TOPICS FOR THE INTERVIEW IN CONSERO

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GOLDEN RULES OF ACCOUNTING
A Real Account is a general ledger account relating to Assets and Liabilities other than people accounts.
These are accounts that don’t close at year-end and are carried forward. An example of a Real Account is
a Bank Account.
A Personal account is a General ledger account connected to all persons like individuals, firms and
associations. An example of a Personal Account is a Creditor Account.
A Nominal account is a General ledger account pertaining to all income, expenses, losses and gains. An
example of a Nominal Account is an Interest Account.
Real account :
Debit what comes in, credit what goes out
Personal account:
Debit the receiver, credit the giver.
Nominal Account:
Debit all expenses and losses, Credit all incomes and gains.
PURCHASES RELATED ENTRIES
a) Cash purchases - expense
Purchases A/c Dr
Input GST A/c Dr
To Bank A/c
b) Credit purchases - expense
Purchases A/c Dr
Input GSt A/c Dr
To Accounts payable A/c
Accounts payable A/c Dr
To Bank A/c
c) Purchase returns
bank A/c/Account payable A/c Dr
To purchase returns A/c
d) Discount received –income
Account Payable A/c Dr
To Bank A/c
To Discount received A/c
e) Bills payable –Liability
Acc payable A/c Dr
To Bills Payable A/c
Bills Payable A/c Dr
To Bank A/c

Reasons for (Accounts payable) vendor account with debit balance

 When payment is made to the wrong vendor

 Payment made in excess, than the amount due in that case the vendor account debit balance.
 Any advances paid to vendor for future supplies .
 provision for discount on creditors.
 Mistake in invoices i.e to wrong vendor

AP Process deals with various expenses and their payments like payment to vendors .

AP PROCESS FLOW

INVOICE - VERIFICATION OF INVOICE( PO,GR ,INV)- Variances addressed- Payments

 Receive vendor invoices and perform a three-way match for consistency against purchase
order, goods receipt, and invoice
 AP to verify receipt of the goods or service to approve the invoice for payment
 If variances arise during invoice processing, such as the wrong quantity or price, accounts
payable sends the invoice to the buyer, who works to find the source of the issue
 After the invoice is vouched by the AP department and all variances are addressed and
corrected, checks and payments are issued promptly
 Once payment is sent, the invoice is marked as paid in the finance system.
 P2P PROCESS
It involves two departments production department and finance department
Procure – Production Department The following steps involve procuring any item

 Received Requisition from concern Department

 Request for Quotation from Suppliers at least three
 Finalize the best Quotation by keeping in mind our companies standard
 Check the Budget for the same
 Negotiate with supplier for more economic pricing and finalize the payment terms
 Process the PO and forward to the supplier to supply the goods and services
Pay Cycle - Finance Department

 The following steps need to be fulfilled

 The invoice should be matched with PO
 The invoice should have all the supporting documents such as PO copy, Delivery note duly
signed by the receiver (our staff who authorized to received goods/storekeeper)
 If the invoice is for services then it should be forwarded to the concerned department head or
project manager for his confirmation of work done and his approval
 Even if it not the invoice of the service, it should forward to the concerned person's approval who
-request the PO for the same
 Finance can reject the invoice if it is not budgeted and ask for the reasons.
 After receiving all the confirmation and approvals from the concerned department heads the
invoice will be updated into the accounting system first in order to avoid any duplication of the
Invoice and PO (it is shown on the accounting package if the invoice is duplicate if not, late last
it tells you if the PO already used or cancel)
 DEBIT NOTE & CREDIT NOTE
Debit note : Cus-to –Supp –DEBIT note (CSD)
Also known as debit memo issued by buyer/customer to seller to indicate /request of return of funds
Due to incorrect or damaged goods received , purchase cancellation.
a debit note basically acts as a buyer's formal request for a credit note from the seller. The document
therefore serves as evidence to support a purchase return in the accounting books of a buyer.
scenarios when to issue a debit note include:
 Goods received are damaged or defective
 The purchaser has been overcharged
 The invoice value is incorrect (due to extra goods being delivered, or goods are charged at
lesser value, etc.)
Credit Note: Supp- to- Cust –Credit note ( SCC)
A credit note (also known as credit memo) is issued to indicate a return of funds in the event of an
invoice error, incorrect or damaged products, purchase cancellation, or otherwise specified
circumstance
Some common cases when to issue a credit note are the following:
 If you receive goods from a supplier that must be returned due to damage, or fault - or simply
do not meet the buyers specifications
 Correcting any invoice mistakes (e.g. invoice amount overstated)
 Correct discount rate is not applied to invoice
 Goods damaged within the warranty period
 Cancel out any awaiting payments on invoices

