Account

What is bookkeeping? What are the importance and advantage of preparing bookkeeping?
Explain

Bookkeeping

 Bookkeeping is the activities concerned with the systematic recording of financial

transaction made by a business firm on a day to day basis.
 It allows a firm to keep an upto date record of the current incoming and outgoing
amounts owed by customers and business firm.
 For each transaction, there must be a document that describes the business transactions.

Importance of bookkeeping

 For maintaining accurate record of financial transactions of a business firm.

 For providing detail information about expenses and income to fulfill tax obligation.
 For helping accountant to prepare financial statement to show a firm’s financial position.
 For ensuring that cash flow is healthy and a firm is in strong position.
 For assisting in formulation of necessary business strategy by proving necessary
information.
 For providing detail report of a firm’s status to investors in order to increase their
confidence on their investment.
 For helping decision makers to make appropriate financial decision.
 For fulfilling necessary legal requirements to save a firm from legal trouble.

Advantages of Bookkeeping

 Keeps detail record of financial transactions to supervise business account.

  Meeting legal obligation in maintaining accurate and upto date financial report for the
business form.
 It allows creating accountability and transparency in financial records.
 It allows making informed decisions about the business as it provides accurate data
related to financial transactions.
 It is helpful in preparing financial statement of the firms.
 It retains existing investors and attracts potential investors by providing detail
information about a firm’s performance.
 It enables a business to see how cash is flowing in and out of its business firm.
 It safeguards firm’s resources from internal theft and frauds.

Bookkeeping is essential to any business and small firms. It act as a financial informer to
decision makers of such firm to take appropriate financial decisions in a suitable time for the
accomplished a firm’s goals and objectives by keeping record of financial transaction made by a
firm.

What is accounting? Explain the importance and principles of accounting in a brief.

Accounting

 Accounting is basically a systematic and scientific process of summarizing, classifying,

interpreting financial transaction made by a business firm in an accounting period and to
providing relevant information to the various users of a business firm to facilitate in
decision making process.
 It also can be define as a language of business firm as it communicates with a business
firm’s stakeholders.
 It is essential for the effective communication between a business firm and its
stakeholders for a sustainable growth of a business firm.

Importance of Accounting
  For recording a financial transactions and maintaining a journal ledger to keep them all.
 For classifying and separate the records and the ledger.
 For highlighting strong and weak part in a business firm and to obtained competitive
advantage
 For analyzing data and records for the various purpose.
 For communicating and spreading the obtained financial information to the stakeholders.
 For assisting management by helping them to make an appropriate financial decision for
a business firm.
 For evaluating and employees and their work efficiency.
 For preventing frauds and profit risks in an organization.

Concept or Principles of Accounting

Business entity concept: This concept assumes that as far as accounting is concerned, the owner
and a business firm are two separate entities or they both have separate existing.

Money measurement concept: Only those transactions will be recorded in accounting which can
be measured in monetary value.

Going concern concept: A business firm will not have to sell its assets and terminate anytime
soon as it operates indefinitely.

Accounting period concept: Every organization according to its needs have to choose a specific
period of time to complete an accounting cycle. Usually, the time chosen is a year is called the
accounting period.

Historical cost concept: A business firm should record its financial transactions at original price
rather than market price.

Double entry concept: For every credit, there must be a corresponding debit. So that every
recorded transaction have a twofold effect.

Realization concept: The revenue is only recorded when it is received not after selling goods.

Matching concept: Income and expenses of transactions should be recorded in the same
accounting period.

Full disclosure concept: All the relevant information should be disclosed in the accounting
statement.
Consistency concept: Unless there is a statutory requirement, accounting policy should not be
frequent changed.

Materiality concept: All the material fact must be a part of the accounting process but
immaterial fact i.e. insignificant information should be left out.

Cash basis concept: Only cash based transactions occurred in an accounting period is recorded.

Accrual basis concept: Records all the financial transactions including cash, receivable payable
transactions

Single entry transaction: In the absence of debit and credit rule in accounting activities, this
concept comes into the force but it is used in household not in business sector.

Conservatism concept: It inclines future losses but not profit until it is realized or recognized.

By following above mentioned principles of accounting, accountants can establish effective

communication with its various users. Since, effective communication between business firm
and its stakeholders ensures sustainable business growth, it is essential to adopt accounting
system to any business firm.

Discuss the difference between bookkeeping and accounting with suitable examples?

Basis of
comparison Bookkeeping Accounting
It is a process of identifying, It is a systematic and scientific process
Definition measuring and recording financial of summarizing, interpreting financial
transactions transaction which was classified in the
ledger account.
Decision Management cannot take decision Management takes decision based on
making based on the data provided by relevant information provided by
bookkeeping. accounting.
Objectives To keep record of financial To measure financial situation and
transaction in a proper and established communication between a
systematic propose. firm and its stakeholders.
Preparation of Financial statements are not Financial statements are prepared during
financial prepared as a part of this process. the accounting process.
statement
Analysis Bookkeeping does not analyze It does analyze and interpret financial
financial transactions transactions with the help of
bookkeeping.
Types There are two types of There are more than ten types of
bookkeeping i.e. single entry accounting such as cost accounting,
bookkeeping and double entry financial accounting, managerial
bookkeeping. accounting etc.
Skill and It does not require specific skill It requires specific skill and knowledge
Knowledge and knowledge to prepare due to its analytical and complex nature.
bookkeeping.
Interdependency It can be prepared without the It cannot be prepared without the
absence of accounting, hence it is absence of bookkeeping, hence it
independent. depends on bookkeeping.

Even though both have some similarities and differences but as a matter of fact a both system
plays crucial role while proving relevant financial information to various users for appropriate
decision making process that ensures sustainable growth of business firm.

What is journal voucher? Explain the use of a journal voucher in accounting.

Journal voucher

 Journal voucher is called ‘Goswara Voucher’ in Nepal. Journal voucher is a primary and
most important for recording financial transactions in accounting system.
 It is also known as a original entry because every financial transaction of the government
is recorded first of all in this journal voucher.
 It is based on a principle of double entry system of bookkeeping.

Use or importance of journal voucher

 To recording non-cash non-trading types of transactions.

 To helping the auditors to understand the impact of financial transactions in a business.
 To acting as an evidence for future reference.
 To forms the basis of rectification entries.
 To helps in closing the books of accountants at the end of the year.
 To helps companies with significant financial reporting.
 To provides smooth back up for a reversal of entries.
 To put all business transactions in the chronological order of their occurrence in a
business firm.

What is bank cash book, its objective and importance? What factors should be considered
while preparing Bank cash book? Describe.

Bank cash book

 A bank cash book is a multi-ledger column or financial journal that records cash receipt
and loan disbursement including bank deposit and withdrawals in form of notes, coins
and cheques.
 It is prepared by operating level officers of government of Nepal to maintain the record
of cash and baking transactions under AGF No. 5.
 It follows the accounting principle of double entry system which is prepared on the basis
of journal voucher and trial balance checks whether posing made in Bank cash book is
correct or not.

Objectives of Bank Cash Book

 To make systematic and permanent record of all cash and banking transactions.
 To control banking and cash related transactions effectively and efficiently.
 To show position of cash account, bank account, budget expenditure account, advance
account, and miscellaneous account.
 To provide completion of the double effect of each transactions.
 To estimate the amount of cash requirement and disbursement.
 To show bank balance of the office at given period of time.
 To supply necessary and reliable information and data for preparing monthly statement
and other financial reports.

