Introduction to Accounting Process CBCAT3T03

RTMNU B.Com Semester 3 · Major: Accounting and Taxation · 4 units · notes for every unit

University	RTMNU – Rashtrasant Tukadoji Maharaj Nagpur University, Nagpur
Course	B.Com (Four Year UG Programme, NEP 2020)
Semester	Semester III
Paper code	CBCAT3T03
Paper title	Introduction to Accounting Process
Category	Major – Accounting and Taxation
Credits	4 credits (60 hours theory)
Marks	Theory exam: 80 marks + 20 marks internal (CIE) = 100; minimum 40 to pass
Syllabus	as per official RTMNU NEP 2020 B.Com syllabus (Direction No. 21 of 2024), session 2025-26

Unit topics below follow the official RTMNU syllabus. RTMNU official website · All RTMNU B.Com papers

Units

1Unit I: Basic Accounting ProcessNotes
2Unit II: Final Accounts of Sole ProprietorshipNotes
3Unit III: Bank Reconciliation StatementNotes
4Unit IV: Final Accounts of Co-operative Societies (As per Maharashtra Co-operative Societies Act 1960)Notes

RTMNU B.Com Sem 3 · CBCAT3T03 · Unit I

Unit I: Basic Accounting Process

Syllabus topics (RTMNU)

An overview of basics of Book Keeping and Accountancy
Rules of Double Entry Account System
Accounting Concepts & Conventions
Preparation of Journal
Ledger
Cash Book (Single & Double Column)
Preparation of Trial Balance

An overview of basics of Book Keeping and Accountancy

Book-keeping: Book-keeping is the art of recording business transactions in the books of accounts in a systematic way. It covers journalising, posting to ledger and balancing accounts.

Accountancy: Accountancy is the wider process of recording, classifying, summarising, analysing and interpreting financial data, and communicating the results to the users (owner, bank, government, investors).

Transaction: An exchange of money or money's worth between two parties, e.g. buying goods for ₹10,000. An event (like a fire loss) can also be recorded if it can be measured in money.

Basis	Book-keeping	Accountancy
Scope	Only recording	Recording + summarising + analysis + interpretation
Stage	First stage	Starts where book-keeping ends
Skill	Clerical work	Needs judgement and knowledge
Result	Books of accounts	Final accounts and reports

Objectives: (1) keep a full record of transactions, (2) find profit or loss, (3) know the financial position, (4) control cash and fraud, (5) supply information for tax and loans.

Rules of Double Entry Account System

Double entry principle: Every transaction has two aspects – one account is debited and another is credited with the same amount. So total debits always equal total credits.

Traditional (Golden) Rules:

Type of account	Meaning	Debit	Credit
Personal	Persons, firms, banks, capital (e.g. Ramesh, SBI)	The receiver	The giver
Real	Assets and things (cash, furniture, goods)	What comes in	What goes out
Nominal	Expenses, losses, incomes, gains	All expenses and losses	All incomes and gains

Modern (Accounting equation) rules: Assets = Capital + Liabilities. Increase in assets and expenses is debited; increase in liabilities, capital and incomes is credited (decreases are the opposite).

Exam tip: In every journal entry first find the two accounts, then their type, then apply the rule. Example: Rent paid ₹5,000 – Rent (nominal, expense) Dr; Cash (real, goes out) Cr.

Accounting Concepts & Conventions

Concepts are basic assumptions on which accounts are kept:

Business entity: Business and owner are separate. Capital is a liability of the business to the owner.
Money measurement: Only facts measurable in money are recorded.
Going concern: The business will continue for a long time, so assets are shown at cost less depreciation.
Accounting period: Life of business is divided into periods, usually 1 April to 31 March in India.
Cost concept: Assets are recorded at purchase price, not market value.
Dual aspect: Every transaction has two sides; basis of Assets = Capital + Liabilities.
Realisation: Revenue is recognised when goods are sold/services given, not when cash is received.
Matching: Expenses of a period are matched with revenues of the same period.
Accrual: Income and expenses are recorded when they are earned or incurred, whether received or paid or not.

Conventions are customs followed while preparing accounts: (1) Consistency – same method every year; (2) Full disclosure – all important facts shown; (3) Conservatism (prudence) – provide for all possible losses, do not count expected profits (closing stock at cost or market price, whichever is lower); (4) Materiality – show important items separately, small items may be grouped.

Preparation of Journal

Journal is the book of original (first) entry in which transactions are recorded in date order. Recording is called journalising. Every entry has: date, debit account with "Dr", credit account with "To", amounts and a narration (short explanation).

Illustration 1: Journalise the following transactions of Ramesh for April 2025, post them to Cash and Bank Accounts and prepare a Trial Balance. Apr 1 started business with cash ₹1,00,000; Apr 3 deposited ₹40,000 into bank; Apr 5 bought goods for cash ₹25,000; Apr 8 bought goods from Suresh on credit ₹30,000; Apr 12 cash sales ₹20,000; Apr 15 sold goods to Mahesh on credit ₹35,000; Apr 18 paid rent ₹5,000; Apr 20 received ₹34,000 from Mahesh in full settlement; Apr 25 paid Suresh ₹29,500 by cheque in full settlement; Apr 28 bought furniture by cheque ₹8,000; Apr 30 paid salary ₹6,000.

