 4
(b) 3 2 4 1
(c) 4 3 2 1
(d) 3 1 4 2
Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 17
8. Select the odd one out
(a) Revaluation profit (b) Accumulated loss
(c) Goodwill brought by new partner (d) Investment fluctuation fund
9. James and Kamal are sharing profits and losses in the ratio of 5:3. They admit Sunil as a partner giving
him 1/5 share of profits. Find out the sacrificing ratio.
(a) 1:3 (b) 3:1 (c) 5:3 (d) 3:5
10. Balaji and Kamalesh are partners sharing profits and losses in the ratio of 2:1. They admit Yogesh into
partnership. The new profit sharing ratio between Balaji, Kamalesh and Yogesh is agreed to 3:1:1. Find the
sacrificing ratio between Balaji and Kamalesh.
(a) 1:3 (b) 3:1 (c) 2:1 (d) 1:2
II. VERY SHORT ANSWER QUESTIONS
1. What is meant by revaluation of assets and liabilities?
 When a partner is admitted into the partnership the assets and liabilities
are revalued as the current value may differ from book value.
 Determination of current value of assets and liabilities is called revaluation
of assets and liabilities.
2. How are accumulated profits and losses distributed among the
partners at the time of admission of a new partner?
Any reserve fund, accumulated profit and loss belong to the old partners
and hence these should be distributed to the old partners in the old profit
sharing ratio.
3. What is sacrificing ratio?
 It is ratio of share sacrificed by the old partners.
 Share of the new partner is the sum of share sacrificed by the old partners.
4. Give the journal entry for writing off existing goodwill at the time of
admission of a new partner.
Date Particulars LF Debit Rs. Credit Rs.

Old partner capital a/c Dr xxx

To Goodwill a/c xxx
(Being Existing goodwill is written off )

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5. State whether the following will be debited or credited in the
revaluation account.
(a) Depreciation on assets (b) Unrecorded liability
(c) Provision for outstanding expenses (d) Appreciation of assets

(a) Depreciation on assets - Debited

(b) Unrecorded liability - Debited
(c) Outstanding expenses - Debited
(d) Appreciation of assets - Credited
III SHORT ANSWER QUESTIONS
1. What are the adjustments required at the time of admission of a
partner?
 Distribution of accumulated profits, reserves and losses
 Revaluation of assets and liabilities
 Determination of new profit-sharing ratio and sacrificing ratio
 Adjustment for goodwill
 Adjustment of capital on the basis of new profit sharing ratio
2. What are the journal entries to be passed on revaluation of assets
and liabilities?
i). For increase in the value of asset
ii). For decrease in the amount of liability
iii). For recording unrecorded asset

JOURNAL ENTRY
Date Particulars LF Debit Credit
Rs. Rs.
Concerned Asset a/c Dr xxx
Concerned liability a/c Dr xxx
To Revaluation a/c xxx
(Assets and Liabilities are recorded )

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 19

 i). For decrease in the value of asset
ii). For increase in the amount of liability
iii). For recording unrecorded liability
JOURNAL ENTRY

Date Particulars LF Debit Credit

Rs. Rs.
Revaluation a/c Dr xxx
To Concerned Asset a/c xxx
To Concerned liability a/c xxx
(Assets and Liabilities are recorded )

iii). For Profit on Revaluation

JOURNAL ENTRY
Date Particulars LF Debit Credit
Rs. Rs.
Revaluation a/c Dr xxx xxx
To Old Partners Capital a/c
(Revaluation of profit transferred
to capital a/c)

iv). For Loss on Revaluation

JOURNAL ENTRY

Date Particulars LF Debit Credit

Rs. Rs.
Old Partners Capital a/c Dr xxx
To Revaluation a/c xxx
(Revaluation of profit transferred
to capital a/c)

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 20

3. Write a short note on accounting treatment of goodwill.
i). When new partner brings cash towards goodwill
 When the new partner brings cash towards goodwill in addition to the
amount of capital.
 It is distributed to the existing partners in the sacrificing ratio.
ii). When the new partner does not bring goodwill in cash or in kind
❖ If the new partner does not bring goodwill in cash or in kind, his share
of goodwill must be adjusted through the capital accounts of the
partners.
iii). When the new partner brings only a part of the goodwill in cash or in
kind
 Sometimes the new partner may bring only a part of the goodwill in
cash or assets.
 In such a case, for the cash or the assets brought, the respective
account is debited and for the amount not brought in cash or kind,
the new partner’s capital account is debited.
iv). Existing goodwill
 If goodwill already appears in the books of accounts, at the time of
admission if the partners decide.
 It can be written off by transferring it to the existing partners’ capital

account / current account in the old profit sharing ratio.

