Quick Revision
The whole M1 portion compressed into what you can hold in your head walking into a 45-minute test. Three units, the twenty things that decide the marks, and a last-hour checklist.
◆ What you are being tested on, and in what proportion
Your Course Policy marks Lectures 1–5 as MT and nothing after CP p. 3. Read those five rows and the emphasis is unmistakable:
| Lecture | Topic | Teaching method | Bloom level | What that implies |
|---|---|---|---|---|
| 1 | Introduction, accounting terms | Discussion, caselets | UNDERSTAND | Definitions, users, branches |
| 2 | GAAP, capital and revenue expenditure | Discussion, caselets | APPLY | Identify the concept; classify the spend |
| 3 | Accounting cycle, Journal | Numerical Problems | APPLY | Journalise a list of transactions |
| 4 | Ledger, Trial Balance | Numerical Problems | APPLY | Post, balance, prepare a TB |
| 5 | Depreciation — factors, SLM, WDV | Numerical Problems | APPLY | Compute depreciation; machinery account |
Three of five lectures are "Numerical Problems", and your faculty issued three problem sheets for them and none for Lecture 1. Budget your revision the same way: most of it on journal entries, ledger, trial balance and depreciation; a focused pass on concept identification and capital-vs-revenue; a quick pass on definitions.
Unit 01 in six minutes
The definitions that get asked
Accounting
"The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of accounts."
Book-keeping ≠ Accounting
Book-keeping records. Accounting also classifies, summarises, analyses and interprets. "The job of an accountant commences where the work of a book-keeper ends."
Three branches
Financial (historical, external users) · Cost (costs, internal) · Management (decisions, internal, encompasses the other two).
Capital
Assets − Liabilities. Need not be cash. Shown as a liability because the firm is independent of its owner.
Drawings
Anything the owner takes — cash, goods or an asset. Reduces capital. Never an expense.
Debtor / Creditor
Debtor = sold to on credit (asset). Creditor = bought from on credit (liability). The words "on credit" are load-bearing.
Fixed vs current asset
Depends on the business. Meant for sale → current. Used to earn profits → fixed. A car is fixed to a chemist, current to a car dealer.
Seven limitations
Profit not exact · not realisable value · not the whole story · different methods give different profits · human resources absent · manipulation · inflation.
Concept recognition — the whole topic as a lookup
Market value mentioned
Cost Concept — record at cost. Land at ₹2,55,000, not ₹5,00,000.
Two prices, take the lower
Conservatism — 1,800 garments at ₹70, not ₹110. Current assets.
Owner's personal anything
Business Entity — Drawings, not an expense, and not the firm's asset.
Something non-monetary
Money Measurement — a good employee, a manager quarrel.
Notes on disputes, risks
Full Disclosure — the pharma company, M/s Gupta & Sons.
Order received
Realisation — no entry. Revenue arises on delivery.
Method changed between years
Consistency, permitted with disclosure of the quantified impact.
Cash not yet moved
Accrual — credit sales, outstanding and prepaid expenses.
Capital vs revenue — three pairs and you are done
The test
New asset, more capacity, or longer life → Capital. Restores or maintains → Revenue.
Pair 1
First time capital, repeat revenue. First painting of a new extension vs repainting three years later.
Pair 2
Carriage follows the item. Carriage on bricks for an extension = capital. Carriage on purchases = revenue.
Pair 3
Acquiring capital, operating revenue. Legal cost of buying premises = capital (→ Premises A/c). Legal cost of collecting debts = revenue.
If both in one line
Split it. ₹1,000 upgrade + ₹500 repairs = ₹1,000 capital, ₹500 revenue.
Answer format
Three columns: item · capital or revenue · the account affected. The third column is where half the marks are.
Unit 02 in six minutes
The cycle
Six stages
Identify → Journalise → Post → Balance → Trial Balance → Financial Statements. The deck's version inserts unadjusted TB → adjusting entries → adjusted TB before the statements.
Journal
Book of prime/original entry. Chronological. Has a narration. Precedes but does not replace the ledger.
Ledger
Book of final entry, the principal book. Classifies by account. Cash Book is both a journal and a ledger.
Trial Balance
A summary of all balances. Tests arithmetical accuracy only.
The entry routine — five steps
1 · What moved?
Two things, always. Name them in plain words first.
2 · Which account?
Goods in = Purchases. Goods out = Sales. Cheque = Bank. Owner takes anything = Drawings.
3 · What type?
Personal / Real / Nominal — or Asset / Liability / Capital / Income / Expense. Pick one system and stay in it.
4 · Four gates
Settled now or outstanding? · Service done or advance? · Asset or expense? · Goods or fixed asset?
5 · Write it
Dr flush left, "To" indented, narration in brackets. Check debit = credit.
The entries most likely to appear
Started business with cash and goods
Cash Dr · Purchases Dr / To Capital (compound)
Bought goods "for cash from X"
Purchases Dr / To Cash — ignore X
Loan given vs loan taken
Given: Loan to X Dr / To Cash · Taken: Cash Dr / To Loan from X
Interest received from X
Cash Dr / To Interest Received — not X's account
Took goods for domestic use
Drawings Dr / To Purchases, at cost
Goods destroyed / free samples
Loss by Fire Dr / Advertisement Dr → To Purchases
10% trade discount
Record net. A return of list ₹1,000 is entered at ₹900.