Solution – Journal of Ramesh

Date	Particulars	Dr ₹	Cr ₹
2025 Apr 1	Cash A/c ... Dr	1,00,000
	To Capital A/c		1,00,000
	(Being business started with cash)
Apr 3	Bank A/c ... Dr	40,000
	To Cash A/c		40,000
	(Being cash deposited into bank)
Apr 5	Purchases A/c ... Dr	25,000
	To Cash A/c		25,000
	(Being goods purchased for cash)
Apr 8	Purchases A/c ... Dr	30,000
	To Suresh A/c		30,000
	(Being goods purchased on credit from Suresh)
Apr 12	Cash A/c ... Dr	20,000
	To Sales A/c		20,000
	(Being goods sold for cash)
Apr 15	Mahesh A/c ... Dr	35,000
	To Sales A/c		35,000
	(Being goods sold on credit to Mahesh)
Apr 18	Rent A/c ... Dr	5,000
	To Cash A/c		5,000
	(Being rent paid)
Apr 20	Cash A/c ... Dr	34,000
	Discount Allowed A/c ... Dr	1,000
	To Mahesh A/c		35,000
	(Being cash received from Mahesh in full settlement)
Apr 25	Suresh A/c ... Dr	30,000
	To Bank A/c		29,500
	To Discount Received A/c		500
	(Being cheque paid to Suresh in full settlement)
Apr 28	Furniture A/c ... Dr	8,000
	To Bank A/c		8,000
	(Being furniture purchased by cheque)
Apr 30	Salary A/c ... Dr	6,000
	To Cash A/c		6,000
	(Being salary paid in cash)
	Total	3,34,000	3,34,000

Ledger

Ledger is the principal book in which all accounts are kept, each on a separate page. Transferring entries from the journal to the ledger is called posting. Each account has a Dr (left) and Cr (right) side. The difference of the two sides is the balance: written as "By Balance c/d" on the smaller side and brought down as "To Balance b/d".

Illustration 1 (contd.) – Cash Account

Dr (Particulars)	₹	Cr (Particulars)	₹
To Capital A/c	1,00,000	By Bank A/c	40,000
To Sales A/c	20,000	By Purchases A/c	25,000
To Mahesh A/c	34,000	By Rent A/c	5,000
		By Salary A/c	6,000
		By Balance c/d	78,000
Total	1,54,000	Total	1,54,000

Bank Account

Dr (Particulars)	₹	Cr (Particulars)	₹
To Cash A/c	40,000	By Suresh A/c	29,500
		By Furniture A/c	8,000
		By Balance c/d	2,500
Total	40,000	Total	40,000

(Mahesh A/c and Suresh A/c become nil after settlement.)

Cash Book (Single & Double Column)

Cash Book is a subsidiary book in which all cash (and bank) receipts and payments are recorded. It is both a journal and a ledger (Cash A/c), so no separate Cash A/c is opened.

Single column cash book: only one amount column for cash on each side. Receipts on Dr side ("To"), payments on Cr side ("By"). It can never show a credit balance.
Double column cash book: two amount columns on each side – Cash and Bank. (Some older books call a cash-and-discount book "double column"; follow your teacher's format.)
Contra entry: a transaction between cash and bank (cash deposited into bank, cash withdrawn from bank) is written on both sides and marked "C" in the L.F. column.

Illustration 2: Prepare a Double Column Cash Book of Anita Traders for May 2025: May 1 cash in hand ₹15,000, bank balance ₹45,000; May 4 cash sales ₹12,000; May 6 paid into bank ₹10,000; May 9 bought goods by cheque ₹18,000; May 12 received a cheque from Anil ₹9,500 and deposited it the same day; May 15 withdrew ₹6,000 from bank for office use; May 20 paid wages ₹3,000; May 24 withdrew cash for personal use ₹2,000; May 27 paid electricity bill by cheque ₹1,500; May 31 bank charges ₹200.

Date	Receipts (Dr)	L.F.	Cash ₹	Bank ₹	Date	Payments (Cr)	L.F.	Cash ₹	Bank ₹
May 1	To Balance b/d		15,000	45,000	May 6	By Bank A/c	C	10,000
May 4	To Sales A/c		12,000		May 9	By Purchases A/c			18,000
May 6	To Cash A/c	C		10,000	May 15	By Cash A/c	C		6,000
May 12	To Anil A/c			9,500	May 20	By Wages A/c		3,000
May 15	To Bank A/c	C	6,000		May 24	By Drawings A/c		2,000
					May 27	By Electricity A/c			1,500
					May 31	By Bank Charges A/c			200
					May 31	By Balance c/d		18,000	38,800
	Total		33,000	64,500		Total		33,000	64,500
Jun 1	To Balance b/d		18,000	38,800

Remember: Cash balance can never be credit. Bank column may show a credit balance – that is a bank overdraft.