@*@*@*@*@*@*@

Prepared by P.VAHEESWARAN M.Com.,M.Phil.,DCA.,B.Ed., Page 21

 CHAPTER – 6 RETIREMENT AND DEATH OF A PARTNER

I. CHOOSE THE CORRECT ANSWER:

1. A partner retires from the partnership firm on 30th June. He is liable for all the acts of the firm up to the
(a) End of the current accounting period (b) End of the previous accounting period
(c) Date of his retirement (d) Date of his final settlement
2. On retirement of a partner from a partnership firm, accumulated profits and losses. Are distributed to the
partners in the
(a) New profit sharing ratio (b) Old profit sharing ratio
(c) Gaining ratio (d) Sacrificing ratio
3. On retirement of a partner, general reserve is transferred to the
(a) Capital account of all the partners (b) Revaluation account
(c) Capital account of the continuing partners (d) Memorandum revaluation a/c
4. On revaluation, the increase in liabilities leads to
(a) Gain (b) Loss (c) Profit (d) None of these
5. At the time of retirement of a partner, determination of gaining ratio is required
(a) To transfer revaluation profit or loss (b) To distribute accumulated profits and losses
(c) To adjust goodwill (d) None of these
6. If the final amount due to a retiring partner is not paid immediately, it is transferred to
(a) Bank A/c (b) Retiring partner’s capital A/c
(c) Retiring partner’s loan A/c (d) Other partners’ capital A/c
7. ‘ A’ was a partner in a partnership firm. He died on 31st March 2019. The final Amount Due to him is
Rs.25,000 which is not paid immediately. It will be transferred to
(a) A’s capital account (b) A’s current account
(c) A’s Executor account (d) A’s Executor loan account

8. A, B and C are partners sharing profits in the ratio of 2:2:1. On retirement of B, Goodwill of the firm was
valued as Rs. 30,000. Find the contribution of A and C to compensate B:
(a) Rs.20,000 and Rs.10,000 (b) Rs. 8,000 and Rs.4,000
(c) Rs.10,000 and Rs. 20,000 (d) Rs.15,000 and Rs. 15,000

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9. A, B and C are partners sharing profits in the ratio of 4:2:3. C retires. The new Profit sharing ratio
between A and B will be
(a) 4:3 (b) 3:4 (c) 2:1 (d) 1:2
10. X, Y and Z were partners sharing profits and losses equally. X died on 1st April 2019. Find out the share of
X in the profit of 2019 based on the profit of 2018 which showed Rs. 36,000.
a). Rs. 1,000 (b) Rs. 3,000 (c) Rs.12,000 (d) Rs.36,000
II. VERY SHORT ANSWER QUESTIONS
1. What is meant by retirement of a partner?
 When a partner leaves from a partnership firm, it is known as retirement.
 It is also called outgoing or retirement partner.
2. What is gaining ratio?
 The continuing partners may gain a portion of the share of profit of the
retiring partner.
 Gaining Ratio = New share - Old share
3. What is the purpose of calculating gaining ratio?
 The purpose of finding the gaining ratio is to bear the goodwill to be paid
to the retiring partner.
4. What is the journal entry to be passed to transfer the amount due to
the deceased partner to the executor of the deceased partner?
Date Particulars LF Debit Credit
Rs. Rs.