"In full settlement"
Cash Dr + Discount Allowed Dr / To Debtor at full value
Insolvent, 25 paise in a rupee
Cash Dr 25% + Bad Debts Dr 75% / To Debtor at full value
Bad debt recovered from last year
Cash Dr / To Bad Debts Recovered — never the old debtor
Cash into bank
Bank Dr / To Cash — contra. But a customer paying in is not contra.
Received an order
NO ENTRY
Trial balance — sort it mechanically
The rule
Assets and expenses → Dr. Liabilities, capital and incomes → Cr. Apply item by item without thinking about the business.
Returns Inward
Dr — it reduces Sales, which is a Cr
Returns Outward
Cr — it reduces Purchases, which is a Dr
Carriage Inward and Outward
Both Dr. They differ in destination (Trading vs P&L), not in column.
Drawings
Dr — it reduces capital, so it sits opposite capital
Bank Overdraft
Cr — you owe the bank
Deposit with SBI
Dr — you gave the bank money, so it is an asset
"Received" in the name
Cr. Commission Received, Rent received = income.
Won't tally?
Difference ÷ 2 = the misplaced item. Odd difference → something omitted. Divisible by 9 → transposed digits. Still stuck → Suspense A/c, and say so.
⚠ The five errors a trial balance does NOT catch
Principle (machinery debited to Purchases) · Compensating (two errors cancelling) · Complete omission · Commission (Ram instead of Ramesh) · Original entry (₹540 written as ₹450 on both sides).
It catches only one-sided errors. Quote: "Double Entry Book-keeping ensures arithmetical accuracy alone, does not guarantee financial correctness."
Unit 03 in five minutes
Theory — the six lines worth full marks
Definition
"The permanent, continuing and gradual shrinkage in the book value of a fixed asset" — from use, wear and tear, efflux of time, depletion.
Scope
Fixed assets only. "Question of depreciation does not arise on current assets." Land is not depreciated.
Why
The Matching Concept — charge the cost against the revenue it helped earn.
Three objectives
Correct net income · fixed assets at proper value · funds for replacement. "If not provided, operational results would be overstated."
Unique property
"A mere book entry — no actual cash outgo. However, provision of depreciation reduces profits."
Changing method
Yes — treated as a change in accounting policy; change and quantified impact disclosed in Notes to Accounts.
The five method pairings — four easy MCQ marks
Livestock, loose tools
Revaluation
Mines, quarries, oil wells
Depletion
Ready funds for replacement
Sinking Fund (Depreciation Fund) — invested outside the business
Heavier burden on the P&L
Annuity — depreciation plus interest
Accepted for Indian income tax
WDV — and therefore what most firms use
Computation — the six-step routine
1 · Cost
Invoice + carriage + installation + erection + reconditioning. Not the invoice alone.
2 · Method
"Original cost" / "fixed installment" → SLM. "Diminishing balance" / "WDV" → WDV.
3 · Grid
One row per machine, one column per year. Mark the months owned. Do this before any arithmetic.
4 · Depreciate
SLM: base is always the original cost. WDV: base is the opening balance, which shrinks.
5 · On a sale
Charge depreciation to the date of sale first. Then WDV − proceeds = loss, or proceeds − WDV = profit.
6 · Present
Machinery A/c in T-form, year by year, with working notes below.
⚠ The four depreciation errors that cost whole questions
- Depreciating the invoice price instead of the total cost. ZEE Ltd: ₹96,000 + ₹24,000 = ₹1,20,000. Getting this wrong halves every subsequent figure.
- Forgetting the part-year in the year of sale. Sold 30 September, year ends March → still owe 6 months before computing the WDV.
- Applying the WDV rate to the original cost in year 2 and after. If two consecutive full years show the same figure under WDV, you have made this mistake.
- Taking a fraction of the wrong base. Under WDV, "one-fourth of the machinery" means one-fourth of the current book value, split at the start of the year of sale.
The last-hour checklist
- Can you write a journal entry with a narration, in the correct layout, from memory? Dr flush left ending "Dr.", credit indented beginning "To", narration in brackets. If not, write three now.
- Say out loud: goods in, goods out, back to supplier, back from customer. Purchases, Sales, Purchase Returns, Sales Returns. No Goods A/c.
- Say out loud: cheque, NEFT, UPI, net banking, debit card, CDM. All Bank. Nothing stated → Cash.
- Recite the three golden rules with one example each, including the fact that Bank is personal.
- Trial balance: Returns Inward Dr, Returns Outward Cr, both Carriages Dr, Drawings Dr, Overdraft Cr.
- Depreciation: cost includes installation; months are pro rata; sale needs depreciation to the date of sale.
- The month table: 1 Oct → 6/12 · 1 Dec → 4/12 · 1 Jul → 9/12 · sold 30 Sep → 6/12 · sold 31 Jan → 10/12.
- Four concept triggers: market value → Cost · lower of two → Conservatism · owner's personal → Business Entity · order received → Realisation.
- One sentence on the trial balance's limits, ready to write: arithmetical accuracy alone, not financial correctness.
- Stop revising and re-read Formats & Rules. Nothing new in the last hour — only the layouts and the reversals.
◆ In the test itself
Forty-five minutes, twenty marks. That is roughly two minutes a mark, which is not generous for a journal question with twelve transactions.
Do the obvious lines first. In any journal question, eight of twelve entries will be routine. Write those, leave a gap, and come back to the two or three that need thought. A journal with ten right and two blank scores far better than four perfect entries and eight unattempted.
Show your working even when the question does not ask. In depreciation especially, the five-line working note earns marks independently of whether the final account is arithmetically perfect — and a bare figure with no derivation earns nothing at all.