Preparation of Trial Balance

Trial Balance is a statement of all ledger balances (debit and credit) prepared on a date to check the arithmetical accuracy of the books. If both totals agree, posting is arithmetically correct.

Rule: Assets, expenses, losses, drawings, purchases and debtors have debit balances; capital, liabilities, incomes, gains, sales and creditors have credit balances.

Limitation: Errors of omission, errors of principle, compensating errors and wrong-account posting are not shown by a Trial Balance.

Illustration 1 (contd.) – Trial Balance of Ramesh as on 30 April 2025

Sr.	Name of Account	Dr ₹	Cr ₹
1	Cash A/c	78,000
2	Bank A/c	2,500
3	Capital A/c		1,00,000
4	Purchases A/c	55,000
5	Sales A/c		55,000
6	Rent A/c	5,000
7	Salary A/c	6,000
8	Discount Allowed A/c	1,000
9	Discount Received A/c		500
10	Furniture A/c	8,000
	Total	1,55,500	1,55,500

Likely exam questions

(Long, 8/16 marks) Explain the rules of double entry system (Golden Rules) with examples, and state any six accounting concepts.
(Long, 8/16 marks) Journalise the following transactions, post them to Cash Account and prepare a Trial Balance: Started business with cash ₹80,000; bought goods for cash ₹20,000; sold goods to Ravi on credit ₹15,000; paid rent ₹2,000; received ₹14,800 from Ravi in full settlement; bought furniture for cash ₹6,000.
(Short, 4 marks) Distinguish between Book-keeping and Accountancy.
(Short, 4 marks) What is a contra entry? Give two examples.
(Short, 4 marks) What is a Trial Balance? State its limitations.

Unit II →

RTMNU B.Com Sem 3 · CBCAT3T03 · Unit II

Unit II: Final Accounts of Sole Proprietorship

Syllabus topics (RTMNU)

Basic concept of Profit and Loss Account and Balance Sheet
Final Accounts of Sole Proprietorship (Excluding Manufacturing A/c)

Basic concept of Profit and Loss Account and Balance Sheet

Final Accounts: Statements prepared at the end of the accounting year (31 March) from the Trial Balance to find the profit or loss and the financial position of the business. For a sole trader (one-owner business) they are: (1) Trading Account, (2) Profit and Loss Account, (3) Balance Sheet. (Manufacturing Account is excluded from this syllabus.)

Trading Account: A nominal account prepared to find Gross Profit or Gross Loss from buying and selling goods.
Gross Profit = Net Sales + Closing Stock − (Opening Stock + Net Purchases + Direct Expenses).
Direct expenses (debit side): wages, carriage inward, freight inward, octroi, import duty, power and fuel.

Profit and Loss Account: A nominal account that starts with gross profit and shows all indirect expenses and losses (debit side) and other incomes and gains (credit side). The balance is Net Profit (credit balance) or Net Loss (debit balance), which is transferred to Capital Account.

Indirect expenses: salaries, rent, office expenses, printing and stationery, advertisement, carriage outward, bad debts, depreciation, interest on capital. Incomes: commission received, discount received, rent received, interest received.

Balance Sheet: A statement (not an account) showing assets and liabilities of the business on a particular date. It shows the financial position. Liabilities side: capital (plus profit, less drawings), long-term loans, creditors, bills payable, outstanding expenses. Assets side: fixed assets (land, building, machinery, furniture), investments, current assets (stock, debtors, bills receivable, bank, cash, prepaid expenses).

Basis	Profit and Loss Account	Balance Sheet
Nature	An account	A statement
Shows	Profit or loss for a period	Financial position on a date
Items	Nominal accounts (expenses, incomes)	Real and personal accounts (assets, liabilities, capital)
Sides	Dr and Cr	Liabilities and Assets
Balance	Transferred to capital	Not transferred

Importance: tells the owner the result of business, helps in tax return, helps banks give loans, helps planning and comparing years.

Final Accounts of Sole Proprietorship (Excluding Manufacturing A/c)

Common adjustments (each adjustment has a double effect – once in Trading/P&L and once in Balance Sheet):

Adjustment	Effect 1	Effect 2
Closing stock	Credit side of Trading A/c	Assets side
Outstanding expense	Add to that expense (Dr side)	Liabilities side
Prepaid expense	Deduct from that expense	Assets side
Accrued income	Add to that income (Cr side of P&L)	Assets side
Income received in advance	Deduct from that income	Liabilities side
Depreciation	Dr side of P&L	Deduct from the asset
Further bad debts and provision for doubtful debts	Dr side of P&L (bad debts + new provision − old provision)	Deduct from debtors
Interest on capital	Dr side of P&L	Add to capital
Interest on drawings	Cr side of P&L	Deduct from capital

Remember: An item given inside the Trial Balance is shown only once. An item given as an adjustment is shown twice. Closing stock in the Trial Balance (adjusted purchases) goes only to the Balance Sheet.

Illustration 1: From the following Trial Balance of Mr. Kishor as on 31 March 2025, prepare Trading and Profit and Loss Account for the year and Balance Sheet on that date.