SALES RELATED ENTRIES

a) cash sales
Bank A/c Dr
To Output GstA/c
To Sales A/c/ revenue A/c
b) credit sales
Account Receivable A/c dr
To output Gst A/c
To Sales A/c

Bank A/c Dr
To Account receivable A/c
c) sales returns
Sales Return A/c Dr
To Bank /Account receivable A/c
 d) discount allowed
Discount Allowed Dr
To Account Receivable A/c
e) bills receivable
Bills Receivable A/c Dr
To Account Receivable A/c

Reasons for customer account with negative balance

Yes, accounts receivable can have a negative balance, and here are 5 reasons why you may
occasionally see a negative balance.
1. Collected more than you billed
2. Collected a payment after writing off an accounts receivable
3. Issued a credit memo larger than the accounts receivable balance
4. Posted an incorrect journal entry
5. Recorded a prepayment or deposit incorrectly

AR PROCESS (O2R) ORDER TO RECEIVE

1. Sales order

2. Issue of invoice

3. Issuing remainder of payment

4. Receipt of payment

5. Less payment bad debt

6. Long time o/s prov for bad debts

Cash application process

Cash application is a process relating to accounts receivable (AR), where incoming payments are
applied to the corresponding customer invoice. Whether it is a cash or wire (EFT) payment, a
monthly bank reconciliation is performed by the accounts payable (AP) assistant and the AR
assistant within two days of month-end. It is then reviewed, signed off and filed by the financial
controller.

This process flow focuses on the AR and cash application process and outlines steps such as:
 Setting up new customer accounts
 Receiving customer payments
 Entering payments
 Reconciling bank accounts
 Researching payment discrepancies
 AR Ageing
Accounts receivable (AR) aging report lists unpaid customer invoices, a primary tool used by
collections staff to determine which invoices are overdue for payment. The AR collection process is
used to evaluate how long customers take to pay their invoices.

This process flow outlines the AR aging and collection process. It outlines steps such as:
 Reviewing balances aged over 30, 60 and 90 days
 Coordinating payment status with the claims company
 Coordinating payments with customers
 Writing off appropriate accounts

What Is An Accrual
Accrual basis of accounting means that the costs or revenues of events are recognized in the
period in which they occur, though the cash flows may take place in another accounting period.

ACCRUED EXPENSES -Liability

Accrued expense journal entry is passed to record the expenses which are incurred over one
accounting period but not paid actually in that accounting period. Here the expenditure account is
debited and the accrued liabilities account is credited. When the company settles its obligation
with cash, the accrued liabilities account is debited and the accrued expense account is credited.

Ex: salaries, interest, monthly bills

Accrued Expenses A/c Dr

To Prov for exp/ exp PayableA/c

Prov for exp/exp payable A/c Dr

To Bank A/C

PREPAID EXPENSES/DEFERRED EXPENSES- Asset

PreP aid insurance, Rent etc

Prepaid exp A/c (asset)Dr

To Bank A/c

Expense A/c Dr
To Prepaid Exp A/c

DEFERRED REVENUE- current liab

income received in advance even before services are rendered or goods are delivered

Bank A/c Dr
To Def revenue A/c
 Def revenue A/c Dr
To Customer A/c

DEFERRED REVENUE EXPENDITURE-Current asset

Deferred Revenue Expenditure is an expenditure which is revenue in nature and incurred during
an accounting period, however, related benefits are to be derived in multiple future accounting
periods.
these expenses are unusually large in amount and, essentially, the benefits are not consumed
within the same accounting period.
Part of the amount which is charged to profit and loss account in the current accounting period is
reduced from total expenditure and rest is shown in the balance sheet as an asset (fictitious asset,
i.e. it is not really an asset).