Importance & Advantage of Bank Cash Book

  It is required to prepare trial balance in order to check arithmetic accuracy in financial
transactions made by a government of Nepal.
 It is useful to check misuse, misappropriation and internal theft of cash.
 It keeps safe and control cash in a proper & suitable manner.
 It helps to cross check balance as shown by the bank statement.
 It is useful in reducing changes of tried and misuse.
 It shows amount of cash balance, expenditure, and bank balance, advance given and
cleared at any time after each transactions.
 It provides reliable data or information which help in preparing financial statement and
reports.

Factors that should be consider while preparing Bank cash book

 Journal voucher should be prepared before posting any transaction into bank cash book.

 Only cash transactions are to be posted in Bank Cash Book chronologically.

 Those amounts that are debited and credited in journal voucher are entered in debit and
credit side of appropriate column respectively.
 Financial transaction related to cash, bank, advance and budget expenditure are recorded
in allotted columns of bank cash book.
 The transactions which do not relate to cash, bank, advance and budget expenditure
account are recorded in miscellaneous column.

 Advance transactions are to be posted in 3 different accounts in bank cash book.

 Advance fund and budget release are the only transaction recorded as receipt in bank cash
book.
 Petty cash fund expenses are recorded in bank cash book only when reimbursements of
such expenses are made.
 At the end of each month, total of each account should be drawn an added to the total
upto the previous month.

Bank cash book was introduced as a part of new accounting system to minimize the
misappropriation or embezzlement of cash. Such book is considered as a mechanism to control
and safeguard cash at the bank or any other organization.

What is double entry system? What are its features, advantage, and importance? Also discuss
the differences between single and double entry system?
 Double entry system

 Double entry system is a systematic and scientific accounting concept that states each
financial transaction has equal and opposite effect in both side of account as it assume
that every financial transactions has two aspects.
 It satisfied the following accounting equal; Assets= Liabilities + Equity.
 In B.S 1993, Biratnagar Jut mil used the double entry system for the first time in the
private sector in Nepal.

Features of double entry system

 Double effect of each financial transaction into two different accounts on two opposite
side.
 Equal effect on both side of account.
 Recognize every financial transaction has two aspects named Debit’ & ‘Credit’.
 Scientific, complete, and reliable method of an accounting system.
 Based on universally accepted accounting concept of accounting.
 Transfer of ownership from one person (who is giver) to another person (who is receiver)
 Separate existence of business firm and its owner.
 Classified account into person, nominal, and real account.
 Complex to understand, time consuming, expensive and is not suitable for small business
firm.
 Basis of preparing financial statements.
 Keep record of complete financial transaction
 Compare and analyze financial statement.
 Identify and prevent accounting errors and frauds

Importance or advantage of double entry system

 It provides accurate result related to financial position of a business firm.

 It ascertains profit and loss of a business firm by preparing profit and loss account for
given period of time.
 It is useful in controlling cost by providing necessary information.
  It provides relevant financial information to various users of accounting for their making
appropriate and effective decision.
 It is helpful in preparing Trial balance and financial statements.
 It helps to detect and prevent frauds and accounting error by monitoring financial
transaction made by a business firm.
 Since it is universally accepted accounting concept, it can be used by anyone for keeping
the record of financial transaction.
 It keeps record of financial transaction systematically and scientifically with suitable
narration

Double entry system is scientifically correct methods of accounting as it assume that each
accounting transaction do have two aspects i.e. debit and credit. Therefore, it provides reliable
information about the transactions for making appropriate decision.

Discuss the differences between single entry system and double entry system?

Single entry system vs. Double entry system

Basis of
Comparison Single entry system Double entry system
Definition It is an oldest accounting system It is scientific and systematic accounting
which record only one side of each concept that states every transactions has
transactions. equal and opposite effect in the both side
of account.
Nature It is fair and simple in nature. It is more scientific and complex in
nature.
Principle of It is not based on a principle of It follows accounting principle of duality.
duality duality.
Tax propose It is not suitable for tax purpose. It is easy to determine taxes.
Decision It does not provide relevant It provides relevant information to make
making information to make a decision. a decision.
Error Difficult to identify possible frauds Easy to identify error and frauds.
detection and accounting error.
Suitability It is suitable form small firm. It is suitable for large business firm.
Types of Only personal and real account is Real, nominal, and personal account is
account considered. maintained.
Preference It is not preferred by stakeholders as It is preferred by stakeholders as it
of it provides one side picture of a provides a complete financial picture of a
stakeholders business firm. business firm.
Acceptance It is not accepted by everyone for It is universally accepted accounting
recoding financial transactions. concept for recording financial
transactions.

What is trial balance? Highlight its purpose and significant. Discuss the methods to prepare
trial balance?

Trial balance

 Trial balance is a tabular statement of debit and credit balance of ledger account, which is
prepared in order to prove arithmetic accuracy of books of account.
 A business firm prepares trial balance usually at the end of accounting period which
facilitate for the preparation of financial statements.
 When the sum of debit and credit columns of trial balance are equal, it is regarded as
balanced i.e. the accounts are mathematically accurate.

Objectives of preparing trial balance

 To ascertain arithmetic accuracy of book of accounts.

 To provide summary information of all the ledger account in one place.
 To locate and rectify accounting errors at an early stage.
 To minimize different types of accounting errors and frauds.
 To form a basis for preparation of financial statement.
 To make comparison of various heading of financial statements between two different
period

Importance of trial balance

 For verifying arithmetic accuracy of ledger account.

 For helping in preparation of financial statements at the end of each accounting period.
 For detecting, rectifying, and minimize accounting errors and frauds.
 For facilitating in comparative analysis by comparing past balance with current year
balance to make appropriate decision.
 For assisting auditor to prepare audit report by providing relevant information.
 For helping in making decision regarding a financial budget to improve a business firm’s
performance.
 For making necessary adjustment if accounting errors are found.
 For helping to view a complete financial picture of a business firm by proving summary
information of all the ledger account.

Methods to prepare Trial balance

Total method:

 Under this method; total (not balanced) of each side of ledger account i.e. Debit & Credit,
shown in the respective column of Trial balance.
 The debit balance and credit balance should be equal as the accounts are based on the
double entry system.
 However, this method is not used widely as it does not verify arithmetical accuracy of
balance of various accounts and preparation of financial account.

Balanced method

 Under this method, trial balance is prepared by showing all the balance of ledger
accounts in the respective columns of trail balance to assure their correctness.
 This method is the most common method to prepare trial balance as it show the net effect
and also helps in preparation of the financial statements.
 Instead of showing individual accounts of debtors and creditors, it shows sundry debtors
and creditors’ accounts.

Total cum balance method or compound method

 This method is a combination of total method and balance method. It is also not used in
practice as it time consuming and hardly serve any special purpose.
  Under this method; four columns for amount is prepared. Two columns for writing debit
and credit of total various accounts and two columns for writing debit and credit balance.

Trial balance plays crucial role in preparing financial statements of a business firm. On the basis
of such financial statements, management takes necessary decisions regarding to improve
financial health of a firm. For this course of action, a firm prepares trial balance by using balance
method to assure correctness and financial statements.

What types of errors are disclosed by Trial balance and what types of errors are not disclosed
by Trial balance? Also mentioned the steps to be taken to find fault with the Trial balance.

 Trial balance is a tabular statement of debit and credit balance of ledger account, which is
prepared in order to prove arithmetic accuracy of books of account. It is helpful in
disclosing errors and to adjust such errors but some errors cannot disclose by Trial
balance which are mentioned below with the steps to find out such errors.