Deceased partner capital a/c Dr xxx

To Deceased partner executor a/c xxx
(Being Deceased partner amount transferred
to capital account)
III SHORT ANSWER QUESTIONS
1. List out the adjustments made at the time of retirement of a
partner in a partnership firm.
 Distribution of accumulated profits, reserves and losses
 Revaluation of assets and liabilities
 Determination of new profit sharing ratio and gaining ratio

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  Adjustment for goodwill
 Adjustment for current year’s profit or loss upto the date of retirement
 Settlement of the amount due to the retiring partner
2. Distinguish between sacrificing ratio and gaining ratio.
s.no Basic Sacrificing ratio Gaining ratio
1 Meaning A share o profit sacrificed by A share of profit gained by
the old partner to new existing partner from
partner. retiring partner.
2 Time Admission of a partner Retirement of a partner

3 Formula Sacrificing Ratio = Gaining Ratio =

old ratio – new ratio New ratio – Old ratio
3. What are the ways in which the final amount due to an outgoing
partner can be settled?

i). Cash due paid immediately

Date Particulars LF Debit Credit
Rs. Rs.
Retiring partner capital a/c Dr xxx
To Cash/Bank a/c xxx
(Being cash due paid immediately recorded )
ii). Cash due not paid immediately
Date Particulars LF Debit Credit
Rs. Rs.
Retiring partner capital a/c Dr xxx
To Retiring partners loan a/c xxx
(Being cash due not paid immediately
recorded )

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 iii). Cash due paid partly immediately
Date Particulars LF Debit Credit
Rs. Rs.
Retiring partner capital a/c Dr xxx
To Cash/Bank a/c xxx
To Retiring partners loan a/c xxx
(Being cash due paid partly immediately
recorded )

@*@*@*@*@*@*@

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 CHAPTER – 7 COMPANY ACCOUNTS

I. CHOOSE THE CORRECT ANSWER

1. A preference share is one
(i) which carries preferential right with respect to payment of dividend at fixed rate
(ii) which carries preferential right with respect to repayment of capital on winding up
(a) Only (i) is correct (b) Only (ii) is correct
(c) Both (i) and (ii) are correct (d) Both (i) and (ii) are incorrect
2. That part of share capital which can be called up only on the winding up of a company is called:
(a) Authorised capital (b) Called up capital (c) Capital reserve (d) Reserve capital
3. At the time of forfeiture, share capital account is debited with
(a) Face value (b) Nominal value (c) Paid up amount (d) Called up amount
4. After the forfeited shares are reissued, the balance in the forfeited shares account should be transferred
to
(a) General reserve account (b) Capital reserve account
(c) Securities premium account (d) Surplus account
5. The amount received over and above the par value is credited to
(a) Securities premium account (b) Calls in advance account
(c) Share capital account (d) Forfeited shares account
6. Which of the following statement is false?
(a) Issued capital can never be more than the authorised capital
(b) In case of under subscription, issued capital will be less than the subscribed capital
(c) Reserve capital can be called at the time of winding up
(d) Paid up capital is part of called up capital
7. When shares are issued for purchase of assets, the amount should be credited to
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 (a) Vendor’s A/c (b) Sundry assets A/c (c) Share capital A/c (d) Bank A/c
8. Match the pair and identify the correct option
(1) Under subscription - (i) Amount prepaid for calls
(2) Over subscription - (ii) Subscription above the offered shares
(3) Calls in arrear - (iii) Subscription below the offered shares
(4) Calls in advance - (iv) Amount unpaid on calls
(1) (2) (3) (4)
(a) (i) (ii) (iii) (iv)
(b) (iv) (iii) (ii) (i)
(c) (iii) (ii) (iv) (i)
(d) (iii) (iv) (i) (ii)
9. If a share of Rs. 10 on which Rs. 8 has been paid up is forfeited. Minimum reissue price is
(a) Rs. 10 per share (b) Rs. 8 per share (c) Rs. 5 per share (d) Rs. 2 per share
10. Supreme Ltd. forfeited 100 shares of Rs. 10 each for non-payment of final call of Rs. 2 per share. All these
Shares were re-issued at Rs. 9 per share. What amount will be transferred to capital reserve account?
(a) Rs. 700 (b) Rs. 800 (c) Rs. 900 (d) Rs. 1,000

II VERY SHORT ANSWER QUESTIONS

1. What is a share?
 The capital of a company is divided into small units of fixed amount.
 These units are called shares.
2. What is over-subscription?
 When the number of shares applied for is more than the number of
shares offered for subscription.
 It is said to be over subscription.
3. What is meant by calls in arrear?
 Sometimes shareholders may fail to pay the amount due on calls.
 The amount called up but not paid is called calls in arrears.

