Formats & Rules Sheet

Every layout you may be asked to reproduce, every rule you may need to apply, and every formula in Units 1–3 — on one page. This is the page to read on the morning of the test.

Part 1 — The five formats

1Journal

Proforma · five columns · L3 slide 8

Name of the account debited A/c	Dr.	xxx
To Name of the account credited A/c			xxx

(Being … — say what happened, the mode of payment, the party, and any discount)

Columns, left to right: Date · Particulars · L.F. · Amount (Dr.) · Amount (Cr.).
Debit line flush left, ending "Dr." · Credit line indented, beginning "To" · narration in brackets · then a line ruled across.
Strike the column totals at the foot of every page p. 50.

2Ledger account (T-form)

Name of the Account

Dr.		Cr.
Date · To [the other account]	Amount	Date · By [the other account]	Amount
		Date · By Balance c/d	xxx
	Total		Total
Date · To Balance b/d	xxx

Columns within each half: Date · Particulars · J.F. · Amount. Always write the name of the OTHER account. Balance c/d goes on the lighter side; b/d comes back on the heavier side.

3Trial Balance

Trial Balance as at [date]
Ledger Accounts	L.F.	Dr. Amount ₹	Cr. Amount ₹
…		xxx
Grand Total		XXX	XXX

If it does not tally, insert a Suspense A/c for the difference on the short side and say so in one line.

4Machinery Account with a sale

Machinery Account

Dr.		Cr.
To Balance b/d (opening WDV)	xxx	By Depreciation A/c	xxx
To Bank A/c (purchase, at TOTAL cost)	xxx	By Bank A/c (sale proceeds)	xxx
To P&L A/c (profit on sale)	xxx	By P&L A/c (loss on sale)	xxx
		By Balance c/d	xxx
	Total		Total

Below the account, always: working notes showing, per machine — cost · each year's depreciation · accumulated depreciation to the date of sale · WDV · proceeds · profit or loss. Five lines.

5Balance Sheet — how the asset appears under each depreciation method

Method A — credited to the asset	Method B — Provision for Depreciation
`Machinery 70,000` One figure, already net.	`Machinery (at cost) 1,00,000 Less: Provision for (30,000) depreciation ——————— 70,000` Cost and provision in the inner column; net in the outer.

Part 2 — The twelve rules

Rule 1 · Golden rules

Personal: Debit the receiver, credit the giver
Real: Debit what comes in, credit what goes out
Nominal: Debit expenses and losses, credit gains and incomes

Personal = people and institutions, incl. banks, Capital, Drawings, Outstanding/Prepaid anything.
Real = property, tangible and intangible.
Nominal = performance measures.

Rule 2 · Modern rules

All assets and expenses → debit balances
All liabilities, capital and incomes → credit balances

Two of five on the left, three on the right. This one rule also sorts an entire trial balance.

Rule 3 · Goods

No Goods A/c exists

In → Purchases · Out → Sales · Back to supplier → Purchase Returns · Back from customer → Sales Returns · Unsold → Closing Stock.
Out for a non-sale reason → credit Purchases, at cost.

Rule 4 · Cash or Bank

Instrument named → Bank

Cheque, NEFT, RTGS, UPI, net banking, debit card, Cash Deposit Machine → Bank A/c.
"Cash", "cash memo", or nothing said → Cash A/c.

Rule 5 · Cash or credit

Settled now → ignore the name

"Sold goods to Dheera for cash" → Cash A/c, not Dheera. Use a person's account only when money is still outstanding. Silence = cash.

Rule 6 · Payment vs advance

Service done → nominal
Advance → personal

Salary paid to Rakesh → Salary A/c.
Advance to Kalyan for repairs → Kalyan's A/c (recoverable, so he is a debtor).

Rule 7 · Trade discount

Never recorded

Record the net price only, on both sides of the transaction. Mention it in the narration. A return carries the same discount.

Rule 8 · Cash discount

Always recorded

Trigger: "in full settlement". You gave → Discount Allowed (expense). You got → Discount Received (income). Credit transactions only.

Rule 9 · Returns in a trial balance

A return sits opposite what it reduces

Purchases is Dr → Purchase Returns is Cr.
Sales is Cr → Sales Returns is Dr.
Carriage Inward and Outward are BOTH Dr — the rule does not transfer.

Rule 10 · Capital vs revenue

New asset, more capacity, or longer life → Capital

Merely restores or maintains → Revenue.
First time capital, repeat revenue · acquiring capital, operating revenue · split anything containing both.

Rule 11 · Cost of a fixed asset

Invoice + carriage + installation + erection + reconditioning

Depreciation is computed on the total, never on the invoice alone. Wages, interest and duty incurred to bring an asset into use are all capitalised.

Rule 12 · Period of holding

Pro rata, always

Bought mid-year → from the date of purchase.
Sold mid-year → up to the date of sale, before you compute the WDV.
Count months inclusive of the event month.