Particulars	Dr ₹	Cr ₹
Opening Stock	20,000
Purchases	80,000
Sales		1,30,000
Returns Inward	2,000
Returns Outward		3,000
Wages	6,000
Carriage Inward	2,000
Salaries	12,000
Rent	6,000
Office Expenses	4,000
Machinery	40,000
Sundry Debtors	25,000
Cash in Hand	8,000
Cash at Bank	20,000
Drawings	5,000
Capital		75,000
Sundry Creditors		20,000
Bills Payable		2,000
Total	2,30,000	2,30,000

Adjustments: (1) Closing stock ₹30,000. (2) Depreciate machinery by 10%. (3) Salary outstanding ₹1,000.

Solution – Trading Account of Mr. Kishor for the year ended 31 March 2025

Particulars	₹	Particulars	₹
To Opening Stock	20,000	By Sales 1,30,000 Less: Returns 2,000	1,28,000
To Purchases 80,000 Less: Returns 3,000	77,000	By Closing Stock	30,000
To Wages	6,000
To Carriage Inward	2,000
To Gross Profit c/d	53,000
Total	1,58,000	Total	1,58,000

Profit and Loss Account for the year ended 31 March 2025

Particulars	₹	Particulars	₹
To Salaries 12,000 Add: Outstanding 1,000	13,000	By Gross Profit b/d	53,000
To Rent	6,000
To Office Expenses	4,000
To Depreciation on Machinery	4,000
To Net Profit (to Capital A/c)	26,000
Total	53,000	Total	53,000

Balance Sheet of Mr. Kishor as on 31 March 2025

Liabilities	₹	Assets	₹
Capital 75,000 Add: Net Profit 26,000 Less: Drawings 5,000	96,000	Machinery 40,000 Less: Depreciation 4,000	36,000
Sundry Creditors	20,000	Sundry Debtors	25,000
Bills Payable	2,000	Closing Stock	30,000
Outstanding Salary	1,000	Cash in Hand	8,000
		Cash at Bank	20,000
Total	1,19,000	Total	1,19,000

Working note: Depreciation = 10% of ₹40,000 = ₹4,000.

Illustration 2: From the following Trial Balance of Mrs. Sunita as on 31 March 2026, prepare final accounts.

Particulars	Dr ₹	Cr ₹
Stock (1-4-2025)	35,000
Purchases	1,50,000
Sales		2,30,000
Wages	10,000
Freight Inward	3,000
Salaries	24,000
Insurance	3,600
Bad Debts	1,000
Provision for Doubtful Debts		2,000
General Expenses	5,000
Commission Received		1,000
Sundry Debtors	60,000
Furniture	20,000
Buildings	1,00,000
Cash at Bank	17,400
Drawings	12,000
Capital		1,80,000
Sundry Creditors		28,000
Total	4,41,000	4,41,000

Adjustments: (1) Closing stock ₹45,000. (2) Insurance prepaid ₹900. (3) Wages outstanding ₹2,000. (4) Depreciate buildings by 5% and furniture by 10%. (5) Write off further bad debts ₹1,000 and keep a provision for doubtful debts at 5% on debtors. (6) Allow interest on capital at 6% p.a.

Solution – Trading Account for the year ended 31 March 2026

Particulars	₹	Particulars	₹
To Opening Stock	35,000	By Sales	2,30,000
To Purchases	1,50,000	By Closing Stock	45,000
To Wages 10,000 Add: Outstanding 2,000	12,000
To Freight Inward	3,000
To Gross Profit c/d	75,000
Total	2,75,000	Total	2,75,000

Profit and Loss Account for the year ended 31 March 2026

Particulars	₹	Particulars	₹
To Salaries	24,000	By Gross Profit b/d	75,000
To Insurance 3,600 Less: Prepaid 900	2,700	By Commission Received	1,000
To Bad Debts 1,000 Add: Further Bad Debts 1,000 Add: New Provision 2,950 Less: Old Provision 2,000	2,950
To General Expenses	5,000
To Depreciation: Buildings 5,000 Furniture 2,000	7,000
To Interest on Capital (6%)	10,800
To Net Profit (to Capital A/c)	23,550
Total	76,000	Total	76,000

Balance Sheet of Mrs. Sunita as on 31 March 2026

Liabilities	₹	Assets	₹
Capital 1,80,000 Add: Interest on Capital 10,800 Add: Net Profit 23,550 Less: Drawings 12,000	2,02,350	Buildings 1,00,000 Less: Depreciation 5,000	95,000
Sundry Creditors	28,000	Furniture 20,000 Less: Depreciation 2,000	18,000
Outstanding Wages	2,000	Sundry Debtors 60,000 Less: Further Bad Debts 1,000 Less: Provision 2,950	56,050
		Closing Stock	45,000
		Cash at Bank	17,400
		Prepaid Insurance	900
Total	2,32,350	Total	2,32,350

Working notes: (a) New provision = 5% × (60,000 − 1,000) = ₹2,950. (b) Bad debts charged = 1,000 + 1,000 + 2,950 − 2,000 = ₹2,950. (c) Interest on capital = 6% × 1,80,000 = ₹10,800. (d) Depreciation: buildings 5% × 1,00,000 = ₹5,000; furniture 10% × 20,000 = ₹2,000.