Initially Deferred revenue expenditure A/c Dr (Asset)

To Bank A/c

Every year Deferred Revenue Expenses A/c Dr (Expense)

To Deferred revenue expenditure A/c (Asset)

UNBILLED REVENUE- current Asset

already provided services but not raised the invoice

unbilled revenue A/c dr
To revenue A/c
Accounts receivable A/c Dr
To Un Billed Revenue A/c

On receipt
BankA/c Dr
To Accounts Receivable A/c

UNEARNED REVENUE –Liability

Consideration has been received but provision of services or delivery of goods not yet performed.
Ex : AMC Contract advance received

Bank A/c Dr
To Unearned Revenue A/C

Un earned revenue A/c dr

To Revenue A/c
 DEPRECIATION AND FIXED ASSET RELATED

Fixed asset

Fixed Asset A/c Dr

To Bank A/c

Depreciation
Depreciation A/c Dr
To Fixed Asset A/c

P&L A/c Dr
To Depreciation A/c
Sale of fixed asset
Profit
Bank A/c Dr (consideration) Dr
Accumulated depreciation A/c Dr
To Fixed Asset A/c (Book value)
To P&L A/c (Profit on sale of asset)
Loss

Bank A/c Dr (consideration) Dr

Accumulated depreciation A/c Dr
Profit & Los A/c Dr (loss on sale of asset)
To fixed Asset A/c (Book Value)

BAD DEBTS AND PROVISIN FOR BAD DEBTS

Bad debts
Bad debts A/c Dr
To Debtors /Accounts receivable A/c

P&L A/c Dr
To Bad debts A/c( write off)

Provision for Bad debts

P&L A/c Dr
To Prov for Bad debts A/c

BANK RECONCILIATION STATEMENT (BRS)

It is a statement prepared to reconcile the balances of cash book of the entity and pass book
maintained by the bank at periodical intervals.

At the end of every month entries in the cash book are compared with the entries in the pass book.

The causes of differences in balances of both the books are scrutinized and then reconciliation
statement is prepared.

This statement is prepared for a special purpose and once in a month.

It is prepared with a view to indicate items which cause difference between the balances as per the
bank columns of the cash book and the bank pass book at a particular date.

Reason for difference in cash book and bank pass book

 Cheques deposited into the bank but not cleared

 Cheques issued but not presented for payment
 Bank charges
 Amount collected by bank on standing instructions of the concern (Interest and
dividend).
 Amount paid by the bank on standing instructions of the concern.
 Interest charged (debited) by the bank
 Interest allowed (credited) by the bank
 Direct payment by customers into the bank account
 Dishonour of cheques /bills discounted with the bank
 Clerical errors.

While preparing a bank reconciliation statement following important points need to be remembered:
Bank Reconciliation Statement is prepared either by starting with the Bank pass book balance or
Cash book balance.
1. If the balance of the Cash book is taken as a starting point then Cash book balance is to be
adjusted in accordance with the entries passed in the Bank pass book and vice versa. For
example: If the balance is taken as per the Cash book then the following items will be
added:
2. Cheques issued but not presented for payment;
3. Amount credited in Passbook but not in Cash book;
4. Deposits made in the bank directly;
5. Wrong credits given by bank;
6. Interest credited in the Passbook.

The following items will be subtracted:

7. Cheques deposited but not cleared;
8. Interest/Bank Charges debited by bank
9. Direct payments made by bank not entered in Cash book
10. Cheques dishonoured not recorded in cash book
11. Wrong debits given by bank
12. If it is prepared with the Bank balance as per the bank passbook, then the above procedure
will be reversed i.e the items will be added to the pass book which were deducted from the
cash book balance and those items will be deducted from the bank pass book balance which
were added to the cash book balance.
 MONTH END CLOSING ACTIVITIES – CHECK LIST
a) Ensure all revenue is booked
b) Ensure all AP invoices are entered
c) Make accruals for Revenue and AP (for critical vendors)
d) Record the prepaid entries as of the end of the month
e) Record the Deferred revenue entries as of the end of the month
f) Ensure all Inter company entries are booked
g) Ensure the payroll entries are booked
h) Ensure all Bank transactions for the month are entered and reconciled to the Bank statement
i) Reconcile the GL (Balance sheet accounts)

Revenue Recognition criteria under AS -9

Income should be recognized only when there is probable increase in future economic benefits and it
can be measured reliably

Income should be recognized when there is NO significant Uncertainty in ultimate Collection at the
time of recognition

If any uncertainty exists at the time of recognition, It should be postponed till there is No
Uncertainty.