Errors that are disclosed by Trial balance or errors that affect Trial balance

 Enter in journal account but posted to one account and omitted to be posted to other
account.
 Posting amount on the wrong side of a ledger account.
 Posting amount twice in a ledger account
 Over-casting and under-casting in a subsidiary book.
 Posting wrong amount to the correct side of an account.
 Omission to post an entry from subsidiary book.
 Errors made in preparing the list of debtors and creditors.
 Errors made in carrying forward the from one page to another page.
 Errors of partial omission.
 Errors arising in the balancing of an account.

Errors that is not disclosed by Trial balance or errors that doesn’t affect Trial balance
  Treating revenue nature expenditure as capital expenditure
 Omitting transaction completely
 Entering a transaction in a wrong subsidiary book
 Entering a transaction twice in a subsidiary book or journal
 Entering the amount of a transaction wrongly in the journal
 Entering the amount of a transaction wrongly in a subsidiary book
 Under and over posting of the transactions on debit and credit side of an account
 Posting amount twice in ledger account
 One error overlapped by another same amount of error or one error compensate another
error

Steps to identify errors

 Recast the total of the debit and credit columns of the Trial balance.
 Compare each accounting heads and its amount appeared in the ledger account to detect
any differences in amount or omission of any account.
 Compare trial balance of current year with that of previous year to check the additions or
deletion to any accounts and to verify if there is any unexplained difference in amount.
 Recheck the correctness of balance of individual accounts in their respective ledger.
 Recheck the accuracy of the posting in individual accounts from the transactions entered
in the books of original entry.
 If the differences between the debit and credit columns is of ‘1’, ‘10’, ‘100’, or ‘1000’ the
casting of the subsidiary book should be rechecked.
 If the difference between debit and credit columns is divisible by 2, then there is a
possibility that an amount equals to half the differences may have been posted to the
wrong side of another ledger account.
 The above points may also indicate a complete omission of posting.
 If the differences are divisible by 9, the mistake could be because of transposition of
figure.
 If it is not possible to locate errors, the difference in the trial balance for that moment is
transferred to the suspend account. The entire one sided errors detected are rectified
through this account.

Trial balance is prepared by a business firm to check the accuracy of the books of account by
adjusting accounting errors but sometimes it does not disclosed any errors which does not affect
Trial balance. If the above mentioned steps are taken, such errors can be found and adjusted.
What is bank reconciliation? Clearly mention about the reasons and methods of preparing
bank reconciliation statement in bank?

Bank reconciliation statement

 Bank reconciliation statement refers to the summary of the banking and business
activities that reconcile an entity’s bank account with its financial transactions.
 This statement records deposit, withdrawals and other financial activities affecting a bank
account for a certain period of time.
 Bank reconciliation statement helps to maintain transparency in financial transactions
occurred between banks and the customers.

Reasons to prepare bank reconciliation statement

 For checking bank related transactions are recorded properly or not.

 For detecting and preventing accounting errors while recording transactions.
 It is compulsory to prepare statement to maintain transparency to gain customers’ trust.
 For tracking interest rate and fee or penalties on your account.
 For detecting and preventing frauds in near future.
 For identifying entities for receipts which you didn’t deposit.
 For identifying valid transactions recorded by one party but not by the other.

Methods of preparing BRS

 Compare the opening balance of both the bank column of the cash book as well as the
bank statement.
 Compare the credit side of the bank statement to the debit side of the bank statement.
  Analyze entries in the bank column of the cash book as well as in checkbook.
 Calculate the balance after revising the updated cash book’s bank column.
 Prepare bank reconciliation statement accordingly.
 Add UN presented cheques and deduct UN credited cheques.
 Make all the final adjustments and check for bank error
 Result of cash book and bank statement must be equal.

Preparing bank reconciliation statements helps banks and financial institution to maintain
transparency in financial transactions and detect accounting errors and frauds and prevent them
to conduct healthy financial transactions.

Explain the cause for differences between passbook and cash book? Suggest measures to solve
it and also discuss the differences between passbook and cash book?

Cause of differences between passbook and cash book

 Cheques issued but not yet presented for payment in the bank.
 Cheques paid or deposited but not yet collected and credited by the bank. Bank charges
not entered in the Cash Book.
 Interest credited by bank but not yet entered in Cash Book.
 Expenses directly paid by bank on behalf of customer but not yet recorded in cash book.
 Income directly collected by bank on behalf of customer but not yet recorded in cash
book.
 Amount directly deposited into bank by debtors but not entered in Cash Book.
 Cheque deposited into the bank but dishonored by the bank.
 Error and Omission.
 Due to advancement of technology, the electronic transfer will change the balance as
passbook but balance as per cash book will remain unaffected.
 Differentiate clearly between cash flow statement and fund flow statement?

Cash flow statement is prepared to find out the flow of cash over certain period of time and fund
flow statement is prepared to find out the reason behind the change financial position of the
country of the company between two balance sheets.

Cash flow vs. Fund flow statement

Basis Cash flow statement Fund flow statement

Analysis It analyze only transactions that are It analyze on boarder concept which is
based on cash working capital

Source It only identifies cash as a source by It identifies various sources from where
showing opening and closing funds can be generated.
balance.

Uses It is useful to understand short-term It is useful to assessing long term financial

phenomena affecting the liquidity of strategies.
the business.

Change in Changes in current assets and current Change in current assets and current
working liabilities are shown in the cash flow liabilities are shown through schedule of
capital statement itself. changes in working capital.

Result It shows the cause behind the

changes in cash.
Principle Cash flow statement is based on cash Fund flow statement is based on accrual
of basis of accounting principle. basis of accounting principle.
accounting

Both statements have some degree of differences because both are based on different accounting
principle and assumptions yet both statement plays crucial role to manage and indentify the
source of fund.

What is profit and loss account? Write down its importance in a business firm and discuss why
and how such statement is prepared.

Profit and loss account

 Profit and loss account is a financial statement that summarizes the revenue, cost, and
expense of a firm incurred during an accounting period.
 It is also known as a income statement that provides reliable information about a
business firm ability or inability to generate enough revenue to cover its expenses. It
shows the earning capacity of a firm.
 It is prepared after the trading account at the end of an accounting period which could be
monthly, quarterly or yearly.

Importance of PL Account

 To provide information about a business firm’s financial results i.e. net profit or net loss.
 To evaluate the performance of a business firm and forecast future perform ace of such
firm.
 To summarize and classified income and expenses incurred during a specific accounting
cycle.
 To provide valuable information required by a banker at the time of sanctioning loan and
advances.
 To assessing risks of not achieving certain level of financial goal in near future.
 To provides information regarding the determination of tax obligation.
 To generate revenue by reducing unnecessary cost and expenses.
 To maintain and create financial discipline and transiency respectively.

Objectives of PL Account

 To know the financial result of a business firm at the end of an accounting period.
 To provide the information about office and administrative expenses.
 To provide the information about various expenses such as selling and distribution, office
and administrative and other expenses
 To make appropriate decision regarding the financial performance of a firm.
 To control unnecessary expenses and cost incurred during an accounting period.
 To compare current financial result with previous to analyze a firm’s performance in
terms of profit and loss.
 To calculate profitability and other financial ratios for several purposes.
 To maintain financial discipline and transparency respectively.