Exam tip: Always write working notes for provision, depreciation and interest. Examiners give marks for steps even if the final total is wrong.

Likely exam questions

(Long, 8/16 marks) What are Final Accounts? Explain the Trading Account, Profit and Loss Account and Balance Sheet of a sole proprietor and state the treatment of any five adjustments.
(Long, 8/16 marks) From the following balances of Mr. Anand as on 31 March 2025 prepare Trading and Profit and Loss Account and Balance Sheet: Capital ₹60,000; Opening stock ₹15,000; Purchases ₹70,000; Sales ₹1,10,000; Wages ₹5,000; Salaries ₹9,000; Rent ₹4,000; Debtors ₹20,000; Creditors ₹16,000; Furniture ₹30,000; Cash ₹33,000. Adjustments: Closing stock ₹25,000; outstanding rent ₹1,000; depreciation on furniture 10%.
(Short, 4 marks) Distinguish between Profit and Loss Account and Balance Sheet.
(Short, 4 marks) Show the treatment of outstanding wages ₹2,000 and prepaid insurance ₹500 in final accounts.
(Short, 4 marks) Write a short note on provision for doubtful debts with an example.

← Unit I Unit III →

RTMNU B.Com Sem 3 · CBCAT3T03 · Unit III

Unit III: Bank Reconciliation Statement

Syllabus topics (RTMNU)

Meaning, need and importance of Bank Reconciliation Statement
Reasons for difference in Bank Balance
Specimens of Bank Reconciliation Statement
Preparation of Bank Reconciliation Statement

Meaning, need and importance of Bank Reconciliation Statement

A business records its bank transactions in the bank column of its Cash Book. The bank records the same transactions in the customer's account and gives a copy called the Pass Book (bank statement). On a given date the two balances often do not agree.

Definition: A Bank Reconciliation Statement (BRS) is a statement prepared on a particular date to explain the causes of difference between the bank balance as per Cash Book and the balance as per Pass Book, and to reconcile (agree) the two.

Balance	In Cash Book	In Pass Book
Favourable (money in bank)	Debit balance	Credit balance
Overdraft (owe the bank)	Credit balance	Debit balance

Need and importance:

Finds errors: mistakes in Cash Book or by the bank are found quickly.
Prevents fraud: regular checking stops staff from misusing cash or cheques.
Shows true bank balance: the business knows the real amount available.
Tracks pending cheques: uncollected cheques and stale cheques are followed up.
Records missed items: bank charges, interest, direct deposits are entered in the Cash Book.
Useful for audit: auditors accept a reconciled bank balance.

Remember: BRS is a statement, not an account. It is not part of the double entry system. It is usually prepared monthly.

Reasons for difference in Bank Balance

A. Timing differences (entry made in one book, not yet in the other):

Cheques issued but not presented: Cash Book is credited at once, but the bank debits only when the payee presents the cheque.
Cheques deposited but not collected: Cash Book is debited at once; bank credits only after clearing.
Bank charges / interest on overdraft: debited by bank; the business learns only from the Pass Book.
Interest and dividend credited by bank: credited in Pass Book first.
Direct deposit by customer (NEFT/RTGS/UPI into the account): only in Pass Book.
Payments by bank on standing instructions (insurance premium, loan EMI, electricity bill via ECS): only in Pass Book.
Dishonour of a cheque or bill: debited by bank first.
Bills collected by bank: credited in Pass Book only.

B. Errors: wrong totalling or wrong amount in the Cash Book, or a wrong debit/credit made by the bank.

Specimens of Bank Reconciliation Statement

The common format has two amount columns – Plus (+) and Minus (−). The balance at the start is put in the plus column (if favourable).

Format: Bank Reconciliation Statement of ... as on ...
Balance as per Cash Book (Dr) ........ (+)
Add: Cheques issued but not presented ........ (+)
Add: Credits made by bank only (interest, direct deposits, collections) ........ (+)
Less: Cheques deposited but not credited ........ (−)
Less: Debits made by bank only (charges, standing payments, dishonour) ........ (−)
Balance as per Pass Book (Cr) = Total plus − Total minus

Item	Start: Cash Book (Dr) balance	Start: Pass Book (Cr) balance
Cheques issued, not presented	Add	Less
Cheques deposited, not credited	Less	Add
Bank charges / interest debited by bank	Less	Add
Interest / dividend credited by bank	Add	Less
Direct deposit by customer	Add	Less
Payment by bank under standing order	Less	Add
Cheque dishonoured	Less	Add

When starting with an overdraft, every rule is reversed (what was added is subtracted). Another method: show the overdraft in the minus column and find the answer as the difference.

Preparation of Bank Reconciliation Statement

Steps: (1) Choose the starting balance (Cash Book or Pass Book). (2) Ask for each item: "Has this made the other book's balance bigger or smaller?" (3) Add or subtract accordingly. (4) The final figure is the balance as per the other book. (5) If the result is negative, it is an overdraft.