If any uncertainty exists subsequent to recognition, make a provision to the extent of uncertainty and
Revenue recognized SHOULD NOT be reversed.

Royalty should not be recognized on accrual basis, dividend only when Right to receive is established.

REVENUE RECOGNITION CRITERIA UNDER IND –AS 115

Steps

1. Identification of contract with customer

Criteria for recognizing the contract, contract term, combining contracts, contract modifications
etc

2. Identifying Performance obligation

Entity should assess promises with customers for distinctive goods or services, various long term
arrangements ,consideration, non refundable upfront fees etc.

3. Determination of transaction price

Variable consideration & constraints in determining var consideration,

 Significant financing component, non cash consideration payable, consideration payable to the
customer

4. Allocation of transaction price to performance obligation

Methods to allocate transaction price, discount, variable consideration , any changes in

transaction price

5. Satisfaction of performance obligation

Satisfaction over a period of time/ at appoint of time, Measuring progress towards complete
satisfaction of performance obligation.

Order to cash (OTC or O2C) is a set of business processes

Process flow

SALARY RELATED entries

Salary entry - expense

Salary A/c Dr
To Bank A/c
Transfer to P&l A/c

P&L A/c Dr
To salary A/c

Salary Payable entry with PF ESI TDS

Salary Expense A/c Dr

To EPF payable A/c
To ESI Payable A/c
 To TDS Payable A/c
To Bank A/c (Net Salary)
Employer contribution

EPF Expense A/c (ER cont) Dr

ESI Expense A/c (ER cont) Dr
To EPF Payable (ER Cont)
To ESI Payable (ER Cont)
Payment Entries

EPF
EPF payable A/c (EE Cont) Dr
EPF payable A/c (ER Cont)Dr
To Bank A/c

TDS
TDS Payable A/c Dr
To BankcA/c

GENERAL LEDGR PROCESS FLOW

The steps in the general ledger process flow are:

Step1. Create Journal or Import Journal from Sub‐Ledger
Step2: Review Journals
Step3: Approve Journals
Step4: Journals Posting
Step5: Run Financial Reports

Provision for expenses

Expenses A/c (P&L) A/c Dr

To Prov for expenses A/c
Next year
Prov for Expenses A/c Dr
To Vendor A/c ( Acc Payble/creditor)
On payment
Vendor A/c Dr
To Bank A/c
Inter Company transactions

Intercompany transactions arises when the unit of a legal entity has a transaction with another unit
within the same entity

Intercompany operations may involve trading operations, such as sale or purchase of inventory or
fixed assets, providing or receiving of loans, guarantees or other commitments, declaration and
payment of dividends. As a result of such transactions, balance sheet balances (e.g., accounts
receivable, accounts payable, financial assets, financial liabilities, dividends payable and dividends
receivable) and income statement transactions (e.g., sales, purchases, interest expenses, dividends paid
or received) may arise.
Transactions from the parent to a subsidiary may be called downstream transactions, transactions
from the subsidiary to the parent may be called upstream transactions, and transactions between
subsidiaries may be called lateral transactions. Regardless of the direction, the intercompany
transactions have no effect on the group as a whole and should be reconciled and subsequently
eliminated in the consolidation process.

Deferred tax Asset and Deferred Tax Liability

Deferred tax may be an asset or liability ,it is the tax effect of timing differences.

