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Accountancy
Financial Accounting
Part I
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ISBN 81-7450-507-5
ALL RIGHTS RESERVED
No part of this publication may be reproduced, stored in a retrieval
system or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise without the prior
permission of the publisher.
This book is sold subject to the condition that it shall not, by way of
trade, be lent, re-sold, hired out or otherwise disposed of without
the publishers consent, in any form of binding or cover other than
that in which it is published.
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First Edition
February 2006 Phalguna 1927
Reprinted
October 2006 Kartika 1928
October 2007 Kartika 1929
January 2009 Magha 1930
January 2010 Magha 1931
January 2011 Magha 1932
June 2012 Jyaistha 1934
April 2013 Chaitra 1935
December 2013 Agrahayana 1935
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Publication Team
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Head, Publication
Division
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Manager
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Chief Editor
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Cover
Shweta Rao
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FOREWORD
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The success of this effort depends on the steps that school principals
and teachers will take to encourage children to reflect on their own
learning and to pursue imaginative activities and questions. We must
recognise that, given space, time and freedom, children generate new
knowledge by engaging with the information passed on to them by adults.
Treating the prescribed textbook as the sole basis of examination is one
of the key reasons why other resources and sites of learning are ignored.
Inculcating creativity and initiative is possible if we perceive and treat
children as participants in learning, not as receivers of a fixed body of
knowledge.
These aims imply considerable change in school routines and mode
of functioning. Flexibility in the daily time-table is as necessary as rigour
in implementing the annual calendar so that the required number of
teaching days are actually devoted to teaching. The methods used for
teaching and evaluation will also determine how effective this textbook
proves for making childrens life at school a happy experience, rather
than a source of stress or boredom. Syllabus designers have tried to
address the problem of curricular burden by restructuring and
reorienting knowledge at different stages with greater consideration for
child psychology and the time available for teaching. The textbook
attempts to enhance this endeavour by giving higher priority and space
to opportunities for contemplation and wondering, discussion in small
groups, and activities requiring hands-on experience.
The National Council of Educational Research and Training (NCERT)
appreciates the hard work done by the textbook development committee
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New Delhi
20 December 2005
Director
National Council of Educational
Research and Training
FOR
TEXTBOOKS
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S.S. Sehrawat, Assistant Commissioner, Kendriya Vidyalaya Sangathan,
Chandigarh.
Savita Shangari, PGT Commerce, Gyan Bharati School, Saket, New Delhi.
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MEMBER-COORDINATOR
Shipra Vaidya, Associate Professor, Department of Education in Social
Sciences NCERT, New Delhi.
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ACKNOWLEDGEMENTS
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T h e N a t i o n a l Co u n c i l o f E d u c a t i o n a l R e s e a r c h a n d T r a i n i n g
acknowledges the valuable contributions of the Textbook Development
Committee which took considerable pains in the development and review
of manuscript as well.
Special thanks are due to Savita Sinha, Professor and Head,
Department of Education in Social Sciences, NCERT for her support,
during the development of this book.
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FOREWORD
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CONTENTS
iii
Introduction to Accounting
Meaning of Accounting
Accounting as a Source of Information
Objectives of Accounting
Role of Accounting
Basic Terms in Accounting
1
2
6
10
13
14
Chapter 2
22
23
24
33
34
35
Recording of Transactions - I
41
41
45
47
56
64
67
Recording of Transactions - II
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Chapter 1
1.1
1.2
1.3
1.4
1.5
2.1
2.2
2.3
2.4
2.5
Chapter 3
3.1
3.2
3.3
3.4
3.5
3.6
Chapter 4
Cash Book
Purchases (Journal) Book
Purchases Return (Journal) Book
Sales (Journal) Book
Sales Return (Journal) Book
Journal Proper
Balancing the Accounts
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117
119
121
123
129
131
150
151
156
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4.1
4.2
4.3
4.4
4.5
4.6
4.7
Chapter 5
5.1
5.2
x
6.1
6.2
6.3
6.4
6.5
6.6
Chapter 7
181
181
182
185
190
192
193
227
Depreciation
Depreciation and other Similar Terms
Causes of Depreciation
Need for Depreciation
Factors Affecting the Amount of Depreciation
Methods of calculating Depreciation Amount
Straight Line Method and Written Down Method
A Comparative Analysis
Methods of Recording Depreciation
Disposal of Asset
Effect of any Addition or Extension to the
Existing Asset
Provisions
Reserves
Secret Reserve
227
231
231
232
234
235
240
Bill of Exchange
279
280
282
284
285
285
286
286
293
298
301
303
317
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7.1
7.2
7.3
7.4
7.5
7.6
7.7
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Chapter 6
7.8
7.9
7.10
7.11
7.12
7.13
Chapter 8
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8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
8.10
8.11
8.12
242
251
261
264
266
270