Preparation of PL Account

 At first trading account should be prepared in order to find out gross profit or loss by
subtracting direct cost from the revenue.
 In case, NRB has prescribed a separate format then it is mandatory to prepare income
statement in such format.
  All expenses and losses are recorded on the debit side and all the income and gains are
recorded on the credit side of PL Account,
 A business firm can chose either Traditional (T) or vertical format to prepare income
statement.
 While preparing income statement, banks and financial institutions should prepare such
statement by using vertical format as mentioned in unified directives no. 4 issued by
Nepal Rastra Bank.
 Interest income and other financial transactions are recorded on cash and accrual basis
respectively.

Income statement is one of the important financial statements to any business firm as it provides
relevant information about financial activities of a firm to determine its current and future
financial performance.

Explain about the headings that are included under profit and loss account?

P/L Account

 It is a financial statement that summarizes and analyzes the cost, revenue, and other
expenses of a firm for the certain period of time. During the preparation of P/L account, It
includes various operating, non-operating and other financial headings.

Major headings of P/L Account

 Interest income on bank's investment or on loan and advances

 Interest expenses incurred while paying interest to depositors
 Net income interest after interest expenses deducted from interest income
 Fee & commission income on the services provided by a firm
 Fee & commission expenses while providing services to general public
 Net Fee & commission income after deduction of Fee & commission expenses from Fee
& commission income
 Net trading income by deducting all allowable business, capital allowance, and other
trade loss from gross trade income
 Operating income generates from the operating activities of the bank
  Other operating income from other operating activities which are not related to the
principal activities of the bank
 Operating expenses incurred while managing and providing services
 Loan loss provision fund for estimated loan loss in near future
 Net operating income after deducting loan loss provision from total operating income
 Profit before tax is the result of adding non operating income and subtracting non
operating expenses
 Net profit is the final result of the income statement after deducting taxes from profit
before tax

Profit and loss statement or income statement provides valuable and crucial information about a
firm. It helps management to evaluate the performance of a firm and gain control over
unnecessary expenses incurred in a firm.

What is balance sheet? Why it is prepared. Describe in details the difficulties that arise while
preparing balance sheet.

Balance sheet

 Balance sheet is a financial statement of assets and liabilities of a business firm on a

particular period of time.
 It presents liabilities and assets on the left and right side of its body either in order of
performance or due to liquidity.
 In short, balance sheet is a financial statement that shows, how much a firm owes to
others and how much others owes to firm and that determine the future of any firms.

Purpose of preparing Balance Sheet

 To present actual financial position of a firm in a particular period of time.

 To know the actual amount of sundry debtors and creditors.
 To show nature, value, and position of all assets and liabilities of a firm.
  To obtain loan and advances from banks and financial institutions by reflecting actual
financial position of a firm.
 To provide detail information about the liquidity position of a firm.
 To calculate financial ratios to show the relation between the transactions.
 To provide detail information about the financial position of a firm to its stakeholders.
 To help to determine the actual value of the business firm at the time of sale or
liquidation.

Difficulties arises while preparing Balance Sheet

 To present accurate financial future of a firm of a business firm due to omitting of

transactions.
 To visualized financial position of a firm due to incorrect classification of assets and
liabilities.
 To perfectly valued the financial transactions due the transposition error.
 Inaccurate value of inventory due to forgetting to record inventory changes.
 To approximate the current value of assets and liabilities as it was recorded in its original
price.
 To present accurate information on balance sheet due error of omission.
 To determine the exact value of assets as work In progress is not recognized due to cash
basis accounting concept.
 To adjust off balance sheet transactions while preparing balance sheet.
 To balanced assets and liabilities due to the information contained within financial
documents is incorrect.

Balance sheet is another important financial statement that provides information to make
appropriate decisions regarding a financial future of a firm but while preparing such statement,
some difficulties arises due to accounting errors which can be minimize by reconcile the
financial information contained within balance sheet with the original financial documents.
 Confirm the statement "Balance sheet is mirror of the overall financial position of the
organization".

Following are the points that confirm why Balance Sheet is reflect the actual financial position of
a business firm;

 It tally sum of total assets with sum of total liabilities, and id the total assets exceeds the
total liabilities, the financial position or health of a business firm is considered to be
strong.
 It shows how much other owes to a firm and how much a firm to owe to others in cash or
credit.
 It shows how much debt a firm is using relative to its equity.
 It shows how quickly customers are paying their bills.
 It shows whether a firm is able or in able to pay its short term obligations in a given
period of time.
 It shows how much assets and liabilities are generating while conducting financial
transaction in an accounting period.
 It shows whether the products are being returned at higher than average historical rates.
 It shows in how many days, a firm can sell its inventories and how much inventories are
in hand.
 It shows whether the research and development budget is preparing satisfactory result or
not.
 It shows whether a firm is paying interest on its debt or not.
 It shows where the profits are spend or reinvested or how much amount is distributed as a
dividend to its shareholders.
 It shows how much a firm has invested on the productive sectors to generate revenue and
interest income.
 It shows the increment and decrement on the owner’s equity which allows investors to
see how much money has been generated through business transaction over a certain
period of time.
  It shows the market capitalization of a business firm.
 It shows the reputation or goodwill of a business firm in form of intangible assets for
gaining its multi-users and potential users.

Balance sheet provide all these complete and correct financial information to its various users
regarding a financial position of a firm which facilitates them to make appropriate or sound
financial decisions. This is why Balance Sheet is called a mirror of the overall financial position
of a business firm.

"Balance sheet and profit and loss account is interdependent" justify the statement with
suitable examples.

Balance sheet and profit and loss account both are important financial statements that provide
accurate information to make appropriate decisions regarding a financial performance of a firm.
Even though these statements are completely difference yet both are depends to each other.

Inter-dependency of Balance Sheet & PL Account

 Net profit or net loss of PL account is may increase or decrease the capital side of
balance sheet.
 Depreciation which is deducted from the assets is recorded on the debit side of PL
Account.
 An outstanding expense that is recorded on the respective heading of expenses of PL
Account is recorded on the liabilities side of the balance sheet.
 Provision for bad debt which is deducted from the debtor on balance sheet is recorded on
the debit side of PL Account.
  Balance sheet cannot be prepared without PL Account and PL Account failed to disclose
the impact of revenue in absence of balance sheet.
 The amount shown as cash or at the bank under current assets on balance sheet will be
determine in part by the income and expenses recorded in the PL Account.
 Short-term loan which is shown in balance sheet under current liabilities, interest
payment on such loan is recorded on the expenditure column of PL Account and these
figure effect net profitability of a firm.
 PL Account explains the changes in the owner’s capital or equality between the opening
and closing balance sheet of an accounting period.
 Balance sheet shows the transactions remaining for the execution as a result of the
transactions of the PL Account.
 Increased or decreased sales revenue recorded on PL Account determine the amount of
assets shown on balance sheet.
 Decreased or increased amount of cost of goods sold recorded on PL Account positively
or negatively affect the level of inventory that is shown in Balance Sheet.
 Amount of Net profit and Net loss shown in PL Account determine the amount of
Dividend shown in the liabilities side of Balance Sheet.
 Increased operating expenses recorded on PL Account negatively impact prepaid
expenses on balance sheet.
 Income Tax recorded on the debit side of PL Account affect accrued expenses payable on
the liabilities side of balance sheet.
 PL Account reveals money spent or cost incurred in a firm’s effort to generate revenue
while Balance Sheet reveals whether a firm has sufficient cash or equivalent to spend on.

By observing the above facts about the balance sheet and PL Account, we can conclude that
balance sheet and PL Account are not only comparative but also supplementary to each other.