Illustration 1: On 31 March 2025 the Cash Book of Sai Traders showed a debit bank balance of ₹25,000. Prepare a BRS from: (a) Cheques of ₹8,000 issued but not presented. (b) Cheques of ₹6,500 deposited but not credited. (c) Bank charges ₹300 debited in Pass Book only. (d) Interest ₹450 credited by bank. (e) A customer directly deposited ₹2,000. (f) Dividend ₹1,200 collected by bank. (g) Insurance premium ₹1,500 paid by bank as per standing instruction.

Solution – BRS of Sai Traders as on 31 March 2025

Particulars	Plus (+) ₹	Minus (−) ₹
Balance as per Cash Book (Dr)	25,000
Add: Cheques issued but not yet presented for payment	8,000
Add: Interest credited by bank, not in Cash Book	450
Add: Amount directly deposited by a customer into bank	2,000
Add: Dividend collected by bank, not in Cash Book	1,200
Less: Cheques deposited but not yet collected/credited		6,500
Less: Bank charges debited in Pass Book only		300
Less: Insurance premium paid by bank (standing instruction)		1,500
Total	36,650	8,300
Balance as per Pass Book (Cr)	28,350

Check: 25,000 + 8,000 + 450 + 2,000 + 1,200 − 6,500 − 300 − 1,500 = ₹28,350.

Illustration 2 (Overdraft): On 31 March 2026 the Pass Book of Mr. Vijay showed an overdraft of ₹40,000. Find the overdraft as per Cash Book: (a) Cheques issued ₹12,000 not presented. (b) Cheques deposited ₹18,000 not credited. (c) Interest on overdraft ₹1,100 and (d) bank charges ₹250 debited in Pass Book only. (e) A bill receivable of ₹5,000 collected by bank, not entered in Cash Book. (f) A customer's cheque of ₹3,000 dishonoured, not entered in Cash Book.

Solution – BRS of Mr. Vijay as on 31 March 2026

Particulars	Plus (+) ₹	Minus (−) ₹
Overdraft as per Pass Book	40,000
Add: Cheques issued but not yet presented	12,000
Add: Bill receivable collected by bank, not in Cash Book	5,000
Less: Cheques deposited but not yet credited		18,000
Less: Interest on overdraft debited in Pass Book only		1,100
Less: Bank charges debited in Pass Book only		250
Less: Customer’s cheque dishonoured, not in Cash Book		3,000
Total	57,000	22,350
Overdraft as per Cash Book	34,650

Explanation: (a) The Cash Book already reduced the balance for cheques issued, so its overdraft is bigger – add. (b) Cash Book already added deposits, so its overdraft is smaller – less. (c), (d), (f) The bank increased its overdraft; Cash Book overdraft is smaller – less. (e) The bank reduced its overdraft; Cash Book overdraft is bigger – add.

Exam tip: Always write the heading with the business name and date. Write "Overdraft" clearly in the last line, otherwise the examiner may treat it as a favourable balance.

Likely exam questions

(Long, 8/16 marks) What is a Bank Reconciliation Statement? Explain its need and the reasons for difference between Cash Book and Pass Book balances.
(Long, 8/16 marks) On 31 March 2025 the Cash Book of Ravi showed a bank balance of ₹18,000. Cheques issued but not presented ₹4,500; cheques deposited but not credited ₹3,200; bank charges ₹150 debited in Pass Book only; interest credited by bank ₹300; electricity bill ₹1,200 paid by bank directly. Prepare a Bank Reconciliation Statement.
(Short, 4 marks) Define Bank Reconciliation Statement and state its importance.
(Short, 4 marks) Distinguish between Cash Book and Pass Book.
(Short, 4 marks) Overdraft as per Cash Book ₹10,000; cheques issued but not presented ₹2,000; bank charges ₹100 not in Cash Book. Find the overdraft as per Pass Book.

← Unit II Unit IV →

RTMNU B.Com Sem 3 · CBCAT3T03 · Unit IV

Unit IV: Final Accounts of Co-operative Societies (As per Maharashtra Co-operative Societies Act 1960)

Syllabus topics (RTMNU)

Introduction
Types of Co-operative Societies
Preparation of Trading & Profit and Loss Account and Balance Sheet

Introduction

Co-operative Society – Definition: A co-operative society is a voluntary association of persons who join together as equals to promote their common economic interest on the basis of self-help and mutual help. In Maharashtra, such societies are registered and controlled under the Maharashtra Co-operative Societies Act, 1960 and the Maharashtra Co-operative Societies Rules, 1961.

Features:

Voluntary membership: anyone with a common interest can join or leave.
Democratic management: "one member, one vote", whatever the number of shares.
Service motive: the main aim is service to members, not maximum profit.
Separate legal entity: after registration it can own property, sue and be sued.
Limited return on capital: dividend on shares is limited as per the Act, Rules and bye-laws.
Compulsory reserve fund: a part of every year's net profit must go to the Reserve Fund (at least one-fourth under the Maharashtra Act).
State control: registration, statutory audit and supervision by the Registrar of Co-operative Societies.