4. Write a short note on securities premium account.

 When a company issues shares at a price more than the face value, the
shares are said to be issued at premium.
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  The excess is called as premium.
5. Why are the shares forfeited?
 If the shareholders fail to pay the amount due on calls, shares will be
forfeited.
III SHORT ANSWER QUESTIONS:
1. State the differences between preference shares and equity shares.
S.no Basic Preference share Equity Shares
1 Preferential To preference shareholder To preference shareholder
Rights in dividend and repayment in dividend and
of capital. repayment of capital.
2 Rate of dividend Fixed Variable
3 Voting rights They can vote on any They can vote on are
resolutions affecting the resolutions.
Rights.

2. Write a brief note on calls in advance.

 The excess amount paid over the called up value of a share is known as
calls in advance.
 It is the excess money paid on application or allotment or calls.

3. What is reissue of forfeited shares?

 Shares forfeited can be reissued by the company.
 The shares can be reissued at any price.
 But, the reissue price cannot be less than the amount unpaid on forfeited
shares.
4. Write a short note on (a) Authorised capital (b) Reserve capital
i). Authorized Capital:
 It means such capital as is authorized by the memorandum of
association.
 It is the maximum amount which can be raised as capital.
 It is also known as Registered capital or Nominal capital
ii). Reserve Capital:

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 ⧫ The company can reserve a part of its subscribed capital to be called up
only at the time of winding up.
⧫ It is called Reserve Capital.

5. What is meant by issue of shares for consideration other than cash?

 A company may issue equity shares either for cash or for consideration
other than cash.
 When shares are issued for cash, the cash may be received
• In Instalments
• At One Time

@*@*@*@*@*@*@*@

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 CHAPTER – 8 FINANCIAL STATEMENT ANALYSIS

I. CHOOSE THE CORRECT ANSWER

1. Which of the following statements is not true?
a) Notes and schedules also form part of financial statements.
b) The tools of financial statement analysis include common-size statement
c) Trend analysis refers to the study of movement of figures for one year
d) The common–size statements show the relationship of various items with some common base, expressed
as percentage of the common base
2. Balance sheet provides information about the financial position of a business concern
a) Over a period of time b) As on a particular date
c) For a period of time d) For the accounting period
3. Which of the following tools of financial statement analysis is suitable when data relating to several years
are to be analysed?
a) Cash flow statement b) Common size statement
c) Comparative statement d) Trend analysis
4. The financial statements do not exhibit
a) Non-monetary data b) Past data c) Short term data d) Long term data
5. Which of the following is not a tool of financial statement analysis?
a) Trend analysis b) Common size statement
c) Comparative statement d) Standard costing
6. The term ‘fund’ refers to
a) Current liabilities b) Working capital c) Fixed assets d) Non-current assets
7. Which of the following statements is not true?
a) All the limitations of financial statements are applicable to financial statement analysis also.

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 b) Financial statement analysis is only the means and not an end.
c) Expert knowledge is not required in analysing the financial statements.
d) Interpretation of the analysed data involves personal judgement.

8. A limited company’s sales has increased from Rs. 1,25,000 to Rs. 1,50,000. How does this appear in
comparative income statement?
a) + 20 % b) + 120 % c) – 120 % d) – 20 %
9. In a common-size balance sheet, if the percentage of non-current assets is 75, what would be the
percentage of current assets?
a) 175 b) 125 c) 25 d) 100
10. Expenses for a business for the first year were Rs. 80,000. In the second year, it was increased to
Rs. 88,000. What is the trend percentage in the second year?
a) 10 % b) 110 % c) 90 % d) 11%

II VERY SHORT ANSWER QUESTIONS

1. What are financial statements?
Financial statements are the statements prepared by the business concerns
at the end of the accounting period to ascertain the operating results and
the financial position.