What is financial statement? Why a commercial bank prepares a financial statement?

Elaborate.

Financial Statement
  Financial statement is the end result of accounting process which reveals the financial
result and the financial condition of the banks as on particular date.
 It is a basic and formal annual report through which a bank communicates with its
stakeholders.
 In short, it is a statement that keeps records of the bank's financial activities.

Reasons to prepare financial statement

 To provide financial information regarding assets and liabilities of a bank for a

given period of time
 To provide information about the earning capacity of the banks
 To provide the reliable information about the changes in resources and obligation
arising out of financial transactions
 To disclose information about the various accounting policies followed in the
process of preparing the financial statement to its various users
 To disclose other related information about financial statement to its users
 To gain or increase general public trust
 To established sound communication between a bank and its stakeholders
 To follow the principle of transparency and other rule and regulations
 To maintain enough liquidity to meet its short-term liabilities
 To attract investors or creditors and customers towards bank
 To distribute dividend, bonus and other incentives to its shareholders
 To find out how much a bank owes to others and how much others owes to a bank
 To manage the affairs of the bank by assessing its financial performance and
position
 To figure out risk and return on a bank's investment
 To fulfill corporate social responsibility of the bank

Financial statement is important to commercial banks since, it displayed a bank's financial health
or result that helps bank's management to make appropriate decision at appropriate time and
situation.

What are the qualities of good financial statements? Elaborate the major headings that are
included under the financial statement.
The whole aim of financial statements is to communicate with various users or stakeholders of
the company. For effective communication, financial statements need to have certain qualities.

Qualities of financial statement

 It should be easy to understand by its users or stakeholders.

 It should be relevant to make a decision.
 It should be materiality as it provides thresholds to financial statement.
 It should be relevant to be useful to analyze.
 It should faithfully represent the financial transaction and other events.
 The information contain in financial statement must be neutral.
 The information on financial statement must be complete.
 It should be comparable to identify the trends.

Major headings of financial statement

 Assets: Assets are the available resources that are under the control of the company. It is
the result of past financial transactions.
 Liabilities: Liabilities are the borrowed resources that are definitely not under control of
the company. It is an obligation to the company.
 Equity: Equity is the actual net worth of the company. It determines whether the
company is in strong position or not.
 Revenue: Revenue is an economic benefit during the accounting period. It also shows the
result of past financial transactions.
 Expenses: Similarly, an expense is an economic deficit that incurred during the operation
of various financial transactions.
Quality financial statement includes all these headings during the preparation. Without these
qualities and headings, financial statement cannot show true financial condition or position of the
company. Hence, these qualities and headings are required.

What is financial Ratio? What is its importance? Write down its limitations and how financial
Ratio is calculated on public enterprises or banks? State

Financial Ratio

 Financial ratio is a financial tool that is used by a business firm to show the relation
between the different kinds of financial transactions and to compare with previous data to
measure a firm’s financial situation or performance.
 It shows the differences between financial transactions conducted by a business firm in
two different accounting periods.
 In short, a financial ratio takes one number and divides it into another number to
determine a decimal that can later be converted to a percentage, if desired.

Importance of Financial Ratios

 To measure profitability position of a business firm.

 To highlight the degree of efficiency of a company in the management of its assets and other
resources.
 To ensure suitable liquidity to meet a firm’s short term liabilities or obligations.
 To compare with the industry standards to get a better understanding of its financial health
and fiscal position.
  To validate or disprove the financing, investing, and operating decision of the firm.
 To simplifies complex accounting statements and financial data into simple ratios
 identify problem areas and bring the attention of the management to such areas
 To analyze financial statement for the suitable financial management

Limitations of Financial Ratios

 Ratios ignore the price level changes due to inflation.

 Accounting ratios completely ignore the qualitative aspects of the firm
 There are no standard definitions of the ratios
 Accounting ratios do not resolve any financial problems of the company
 Such Ratios are based on historical data since it does not represent future of a firm’s
financial performance.
 Changes in accounting policies affect the ratios and difficult to compare
 Information may be manipulated by a firm to report a better result than its actual
performance.
 Misleading conclusions about the company performance and future prospects due to
operational changes.
 Different methods of computing also influence the utility of financial ratios.

Calculation of financial ratios in public enterprises or banks

Profitability Ratio: Public enterprises use profitability ratios to measures its ability to generate
income out of operating activities which is calculated as follows;

 Net profit margin=

  Return on assets (ROA) =

 Return on equity (ROE) =

Liquidity Ratio: Public enterprises use such ratios to find out the ability of a bank to strike the
right balance between avoiding the problem of “excess cash” while at the same time ensuring
that the bank does not run into a problem of “deficit cash”. It can be calculated as follows;

 Current Ratio (CR) = CA/CL*100

 Quick Ratio = CA-Inventories/CL*100
 Loans to Deposit Ratio = Loans / Deposits * 100

Solvency Ratio: It is also known as leverage ratio that are used to identify proportion of debts
compared to its equity, fixed assets, earnings of the company etc. These ratios calculate if the
company can meet its long-term debt. It is calculated as follows;

 Debt equity ratio = Long term debt/ Shareholders equity

 Debt to assets ratio = Total debt/ Total assets
 Property or equity ratio = Shareholders fund/ Capital employed
 Interest coverage ratios = Net profit before interest and tax/ Interest on long term debt

Assets management ratio: In order to find out how successfully, an enterprise is utilizing its assets to
generate revenue this ratio is used by enterprises. It can be calculated as follows;

 Inventory turnover ratio = Cost of goods sold/ Inventories

 Assets turnover ratio = Sales Revenue/ Total assets
Market value ratio: Market value ratios are used to evaluate the current share price of enterprises.
These ratios are used by enterprises to attract current and potential investors. Market value ratios are
calculated as follows;

 Book value per share = Total equity/ Total Number of shares

 Dividend yield = Total dividend/ Market price of the stock
 Earnings per share = Total earning/ Total Number of share
 Market value per share = Total market value of shares/ Total Number of share
 Price earnings ratio = MPS/ EPS

Financial Ratios make easy to understand the financial performance of a business firm by showing
the relationship of different financial transactions that helps to make sound and rationale financial
decisions for the improvement of future financial health of a business firm.

What are the types of financial ratios and why liquidity ratio is considered an
important indicator while operating a commercial bank? Explain in brief.

Types of financial Ratios

(1)Liquidity ratios, which measure a firm’s ability to meet cash needs as they arise.

(2) Profitability ratio, which measure the overall performance of a firm and its efficiency in
managing assets, liabilities, and equity.

(3) Activity ratios or turnover ratio, which measures the liquidity of specific assets and the
efficiency of managing assets.
(4) Assets turnover or management, which evaluates how well a company, is utilizing its assets
to produce revenue.

(5) Long term debt of leverage ratios, which measure the extent of a firm’s financing with debt
relative to equity and its ability to cover interest and other fixed charges.

(6) Market value ratios bring to the stock price and give an idea of what investors think about the
firm and its future prospects.

Importance of liquidity ratio

 It is important to commercial banks to determine the ability to cover its short term
obligations.
 It important to bank to determine how much deposit should be mobilized as a loan in
economy to maintain enough liquidity.
 It is important for banks to maintain its financial health and worthiness for the investors
or the creditors.
 It is important for banks to know when should increase or decrease liquidity.
 It is important for commercial banks to avoid bankruptcy and insolvency.
 It is important for commercial bank to rescue itself from suffering in order to maintain
the day to day operational activities.
 It is important for commercial bank to figure out how efficiently the bank is able to
covert its inventories into cash.
 It is important to bank to organize its working capital requirements by studying the leads
of cash or liquid assets available at a certain time.