Timing differences: differences that arise in one period and are capable of reversal in one or more
subsequent periods
Ex: depreciation, Expenses not deductible (Preliminary exp U/s 35 D, Exp u/s 43B (actual Payment
deduction)

Permanent difference : arise in one period and do not reverse in subsequent periods = ignore.
Ex: dividend income, exp disallowed, Agricultural income, donations, contributions not approved,
penalties and fines

DTA ( Exp in ACC records is higher)

DTA should be recorded when taxes of initial years are higher i.e expenses are disallowed as per
income tax i.e income is higher as per tax records , expense is higher as per accounting records
Recognize DTA

Deferred tax asset A/c Dr

To P&L A/c( Def tax income)
EX: un absorbed depreciation, carry forward of losses
DTA should be recognized to the extent that THERE IS VIRTUAL CERTAINITY SUPPORTED
BY CONVINCING EVIDENCE that sufficient future taxable income will be available.

DTL (Exp in ACC records is lower)

DTL should be recorded when taxes of initial years are lower i.e expenses are allowed as per income
tax i.e income is lower as per tax records , expense is lower as per accounting records
Recognize DTL

P&L A/c Dr ( Def tax exp)

To Deferred tax Liab A/c
 EFFECT OF FOREIGN EXCHANGE TRANSACTIONS

Initial Recognition
on date of transaction recognize using rate prevailing on DOT
Subsequent Recognition
Any assets / liabilities arising as a result of the transaction is still existing on the B/S date we have to
reassess its value.
Monetary items: Rate on B/S date
Non monetary items:
At Historical cost: Rate on DOT
At Fair value : Rate on Date of valuation Generally Closing rate
Foreign exchange rate difference :
All the forex differences should be recognized as exch gain or loss

Translation of financial statements of foreign operations

1. Integral FO - extension to ho i.e dependant on HO
Monetary items, contingent liabilities - closing rate
P&L items – Rate on DOT or AVG rate
Non Monetary items
At Historical cost: Rate on DOT
At Fair value : Rate on Date of valuation Generally Closing rate
All the forex differences arising on conversion of financial statements should be recognized in P&L
A/c as exch gain or loss

2.Non integral FO- independent of HO

Monetary items, contingent liabilities - closing rate
P&L items – Rate on DOT or AVG rate
 Intra group balances should be eliminated while consolidation but exchange diff on such
transactions should not be eliminated
 Any goodwill or Cap reserve on Acq of NIFO should be translated at closing rate
All the forex differences arising on conversion of financial statements should be transferred to
FCTRA/c Foreign currency translation reserve account balance continues to exist on B/S date
and continues to exist till the date of sale of foreign operations
It should be presented as a part of Res & Surplus
On disposal of NIFO balance in FCTR A/c is recognized in P&L A/c as income or expenditure.

Forward exchange contracts:

It is an agreement to exchange different foreign currencies at a specified future date at a predetermined
rate.
To minimize forex fluctuation risks
SPOT RATE – FORWARD RATE = Premium or discount

When forward contracts are entered for own purpose

Premium or discount at the inception should be amortized over the life of the contract.
Exch diff on such contract should be recognized in P&L
Profit or loss on cancellation of contract should be recognized as income or expense for the period.

When forward contracts are entered for speculation purpose

Ignore premium or discount
On B/S date recognize Gain /loss in P&L A/c

Inventory Valuation
Inventory is an asset held for sale in the ordinary course of business which is used or consumed in the
process of production .

It should be valued at COST Or NRV which ever is lower.

COST-
Purchase
Purchase price +freight +taxes +all direct costs related to Acq
Conversion cost
Labour + OH Based on Actual capacity
and all other attributable costs to bring it to present location &Condition
NRV
In case of FG/WIP
Selling price +cost to complete the product+ cost to make the sale
In case of RM
At cost or replacement cost

Normal entry for stock is

Inventory/stockA/c Dr
To Supplier A/c

Supplier A/c Dr
To Bank A/c

GOODS IN TRANSIT
When the stock is in transit but yet to be received by the purchaser customer, then the journal entry will
be:
 Goods in transit A/c Dr
To Supplier A/c
Stock A/c Dr
To Goods in Transit A/c
Supplier A/c Dr
To Bank A/c

GENERAL TOPICS
Items which appear under the liability side of Balance Sheet are:
o Capital
o Reserves and surplus
o Long Term Liabilities
o Loan from bank
o Mortgage
o Current Liabilities
o Bills payable
o Sundry Creditors
o Advance from Customers
o Outstanding Expenses
o Income Received in Advance.