2. List the tools of financial statement analysis.

 Comparative statement

 Common size statement

 Trend analysis
 Fund flow analysis
 Cash flow analysis
3. What is working capital?
 The capital of a business which is used in its day-to-day trading
operation.
 Working Capital = Current Asset – Current Liabilities
4. When is trend analysis preferred to other tools?

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  When data of more than two years are to be analyzed it may be difficult to
use comparative statement.
 For this purpose trend analysis may be used.

III SHORT ANSWER QUESTIONS

1. ‘Financial statements are prepared based on the past data’. Explain

how this is a limitation.

⧫ Financial statements are prepared based on historical data.

⧫ They may not reflect current position.
⧫ The previous data does not reveal the operating results and financial
position of the business concern.
⧫ So it is a limitation.

2. Write a short note on cash flow analysis.

 It is concerned with Preparation of cash flow statement which shows the

inflow and outflow of cash and cash equivalents in a given period of time.
 Cash includes cash in hand and demand deposits with banks.

3. Briefly explain any three limitations of financial statements.

i). Record of historical data:

 Financial statements are prepared based on historical data.

 They may not reflect the current position.

ii). Ignore price level changes:

 Adjustments for price level changes are not made in the financial
statements.
 Hence, financial statements may not reveal the current position.

iii). Lack of consistency:

 Different business concerns may use different accounting methods.

 Hence, comparison between two business concerns becomes difficult.

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 4. Explain the steps involved in preparing comparative statement.

(i) Column 1: Particulars of items

(ii) Column 2: Enter absolute amount of year 1.

(iii) Column 3: Enter absolute amount of year 2.

(iv) Column 4: Show the difference in amounts between year 1

and year 2. (Increase ( + ) or Decrease ( - )

(v) Column 5: Show percentage increase or decrease.

Percentage increase or decrease:

= Absolute amount of increase or decrease x 100

Year 1 amount

5. Explain the procedure for preparing common-size statement.

Common-size statement can be prepared with three columns.

(i) (i). Column 1: Particulars of items of income statement or balance sheet

(ii) Column 2: Enter absolute amount.

(iii) Column 3: Choose a common base as 100.

For example, revenue from operations can be taken as the base

for income statement and total of balance sheet can be taken as
the base for balance sheet.

@*@*@*@*@*@*@*@*@*@

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 CHAPTER – 9 RATIO ANALYSIS

I. CHOOSE THE CORRECT ANSWER:

1. The mathematical expression that provides a measure of the relationship between two figures is called
(a) Conclusion (b) Ratio (c) Model (d) Decision
2. Current ratio indicates
(a) Ability to meet short term obligations (b) Efficiency of management
(c) Profitability (d) Long term solvency
3. Current assets excluding inventory and prepaid expenses is called
(a) Reserves (b) Tangible assets (c) Funds (d) Quick assets
4. Debt equity ratio is a measure of
(a) Short term solvency (b) Long term solvency (c) Profitability (d) Efficiency
5. Match List I with List II and select the correct answer using the codes given below:
List I List II
(i) Current ratio 1. Liquidity
(ii) Net profit ratio 2. Efficiency
(iii) Debt-equity ratio 3. Long term solvency
(iv) Inventory turnover ratio 4. Profitability
Codes :
(i) (ii) (iii) (iv)
(a) 1 4 3 2
(b) 3 2 4 1
(c) 4 3 2 1
(d) 1 2 3 4

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6. To test the liquidity of a concern, which of the following ratios are useful?
(i) Quick ratio (ii) Net profit ratio (iii) Debt-equity ratio (iv) Current ratio
Select the correct answer using the codes given below:
(a) (i) and (ii) (b) (i) and (iv) (c) (ii) and (iii) (d) (ii) and (iv)