The banks maintain its liquidity ratio to balance liquidity problem i.e. over and under follow of
liquidity. Both financial conditions are harmful to any BFI. Liquidity ratio analyzes the short
term financial position and maintain sufficient liquidity to meets its short term liquidity to avoid
such economic condition.

What are the sources of data collection? Points out the things which should be considered for
the reliable data collection?

Answer: Data collection is a systematic and scientific process of gathering and measuring
information in order to discover the answers of unanswered questions for the research purpose of
the organizations. Data can be collected from two different sources which are mentioned below;

Primary Source: In the process of data collection, researcher collects necessary information
directly from the individuals or the organization after choosing the sample size and the objectives
of the research. For this course of action, researcher uses various methods to collect the raw data.
For example, Interview, Questionnaires, survey etc. Researcher prefer primary source for
collecting data as the collected data from this source represent the current situation of the
problem as compared to other sources.

Secondary source: Researchers choose this source to collect data for the research purpose if s/he
is unable to reach at the field or due to lack of adequate time or due to financial problem or it is
accessible to anyone easily and is convenient. Preexisting source can be found in internet, book,
articles, library etc. Data found on such sources sometimes doesn’t represent the current situation
of the problem as compared to primary source.

Points should be considered for the reliable data collection

 Setting clear and reasonable objectives for the research purpose;

 Reading literature review related to the particular topic of the research that provides the
framework to conduct research;
 Determination of the sources from where are data should be collected;
 Set key factor and parameters to formulate a game plan for the data collection;
 Mentality of the researches need to neutral or should eliminate the personal biasness as it
might alter the natural perspectives of the data;
  Should set suitable sample size which might represent the problem in research;
 Appropriate and adequate methods should be select by the researcher to keep record of
the collected data to eliminate manual error;
 Check or compare the data with another sources for accuracy of the data;
 Should formulate easy questions to be understood by the individual;

Usually research is done in order to find out the solution for the recent problems of the
organization therefore, for the reliability of data, the organization choose primary source to
collect the data what literally represent the current problem of the organizations.

What is meant by internal control? How does internal control play an important role in
corporate governance? Sate.

Internal control

 Internal control is a systematic process of regulating, monitoring, and controlling

organization internal activities.

 It is an internal examination of overall organizational performance and culture.

 It ensures that employees are following organization's strategies and policies

effectively and efficiently in order to achieve organizational goals and objectives.

Role of internal control in corporate governance

 It makes sure that a firm is following to corporate guidelines properly.

 It keep maintain the balance of interest of a firm's each stakeholders.

 It makes sure that employer and employee perform their duties responsibly.

 It makes sure appropriate business operation and environment.

 It keep maintain the goodwill and public’s trust of a firm.

 It makes sure that all stakeholders treated equally and fairly.

  It makes sure that an organization is following legal policies.

 It reminds accountability and responsibility to employees and management.

 It makes sure that a firm is being transparent regarding its financial statements.

 It closely monitors and control governance process of a firm.

 It maintains the ethics of an organization and promote work environment.

 It provides necessary legal suggestions to a firm in order to maintain good corporate

governance.

An effective internal control system reduces the possibility of bad corporate governance.
Furthermore, it makes sure that all internal activities are being performed effectively and
efficiently.

Clarify the objectives of auditing. Why final audit does depend upon internal audit? Also
discuss the differences between internal audit and final audit.

Audit is refers to the process of examine company’s accounting book to figure out whether
financial statement is accurate or not. It is conducted for the several objectives which are
mentioned below;

Objectives of auditing

 To detect and prevent frauds in the company.

 To detect and prevent errors in the accounting books.
 To verify whether accounting books and financial statements are recorded accurately.
 To make sure that standard accounting policies and format are being followed during the
preparation of financial statements.
 To make assure to the investors and creditors of the company.
 To evaluates true value of the company’s assets and liabilities.
  To contribute to management system and its performance.
 To provide conclusion and feedback or opinions on financial statements.

Dependency of final audit on internal audit

 Final audit is depends on internal audit to defining and setting objectives.

 Final audit is depends on internal audit to prepared auditing reports.
 Final audit depends on internal audit for the framework for auditing.
 Final audit depends on internal audit to detect & prevent errors & frauds.
 Final audit identify key areas of high risks by looking at internal audit.
 Final audit depends on internal audit to avoid audit assignments again.
 Final audit is depends on internal audit for selecting samples and methods of auditing.
 Final audit is depends on internal audit to make sure that the company is following
standard accounting policies.

Difference between Internal audit and final audit

Basis of Internal Audit External Audit

Comparison

Definition It an act of evaluating internal a firm’s It is an independent examination of

internal control system including financial statement prepared by a
accounting process and corporate business firm.
governance.

Objectives To identify errors and prevent them by To identify errors and frauds & prevent
 reviewing the routine activities. them by analyzing financial statements

Focus It usually focuses on to prevention of It usually focuses on to prevention and

possible errors. cure of possible errors and frauds.

Conducted Internal audit is conducted by internal Final audit is conducted by an

and auditor who is the employees of a firm independent auditor and appointed by
appointed and such auditors are appointed by the the Boards of Directors.
by management.

Use of Useful to management to take Useful to stakeholders to take decisions.

report decision.

Period It is prepared monthly and quarterly. It is prepared after the preparation of

final account i.e. end of accounting
period

Requirement It is not require but is voluntary It does require by BAFIA 2073

Priorities It gives priorities to operational It gives priority on accuracy and

efficiency. validation of financial statements.

Opinions It provides opinions to increase It provides opinions on the truthfulness

effectiveness of operational activities. and fairness of financial statements.

Although final and internal audit have some boundaries not to crossed for the transparent and
accuracy of its reports yet there are some basic foundations of internal audit what makes final
audit more efficient, effective, and accurate.

Describe different methods of depreciation of fixed assets.

 Depreciation

 Depreciation is a process of reduction of a value of a fixed asset due to their optimum

uses. Various firms use various methods of depreciation in order figure out true value of a
fixed asset which is mentioned below;

Methods of depreciation

 Straight line depreciation method: An equal amount is charged for depreciation of every
fixed asset in each of the accounting period.
 Diminishing balance method: A fixed percentage of depreciation is charged in each
accounting period to the net balance of the fixed assets.
 Sum of year digit method: The depreciation amount of a fixed asset is charged to a
fraction over different accounting period.
 Double declining method: Depreciation is charged on the reduce value of the fixed assets
in beginning of the year.
 Sinking fund method: It is a method for depreciating an asset while generating enough
funds to replace it.
 Annuity method: It is based on the assumption if the amount that is spending in
purchasing asset was invested somewhere else then it would have earned certain interest
amount.
 Insurance policy method: Under this method, it just doesn’t provide fund to replace an
asset but also provide security to it by purchasing insurance policy of equal amount to
replace it.
 Discount cash flow method: It is used to estimate the value of a fixed asset on its future
cash flow.
 Used based method: Under this method depreciation deducted on the basis of output and
machine hour of the fixed assets.

Adoption of depreciation methods is depends on the nature and size of a fixed asset. A firm
adopts such methods in order to figure out the true value of fixed asset. These methods also help
a firm to replace depreciated fixed assets as well.
What is Government Accounting System and its features? Why government account is
essential to prepare? Explain.