⚠ The nine reversals that cost the most marks

Do not write	Write	Because
Goods A/c	Purchases / Sales A/c	One account cannot show both.
Cash A/c, for a cheque	Bank A/c	Different account, different type.
Bank as a real account	Bank is PERSONAL	A bank is an artificial person.
Capital A/c, for a withdrawal	Drawings A/c	So the year's withdrawals are visible in one place.
The customer's name, on a cash sale	Cash A/c	They owe nothing.
Sales A/c, for goods taken by the owner	To Purchases A/c, at cost	No customer, no revenue.
Sales A/c, for the sale of a machine	Only the profit or loss reaches the P&L	An asset sale is a capital receipt.
Wages A/c, when paying last year's outstanding wages	Outstanding Wages A/c	Last year's P&L already carried the expense.
The old debtor's account, on a bad debt recovered	Bad Debts Recovered A/c	That account was closed in a prior year.

Part 3 — Every formula in the M1 portion

1 · The accounting equation

\[ \text{Assets} = \text{Capital} + \text{Liabilities} \qquad\Longleftrightarrow\qquad \text{Capital} = \text{Assets} - \text{Liabilities} \]

2 · Movement in capital

\[ \text{Closing Capital} = \text{Opening Capital} + \text{Additional Capital} + \text{Profit} - \text{Loss} - \text{Drawings} \]

3 · Net income

\[ \text{Net Income} = \text{Total Revenues} - \text{Total Expenses} \]

4 · Net price after trade discount

\[ \text{Net Price} = \text{List Price} - \text{Trade Discount} \]

5 · Cost of a fixed asset

\[ \text{Cost} = \text{Invoice} + \text{Carriage} + \text{Installation} + \text{Erection} + \text{Reconditioning} \]

6 · Straight Line Method

\[ \text{Dep. per year} = \frac{\text{Cost} - \text{Scrap value}}{\text{Estimated life}} \qquad\text{or}\qquad \text{Cost} \times r\% \times \frac{n}{12} \]

7 · Written Down Value Method

\[ \text{Dep.}_t = \text{Opening book value}_t \times r\% \times \frac{n}{12} \qquad \text{Closing BV} = \text{Opening BV} - \text{Dep.} \]

8 · Profit or loss on sale of a fixed asset

\[ \text{Profit / (Loss)} = \text{Sale proceeds} - \bigl(\text{Cost of the portion sold} - \text{Accumulated dep. to the date of sale}\bigr) \]

9 · Finding a WDV rate from two book values

\[ \text{Book value after } n \text{ years} = \text{Cost} \times (1-r)^n \qquad\Longrightarrow\qquad r = 1 - \sqrt[n]{\frac{\text{Book value}}{\text{Cost}}} \]

THE MONTH TABLE — YEAR ENDING 31 MARCH

Bought 1 Apr → 12/12 · 1 Jul → 9/12 · 1 Aug → 8/12 · 1 Oct → 6/12 · 1 Nov → 5/12 · 1 Dec → 4/12 · 1 Jan → 3/12 · 1 Feb → 2/12
Sold 30 Jun → 3/12 · 30 Sep → 6/12 · 31 Dec → 9/12 · 31 Jan → 10/12

Part 4 — The concepts, in one line each

Concept	One line	Spotted by
Business Entity	The entity is different from its owner for accounting purposes.	Owner's personal anything; drawings; capital as a liability
Money Measurement	Only transactions expressible in money are recorded.	Employee quality, manager quarrels, brand loyalty
Going Concern	The business will continue in the foreseeable future and will not be liquidated.	Why assets are at cost less depreciation, not fire-sale value
Cost	Acquisitions are recorded and retained at cost.	Market value mentioned. Fixed assets only.
Dual Aspect	Both aspects recorded simultaneously; Debits = Credits.	Any journal entry
Accounting Period	Statements prepared at the end of a period, generally a year.	India 1 Apr–31 Mar; US 1 Jan–31 Dec
Conservatism / Prudence	Anticipate no profit; provide for all possible losses.	Two prices, take the lower. Current assets.
Realisation	Revenue recognised once earned.	Order received, agreement signed → no entry
Matching	Expenses of a period matched with the revenue of that period.	The reason depreciation exists
Consistency	Same methods across periods, so conclusions are meaningful.	A method changed between years
Accrual	Effects recognised on a mercantile basis — when they occur, not when cash moves.	Credit sales, outstanding and prepaid expenses
Materiality	All material items reported properly; material = it would change a decision.	Something small enough to write off
Full Disclosure	Reveal everything relevant in the statements and notes.	Disputes, risks, patent expiries in the notes

◆ The ten sentences to be able to write verbatim

"Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounts."
"The job of an accountant commences where the work of a book-keeper ends."
"Capital invested by proprietor or partner is also a liability as the business firm is independent from them."
"Cash is real account, while a bank account is a personal account."
"Double Entry Book-keeping ensures arithmetical accuracy alone, does not guarantee financial correctness."
"All assets and expenses have debit balances. All liabilities and incomes have credit balances."
"No entry is made for trade discount, separately, in books of accounts of the seller and buyer."
"Depreciation is required to be provided on fixed assets. Question of depreciation does not arise on current assets."
"Depreciation is a mere book entry — there is no actual cash outgo of funds from the firm. However, provision of depreciation reduces profits."
"A change in the existing method of depreciation is treated as a change in an accounting policy."