7. Proportion of share holder's funds to total assets is called

(a) Proprietary ratio (b) Capital gearing ratio (c) Debt equity ratio (d) Current ratio
8. Which one of the following is not correctly matched?
(a) Liquid ratio – Proportion
(b) Gross profit ratio – Percentage
(c) Fixed assets turnover ratio – Percentage
(d) Debt-equity ratio – Proportion
9. Current liabilities Rs. 40,000; Current assets Rs. 1,00,000 ; Inventory Rs. 20,000 . Quick ratio is
(a) 1:1 (b) 2.5:1 (c) 2:1 (d) 1:2
10. Cost of revenue from operations Rs. 3,00,000; Inventory in the beginning of the year Rs. 60,000;
Inventory at the close of the year Rs. 40,000. Inventory turnover ratio is
(a) 2 times (b) 3 times (c) 6 times (d) 8 times

II VERY SHORT ANSWER QUESTIONS

1. What is meant by accounting ratios?
 When ratios are calculated on the basis of accounting information, these
are called ‘accounting ratios’.
 It is the numerical relationship between two items.
2. What is quick ratio?
 Quick ratio gives the proportion of quick assets to current liabilities.
 It is otherwise called liquid ratio or acid test ratio.
 It is calculated as follows:
Quick ratio = Quick assets
Current liabilities
3. What is meant by debt equity ratio?
 It is calculated to assess the long term solvency position.

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  It expresses the relationship between long term debt and shareholders’
funds.
 It is computed as follows:
Debt equity ratio = Long term debt
Shareholders' funds
4. What does return on investment ratio indicate?
 It shows the proportion of net profit before interest and tax to capital
employed.
 It is an overall measure of profitability of a business concern.
 It is computed as below:
Return on Investment (ROI) = Net profit before interest and tax x 100
Capital employed
5. State any two limitations of ratio analysis.
(i) Ratios are only means:
Ratios are not end in themselves but they are only means to achieve a
particular purpose.
(ii). Accuracy of financial information:
 Its depends on the accuracy of information taken from financial
statements.
III SHORT ANSWER QUESTIONS
1. Explain the objectives of ratio analysis.
 To simplify accounting figures
 To facilitate analysis of financial statements
 To analyze the operational efficiency of a business
 To help in budgeting and forecasting
 To facilitate intra firm and inter firm comparison of performance
2. What is inventory conversion period? How is it calculated?
 Inventory conversion period is the time taken to sell the inventory.
 A shorter inventory conversion period indicates more efficiency in the
management of inventory.
 It is computed as follows:
Inventory conversion period = Number of days in a year
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 (in days) Inventory turnover ratio

Inventory conversion period = Number of months in a year

(in months) Inventory turnover ratio

3. How is operating profit ascertained?

 Operating Profit = Gross Profit - Operating Expenses
 Gross Profit = Sales - Cost of Goods sold
(Or)
 Gross Profit = Revenue from Operation - Cost of Revenue from Operation
 Operating Expenses = Selling + Office + Distribution + Administration
Expenses
4. State any three advantages of ratio analysis.
(i) Measuring financial solvency:
 Ratio analysis helps to ascertain the liquidity or short term
 Solvency and long term solvency of a business concern.
(ii) Facilitating investment decisions:
 Ratio analysis helps the management in making effective decisions
regarding profitable avenues of investment.
(iii) Analysing the profitability:
 Ratio analysis helps to analyse the profitability of a business in terms of
sales and investments.
5. Bring out the limitations of ratio analysis.
(i) Ratios are only means:
 Ratios are not end in themselves but they are only means to achieve a
particular purpose.
(ii). Accuracy of financial information:
 It’s depends on the accuracy of information taken from financial
statements.
 If the statements are inaccurate, ratios are also be inaccurate.
(iii). Change in price level:

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  Ratio analysis may not reflect price level changes and current values as
they are calculated based on historical data given in financial
statements.