Government accounting system

 Government accounting system refers to the accounting system that is implemented and
followed by a government office to record and maintain financial transactions conducted
by a government itself.
 According to Oshisami and Dean "Government accounting is the process of recording,
analyzing, classifying, summarizing, communicating, and interpreting financial
information about the government in aggregate and details, reflecting all transactions
involving the receipt, transfer, and disposition of government and property".

Features of Government Accounting System

 It is most scientific and systematic accounting system as it is based on double entry

system.
 It is maintain under the rules and regulation of the government itself.
 It does not reveal the profit and loss but how public fund has been used on various
sectors.
 Separate account is open for every government office to conduct financial transactions as
government accounting provides emphasizes in banking transactions.
 All expenses incurred by the government office in an accounting period are recorded into
different budget heads.
 Provision of Auditing of government account to avoid misuse and misappropriation of
government expenditure and revenue.
 Government accounting system does not allow government expenditures to exceeds
allotted amount.
 Objectives/ importance/ Needs of government accounting system

 To record and maintain government expenditure and revenue incurred in an accounting

period.
 To control government expenditures within the limit determined by the Budget.
 To make necessary expenditure according to appropriate act, rules, and laws of the
government.
 To provide relevant financial information about the use and allocation of public fund.
 To prevent misuse and misappropriation of government expenditure and revenue by
maintaining record of such financial transactions.
 To assist in making annual budget by proving information about government expenditure
and revenue.
 To help in preparing different financial statements and reports.
 To facilitate auditing simple and economical.
 To safeguard government assets or property.
 To gain public trust towards the government by showing transparency and financial
discipline.

Government is a large organization of the country which works on the development of the
country. For this course of action, it needs to conduct various financial transactions and such
transactions are maintained by government accounting system to show the transparency on
public fund.

Explain the origin of Government accounting system? Discuss the types of accounting systems
are used in Nepal.
 Origin of Government accounting system

 Government accounting in Nepal was first introduced in Nepal in Lichhavi period to

record the revenues and expenditure of the government. In this period government
revenues were collected from trust, tax, and custom duty and expenditures were made for
war, renovation and construction of temples, pati, pauwas etc.

 The trade and industry further developed in the Malla period, the sources of government
revenue were increased. The expenditures were made for the same purpose of Lichhavi.

 When the number of financial transactions increased in Shah Period, it was necessary to
originate the systematic accounting system. As a result, in 1871 B.S, a book called
"Laldhadda" was introduced to record revenues and administrative expenses of the
government.

 In 1879, another book of accounts called "Mothdhadda" was introduced for recording
details about land and its revenues. These two books of accounts were the important steps
in the history of accounting in Nepal.

 After a long gap, an office Kitabkhana was established in 1925 B.S. for recording the
salary paid to the employees of government offices, which is still in practice.

 In 1936 B.S, an important contribution made by Kharidar Gunawanta, a senior

professional who propounded Syaha Sresta Pranali which was used to present a real
picture of government revenues and expenditures.

 After the restoration of democracy in 2007 B.S., the government became more
responsible towards the people and financial administration. As a result, the budgeting
system was started in 2008 B.S.

 Under the constitution of 2015 B. S. of Nepal, on 2016 Ashadh 16, the Auditor General
was appointed as the constitutional body. The main objective of appointment of the
Auditor General was to maintain systematic accounting and avoid frauds and
misappropriation of government fund and to maintain the uniformity in financial
administration Procedural rule for government fund expenditure 2016 was passed and
enacted in 2016 B.S.

 For bringing the uniformity in accounting system throughout the country, government
formed the committee called "account committee" on 20th Magh 2017 B.S. which
composed of four member;

 Account General as Coordinator

 Secretary of ministry of finance ( Foreign Aid Development)
 Public Administrative Advisor of US Aid
  Account specialist of the UNO

 On Baishakh 2017 B.S. Bhuktani Sresta Pranali was introduced based on double entry
book keeping system but it also become unsuitable and unable to maintain the systematic
record of revenues and expenditures of government offices.

 As a result the new accounting system based on double entry book keeping system was
introduced in 2018 B.S. as per the recommendation of "Account Committee" to remove
the difficulties of old system to established uniformity in accounting. It has systematic
and scientific system that has been followed by the government of Nepal since the fiscal
year 2019/20 B.S and it is still in practice in Nepalese government offices. This is a
complete system and the most important revolution in the field of accounting in Nepal.

Types of accounting system used in Nepal

There were various types of accounting systems used in Nepal before introducing the New
Accounting System. Some of the accounting systems used in Nepal was as follows:

1. Wasil Banki Sresta Pranali: Wasil Banki Sresta Pranali was a simple statement based on
single entry system and regarded as a first accounting system used in Nepal; it was used
to record incomes and expenditures in different pages. The accounts were closed at the
end of the fiscal year or after the completion of the job. This system was unscientific and
impracticable because financial transactions were not classified and analyzed into
different heads.

2. Syaha Sresta Pranali: Syaha Sresta Pranali was introduced by Kharidar Gunawanta in
1936 B.S. Under this system, there was a provision to record income and expenditure
separately. This system was more scientific than Wasil Banki Sresta Pranali which was
in practice up to 2022/023 B.S. Various types of books, which were used under Syaha
Sresta Pranali, are as follows:

 Syaha: Syaha was the primary record of financial transactions like journal
voucher. It was used as the first step Syaha Sresta Pranali to record the incomes
and expenditures of government offices. Syaha was prepared in a Nepali Kagaj.
This page used to fold into 16, 24, 32 or 36 folds according to requirements to
 provide different columns for incomes and expenditures. It was divided into two
parts. The right hand side was used to record expenditures and left hand side was
used to record incomes. Syaha was closed at the end of month or year. Different
books were in practice for recording financial transactions which are as follows;

 Nagadi Syaha was used to recording for cash.

 Jinsi Syaha was used to recording physical property.
 Dharauti Syaha used to recording the security deposit.

 Awarje: Awarje is the second step of Syaha Sresta Pranali. It was familiar to the
ledger. It was to keep the record of financial transactions in a classified manner
according to the heads of income and expenditures. It facilitated to accumulate the
similar nature of transactions under a single heading.

 Dhapot: Dhapot was the third and final step to record keeping in Syaha Sresta
Pranali, which was used to report revenues and expenses in summary form to
present the real position of the public fund on a given date. It was similar to the
balance sheet.

3. Form Sresta Pranali: When the number of financial transactions of the government
offices became voluminous, Syaha Sresta Pranali became unable to fulfill the
requirement. As a result, Form Sresta Pranali was introduced in 1968 BS specially to
record the land revenue of Terai and city area of Kingdom of Nepal. Different types of 51
forms were used in practice to record the financial transactions and hence it was called
Form Sresta Pranali.

4. Bhuktani Sresta Pranali: Bhuktani Sresta Pranali was developed in Baishakh 2017 B.S.
to maintain the systematic record of revenues and expenditure of government offices
according to the budget heads. It was based on double entry book keeping system, which
classified the government offices into the central level and operating level for systematic
recording of public fund.