Special points in co-operative accounts:

Books are kept on double entry system; final accounts are Trading A/c, Profit and Loss A/c and Balance Sheet in the forms prescribed for co-operative societies.
Net profit is not distributed in the same year. It is shown in the Balance Sheet. The Annual General Meeting (AGM) decides its appropriation next year.
So the current Balance Sheet shows: last year's profit, less its appropriations (reserve fund, dividend, education fund, etc.), plus the current year's profit.
Entrance fees collected from new members are capital receipts and are credited to the Reserve Fund.
Audit fees, contributions to education fund and similar items are typical expenses or appropriations.

Remember: Appropriation of profit (reserve fund 25%, dividend, education fund, other funds) is done only from the profit of the PREVIOUS year as approved by the general body.

Types of Co-operative Societies

Type	Members / purpose	Example
Credit societies	Give loans to members at low interest; accept deposits (agricultural and non-agricultural/urban)	Primary agricultural credit society, urban credit society, employees’ credit society
Consumers’ societies	Buy goods in bulk and sell to members at fair prices, removing middlemen	Consumers’ co-operative store, Apna Bazar
Producers’ societies	Small producers and artisans join to buy raw material and sell output	Handloom weavers’ society
Marketing societies	Farmers sell produce jointly to get better prices	Cotton/orange growers’ marketing society
Housing societies	Help members get houses or flats and manage the building	Co-operative housing society in a city
Processing / farming societies	Process farm produce or farm land jointly	Co-operative sugar factory, dairy (milk) society
Multipurpose societies	Serve many needs (credit, supply, marketing) in one society	Village multipurpose society

The Maharashtra Co-operative Societies Rules, 1961 lay down the official classification; the types above are the ones commonly asked in exams.

Preparation of Trading & Profit and Loss Account and Balance Sheet

Order of items in a co-operative Balance Sheet:

Liabilities side	Assets side
1. Share Capital (authorised, issued, subscribed, paid-up)	1. Cash in hand and at bank
2. Reserve Fund and other funds (building fund, dividend equalisation fund)	2. Investments
3. Deposits (fixed, savings, current)	3. Loans and advances to members
4. Borrowings (loans from DCC Bank / State Co-op Bank)	4. Interest receivable
5. Interest payable, bills payable, creditors	5. Stock and debtors
6. Dividend payable, other liabilities, provisions	6. Fixed assets less depreciation
7. Profit and Loss Account (last year’s balance after appropriation + current profit)	7. Other assets; Loss, if any

Illustration 1 (Consumers’ society): From the following Trial Balance of Nagpur Shramik Consumers Co-operative Society Ltd. as on 31 March 2025, prepare Trading and Profit and Loss Account for the year and the Balance Sheet.

Particulars	Dr ₹	Cr ₹
Opening Stock (1-4-2024)	40,000
Purchases	2,10,000
Sales		2,80,000
Carriage Inward	3,000
Salaries	18,000
Rent	6,000
Audit Fees	2,000
Printing & Stationery	1,000
Interest on Investments		2,000
Furniture	25,000
Building	1,20,000
Investment in Government Securities	30,000
Cash in Hand	4,000
Cash at Bank (DCC Bank)	21,000
Sundry Debtors	10,000
Share Capital (1,500 shares of ₹100 each, fully paid)		1,50,000
Reserve Fund		30,000
Sundry Creditors		15,000
Profit & Loss A/c (1-4-2024)		13,000
Total	4,90,000	4,90,000

Adjustments: (1) Closing stock ₹55,000. (2) Depreciation: furniture 10%, building 2.5%. (3) Salary outstanding ₹2,000. (4) The AGM appropriated last year's profit of ₹13,000 as: 25% to Reserve Fund, dividend 5% on share capital and 5% of the profit to Co-operative Education Fund. Dividend and education fund are not yet paid.

Solution – Trading Account for the year ended 31 March 2025

Particulars	₹	Particulars	₹
To Opening Stock	40,000	By Sales	2,80,000
To Purchases	2,10,000	By Closing Stock	55,000
To Carriage Inward	3,000
To Gross Profit c/d	82,000
Total	3,35,000	Total	3,35,000

Profit and Loss Account for the year ended 31 March 2025

Particulars	₹	Particulars	₹
To Salaries 18,000 Add: Outstanding 2,000	20,000	By Gross Profit b/d	82,000
To Rent	6,000	By Interest on Investments	2,000
To Audit Fees	2,000
To Printing & Stationery	1,000
To Depreciation: Furniture 2,500 Building 3,000	5,500
To Net Profit c/d (to Balance Sheet)	49,500
Total	84,000	Total	84,000