@*@*@*@*@*@*@*@*@*@

CHAPTER – 10 COMPUTERIZED
ACCOUNTING SYSYTEM - TALLY
I. CHOOSE THE CORRECT ANSWER:
1. Accounting report prepared according to the requirements of the user is
(a) Routine accounting report (b) Special purpose report
(c) Trial balance (d) Balance sheet
2. Function key F11 is used for
(a) Company Features (b) Accounting vouchers
(c) Company Configuration (d) None of these
3. Which submenu displays groups, ledgers and voucher types in Tally?
(a) Inventory vouchers (b) Accounting vouchers
(c) Company Info (d) Account Info
4. What are the predefined Ledger(s) in Tally?
(i) Cash (ii) Profit & Loss A/c (iii) Capital A/c
(a) Only (i) (b) Only (ii) (c) Both (i) and (ii) (d) Both (ii) and (iii)
5. Contra voucher is used for
(a) Master entry (b) Withdrawal of cash from bank for office use
(c) Reports (d) Credit purchase of assets
6. Which is not the default group in Tally?
(a) Suspense account (b) Outstanding expense (c) Sales account (d) Investments
7. Salary account comes under which of the following head?
(a) Direct Incomes (b) Direct Expenses (c) Indirect Incomes (d) Indirect Expenses
8. Rs. 25,000 withdrawn from bank for office use. In which voucher type, this transaction will be recorded

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 (a) Contra Voucher (b) Receipt Voucher (c) Payment Voucher (d) Sales Voucher
9. In which voucher type credit purchase of furniture is recorded in Tally
(a) Receipt voucher (b) Journal voucher (c) Purchase voucher (d) Payment voucher
10. Which of the following options is used to view Trial Balance from Gateway of Tally?
(a) Gateway of Tally -> Reports -> Trial Balance (b) Gateway of Tally -> Trial Balance
(c) Gateway of Tally -> Reports -> Display -> Trial Balance (d) None of these
II VERY SHORT ANSWER QUESTIONS
1. What is automated accounting system?
Automated accounting is an approach to maintain up-to-date accounting
records with the aid of accounting software.
2. What are accounting reports?
It is a compilation of accounting information that is derived from the
accounting records of a business concern.
 Routine Reports
 Special Purpose Reports.
3. State any five accounting reports.
 Day books / Journal
 Ledger
 Trial balance
 Income statement
 Balance sheet
 Cash flow statement
4. What is Accounting Information System (AIS)?
 AIS collects financial data, process them and provides information to the
various users.
 To provide information AIS requires data from other information system
that is manufacturing, marketing and human resources.
5. What is a group in Tally.ERP 9?
 In 2009, Tally solutions introduced the software Tally ERP.
 The software offers comprehensive business management solution.

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  It maintain all books of accounts and use different types of vouchers such
as Receipt, Payment, Purchase, Sales voucher etc.

III SHORT ANSWER QUESTIONS

1. Write a brief note on accounting vouchers.
 Voucher is a document which contains details of transactions.
 Transactions are to be recorded through voucher entries.
 Tally has a set of predefined vouchers such as Purchase, Sales, Payment,
Receipt and Contra.
 To view the list of voucher types:
Gateway of Tally > Masters > Accounts Info > Voucher Types > Display
2. What are the pre-defined ledgers available in Tally.ERP 9?
 Tally has two predefined ledgers,
▪ Cash and
▪ Profit & Loss A/c.
 The user has to create various other ledgers based on their requirements.
 To create ledger:
Gateway of Tally > Masters > Accounts Info > Ledgers > Single Ledger
> Create.
 Cash a/c  Purchase a/c  Bank a/c
 Profit and Loss a/c  Sales a/c  Capital a/c
3. Mention the commonly used voucher types in Tally.ERP 9.
 Receipt Voucher F6
 Payment Voucher F5
 Contra Voucher F4
 Purchase Voucher F9
 Sales Voucher F8
 Journal Voucher F7
4. Explain how to view profit and loss statement in Tally.ERP 9.

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5. Explain any five applications of computerized accounting system.

i). Maintaining accounting records:

 It can be maintained easily and efficiently for long time period.

 It facilitates fast and accurate retrieval of data and information.
ii). Inventory management:

 CAS facilitates efficient management of inventory.

 Fast moving, slow moving and obsolete inventory can be identified.

iii). Report generation:

 CAS helps to generate various routine and special purpose reports.

iv). Data import/export:

 Accounting data and information can be imported from or exported to

other users within the organisation.

v). Taxation:

 CAS helps to compute various taxes and to deduct these and deposit
the same to the Government account.

@*@*@*@*@*@*@

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