What do you understand by Nepal Financial Reporting Standards (NFRS),

International Financial Reporting Standards (IFRS), Financial Action Task Force on
money laundering (FATF)? What are its features? Explain.
 Nepal Financial Reporting Standards (NFRS)

Nepal Financial Reporting Standard (NFRS) are set of accounting standards which is issued by
Nepal Accounting Standard Board (ASB) in 2013 as a global language for business affairs so
that company accounts are understandable and comparable within Nepal. NFRS provides a set of
principles and rules to be followed by accountants to maintain books of account which are
comparable, understandable, reliable, and relevant to the internal and external users of
accounting. NFRS is prepared in line with International Financial Reporting Standards (IFRS).
The publication "NFRS in Banks of Nepal" is prepared by ICAN to highlight the key differences
between NFRS and accounting practice in Nepal and also to encourage early implantation of
NFRS by Banks and Financial Institutions. If there are no or only less significant differences,
such differences are ignored. It is expected that Banks and Financial Institutions initiate
appropriate measures to upgrade their skills, Management Information System (MIS), and
Information Technology (IT) capacities to manage the complexities and challenges of NFRSs.
One of the important measures ids to provide training to concerned staff of bank to upgrade their
skills on NFRS requirement for smooth transition and effective implementation. In Nepal,
Accounting Standards are developed by the Accounting Standards Board (ASB). The ASB came
into existence on 10 March 2003 as per the provisions of Nepal Chartered Accountants Act,
1997. Approval of NFRSs and related documents, such as the Conceptual Framework of
Financial Reporting, exposure drafts, and other discussion documents, is the responsibility of the
ASB. ASB had earlier issued Nepal Accounting Standard (NAS) in line with IAS and with the
gradual replacement of IAS by updated IFRS; the board has now issued NFRS on basis of recent
international standards. Nepal Financial Reporting Standards (NFRSs) mean Standards and
Interpretations adopted by the Accounting Standards Board (ASB).

Features of NFRS

 Fair presentation of effect of financial transaction and compliance with NFRS

 Financial statements are present on the basis of going concern principle of accounting

 Recognize accrual basis of accounting

 Materiality and aggregation

 Offsetting is generally forbidden in NFRS

 NFRS requires that at least annually a complete set of financial statements is presented
  NFRS requires entities to present Comparative information

 NFRS requires that the consistency on presentation and classification of items in the
financial statements is retained from one period to the next.

Weakness or Limitation of NFRS

 Several assumptions in NFRS make accountants confuse to choose the best alternatives.

 In many cases, there are various differences between regulatory requirements in Nepal
and NFRS.

 Banks, insurance and public sectors entities are facing challenges to comply regulatory
requirements.

 Difficult to maintain the principles of NFRS.

 NFRS required special skillful accountant and high cost. Hence is not suitable for small
firm.

 NFRS compliance is not much practical in Nepal.

 Issue such as extraordinary loss/gain is not in new IFRS and still remain and issue.

 Since IFRS is not accepted in many countries, so that NFRS cannot be comparable with
financial statements of each & every countries of the world.

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are a set of accounting standards developed
by an independent and non-profit organization called International Accounting Standards Board
(IASB) with the belief that a single set of IFRS is in the best interests of the global economy.
IFRS provides a set of principles to be followed while accounting for transaction and events in
financial statements. Today it is becoming the global standard for the preparation of public
company financial statements and approximately 120 nations and reporting jurisdictions permit
or require IFRS for domestic listed companies. Approximately 90 countries have fully
conformed to IFRS as promulgated by the IASB and include a statement acknowledging such
conformity in audit reports.

Financial Action Task Force on money laundering (FATF)

Financial Action Task Force on Money Laundering (FATF) is intergovernmental organization

founded in 1989 on the initiative of G7 summit in Paris to develop policies to combat money
laundering. The intergovernmental body sets international standards that aim to prevent these
illegal activities and the harm they cause to society. As a policy making body, the FATF works
to generate the necessary political will to bring national legislative and regulatory reforms in the
affected areas. The objectives of FATF are to set standards and promote effective
implementation of legal, regulatory and operational measures for combating money laundering,
terrorist financing and other related threats to the integrity of the international financial system.
To achieve its objectives, FATF perform various functions which are as follows;

Functions of FATF

 It examine and develop measures to combat money laundering

 It incorporates efforts to combat terrorist financing

 It counters the financing of proliferation of weapons of mass destruction.

 It implements relevant international conventions

 It criminalize money laundering and enable authorities to confiscate the proceeds of

money laundering

 It implements customer due diligence, record keeping and suspicious transaction

reporting requirement for financial institution and designated non-financial institutions
and professions.
 It established financial intelligence unit to receive and disseminate suspicious financial
transactions.

 It corporate internationally in investigating and prosecuting money laundering.

What is inventory management? Why it is essential to any organizations?

Inventory Management

 Inventory management is a systematic approach of ordering right level of inventories at

right time & at right cost in right place and storing adequate amount of inventories for the
future needs of an organization.
 In short, inventory management monitor, supervise, and regulate the flow of inventories
from the producer to warehouse to selling such inventories.
 An organization uses numerous techniques of inventory management that concerned with
minimizing the operating cost of inventory while maximizing the ability to provide
products to meet the demands of customers for increasing their satisfaction.

Needs/ Importance/ Essentiality of Inventory management

 It allows making smart decisions regarding to meet customers demand for products.
 It improves customer’s satisfaction by delivering products in time.
 It minimizes risks of losses of inventory by estimating accurate number of required
inventory.
 It identifies the most cost-efficient methods for ordering new products or inventory.
 It enables to have right product at right time to meet or fulfill the order of the customers.
  It promotes or creates brand loyalty by establishing positive experience towards the
products.
 It properly allocates the available inventory for the selling and distribution purpose.
 It increases employee’s efficiency by reducing unnecessary tasks to manage inventory.
 It identifies the location where the stocks are located for the easy access of such stocks
that the customers want.
 It helps to increase sales volume of products by providing adequate and diversified stocks
in hand.
 It retains and attracts existing and potential customers respectively that facilitates
competitive advantage.
 It facilitates growth of an organization by increasing profit and decreasing operating cost
incurred while managing stocks through high inventory turnover.

Inventory management is essential to entry kind of business organizations as it helps them to

prevent the shortage and excess stocks, it manage multiple locations, and ensure proper record
keeping of inventory to increase the efficiency of an organization to deliver products that a
customer wants in time.

Among the methods of inventory management, which method is the most important? and
why? Explain

Inventory management helps a firm to control over its operating cost. Firms that maintain
inventory choose one method to measure the value of the inventory. These methods include
last-in first-out, first-in first-out and weighted average. A firm that uses the weighted average
method enjoys several advantages which are as follows;

Advantage of using weighted average method

 One advantage of using the weighted average method involves the consistent product
cost used.
  Another advantage of using this method is the level of paperwork required. The
weighted average method requires the accountant to calculate one cost and to use this
cost for all calculations.

 The calculation used to determine the unit cost under the weighted average method is
simpler than that of alternative methods.

 This method is economy and flexible to use to manage inventories of a firm

 The weighted average method is practical and suitable for charging cost of material used
to production.

 It does not required specific knowledge to use it to manage inventories and can be
understood easily.

 Generally this method is used by many firms and is globally recognized.

 It saves time and labor cost which could be applied on another productive sectors.

 It also helps in keep recording of inventories more effectively and efficiently.

.
 This method is practical and suitable for charging cost of material used for the
production.

 It does not produce widely fluctuating profits when inventory costs are fluctuating, as
FIFO and LIFO do.

This method is commonly used when inventory items are so blended or identical to each other it
is impossible to assign specific costs to individual units. Many manufacturing businesses rely on
weighted average costing because inventory is often stockpiled or combined making it difficult
to differentiate between older and newer materials.

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