Balance Sheet as on 31 March 2025

Liabilities	₹	Assets	₹
Share Capital Authorised, issued and subscribed: 1,500 shares of ₹100 each, fully paid	1,50,000	Cash in Hand	4,000
Reserve Fund 30,000 Add: Appropriation from last year’s profit 3,250	33,250	Cash at Bank (DCC Bank)	21,000
Dividend Payable	7,500	Investment in Government Securities	30,000
Co-operative Education Fund Payable	650	Sundry Debtors	10,000
Sundry Creditors	15,000	Closing Stock	55,000
Outstanding Salary	2,000	Building 1,20,000 Less: Depreciation 3,000	1,17,000
Profit & Loss A/c Balance as per last Balance Sheet 13,000 Less: Appropriations: Reserve Fund 3,250 ; Dividend 7,500 ; Education Fund 650 Balance 1,600 Add: Profit for the current year 49,500	51,100	Furniture 25,000 Less: Depreciation 2,500	22,500
Total	2,59,500	Total	2,59,500

Working notes: Reserve fund = 25% × 13,000 = ₹3,250; dividend = 5% × 1,50,000 = ₹7,500; education fund = 5% × 13,000 = ₹650; balance of old profit = 13,000 − 3,250 − 7,500 − 650 = ₹1,600. Depreciation: furniture 10% × 25,000 = ₹2,500; building 2.5% × 1,20,000 = ₹3,000.

Illustration 2 (Credit society): From the following Trial Balance of Vidarbha Urban Co-operative Credit Society Ltd. as on 31 March 2026, prepare Profit and Loss Account and Balance Sheet.

Particulars	Dr ₹	Cr ₹
Loans to Members	3,00,000
Interest Paid on Fixed Deposits	18,000
Interest Paid on Loan from DCC Bank	6,000
Salaries	24,000
Rent & Taxes	6,000
Office Expenses	3,000
Fixed Deposit with DCC Bank (Investment)	80,000
Cash in Hand	5,000
Cash at Bank	34,000
Furniture	15,000
Share Capital		1,00,000
Reserve Fund		25,000
Members’ Fixed Deposits		1,80,000
Members’ Savings Deposits		60,000
Loan from DCC Bank		50,000
Interest Received on Loans		60,000
Interest on Investments		6,000
Entrance Fees		1,000
Profit & Loss A/c (1-4-2025)		9,000
Total	4,91,000	4,91,000

Adjustments: (1) Interest accrued on loans ₹4,000. (2) Interest outstanding on fixed deposits ₹3,000. (3) Depreciate furniture by 10%. (4) Entrance fees are to be transferred to Reserve Fund. (5) Last year's profit ₹9,000 was appropriated: 25% to Reserve Fund and dividend ₹6,000 (6% on share capital), not yet paid.

Solution – Profit and Loss Account for the year ended 31 March 2026

Particulars	₹	Particulars	₹
To Interest on Fixed Deposits 18,000 Add: Outstanding 3,000	21,000	By Interest on Loans 60,000 Add: Accrued 4,000	64,000
To Interest on Loan from DCC Bank	6,000	By Interest on Investments	6,000
To Salaries	24,000
To Rent & Taxes	6,000
To Office Expenses	3,000
To Depreciation on Furniture	1,500
To Net Profit c/d (to Balance Sheet)	8,500
Total	70,000	Total	70,000

Balance Sheet as on 31 March 2026

Liabilities	₹	Assets	₹
Share Capital	1,00,000	Cash in Hand	5,000
Reserve Fund 25,000 Add: Entrance Fees 1,000 Add: From last year’s profit 2,250	28,250	Cash at Bank	34,000
Members’ Fixed Deposits	1,80,000	Fixed Deposit with DCC Bank	80,000
Members’ Savings Deposits	60,000	Loans to Members	3,00,000
Interest Outstanding on Fixed Deposits	3,000	Interest Accrued on Loans	4,000
Loan from DCC Bank	50,000	Furniture 15,000 Less: Depreciation 1,500	13,500
Dividend Payable	6,000
Profit & Loss A/c Balance as per last Balance Sheet 9,000 Less: Reserve Fund 2,250 ; Dividend 6,000 Balance 750 Add: Profit for the current year 8,500	9,250
Total	4,36,500	Total	4,36,500

Note: A credit society does not buy and sell goods, so no Trading Account is needed. Its main income is interest on loans and its main expense is interest on deposits.

Exam tip: Never deduct the current year's profit appropriation in the same Balance Sheet. Show current profit as "Add: Profit for the current year" under Profit and Loss Account on the liabilities side.

Likely exam questions

(Long, 8/16 marks) What is a co-operative society? Explain its features and the different types of co-operative societies.
(Long, 8/16 marks) From the given Trial Balance of a consumers' co-operative society prepare Trading and Profit and Loss Account and Balance Sheet: Share capital ₹1,00,000; Reserve fund ₹20,000; Sales ₹1,80,000; Opening stock ₹25,000; Purchases ₹1,30,000; Salaries ₹12,000; Rent ₹4,000; Building ₹80,000; Debtors ₹15,000; Creditors ₹10,000; Cash ₹44,000. Closing stock ₹30,000; depreciate building by 5%.
(Short, 4 marks) State any four features of a co-operative society.
(Short, 4 marks) How is the net profit of a co-operative society shown in its Balance Sheet?
(Short, 4 marks) Write a short note on Reserve Fund of a co-operative society under the Maharashtra Co-operative Societies Act, 1960.

← Unit III