Items which appear under the assets side of Balance Sheet are:

Fixed Assets: Less depreciation

o Land,
o Building,
o Machinery,
o Furniture,
o Vehicles,
o Computers
o Investments

Current Assets:
o Stock,
o Sundry Debtors,
o Cash Balance,
o Bank Balance,
o Prepaid Expenses.(Rent Insurance advertisement)

The Types Of Errors Which Have An Effect On Trial Balance

Following are the types of errors which affect agreement of Trial Balance:
Wrong totaling of subsidiary books
Posting on the wrong side of the account
Posting of the wrong amount
Omission of posting an amount in the ledger
Error of balancing.
 Type Of Errors Do Not Affect The Trial Balance
Following are the types of errors which do not affect the Trial Balance:
Compensating Error
Errors of Principle
Errors of Omission
Errors of Commission
Wrong amount recorded in the subsidiary books.

Steps You Take To Locate The Errors In Case Trial Balance Disagrees
In case Trial Balance disagrees, following steps should be taken to locate the errors:
o Totalling of all the subsidiary books and trial balance should be checked carefully.
o Opening balances of all the accounts are properly brought down in the current year’s books of
account.
o Ledger accounts have been properly balanced and the balances of ledger accounts have been
correctly shown in the trial balance.
o To locate some errors the difference in the trial balance in halved.
o Another way is dividing the difference in the trial balance by 9.
o If the difference gets divisible without leaving any reminder that indicates the transposition of
the amounts.
o To locate certain other errors, current year trial balance can be compared with the trial balance
of the previous year.

Gross Profit
company’s revenue minus its cost of goods sold. It is also known as gross margin and gross income. It
is calculated by subtracting all costs related to sales i.e. manufacturing expenses, raw materials, labour,
selling and advertisement expenses from sales. It is an indication of the managements’ efficiency to use
labour and material in the production process.
Gross Profit = Net Sales – Cost of Goods Sold

Net Profit
Net profit, also known as operating profit is actual earnings of the company in a given period of time.
It is a measure of the profitability after accounting for all costs.

In simple terms, net profit is the money left over after paying all the expenses including taxes and
interest.

It is the calculated by subtracting total expenses from total revenues.

Net income can be either distributed among shareholders of the company or held by the firm as
retained earnings for the future purpose .
Net Profit = Gross Profit – Total Operating Expenses – Taxes – Interest.

Difference Between Journal Voucher And Contra

journal voucher is the voucher in which all the adjustment related entries and non cash non bank
transactions are entered in journal
eg-dep, some of them book the bills in journal and while they make a payment they record in payment
eg-contractor bill.

contra appears two times in two sides of a account an account will be treated as contra when:
o cash deposited in bank
o cash with drawn from bank for office use
o cheques deposited in bank
o cheques withdrawn for office use
o transfers from one account to another account.

Steps Of The Concept Of Reconciliation Of General Ledger

The concept of reconciling the general ledger can also refer to examining the general ledger as a whole
to ensure that all accounts are being aggregated into the financial statements.
This reconciliation process involves the following steps:
o Summarize the ending balances in all revenue accounts and verify that the aggregate
amount matches the revenue total in the income statement.
o Summarize the ending balances in all expense accounts and verify that the aggregate
amount matches the expense total in the income statement. This can be conducted at the
individual expense line item level in the income statement.
o Summarize all asset, liability and equity accounts and verify that the aggregate amounts
match the respective line items in the balance sheet.

Diff B/n Provision and reserve

A reserve is an appropriation of profits for a specific purpose. The most common reserve is a capital
reserve, where funds are set aside to purchase fixed assets. By setting aside a reserve, the board of
directors is segregating funds from the general operating usage of the company.
There is no actual need for a reserve, since there are rarely any legal restrictions on the use of funds
that have been "reserved." Instead, management simply makes note of its future cash needs, and
budgets for them appropriately. Thus, a reserve may be referred to in the financial statements, but not
even be recorded within a separate account in the accounting system.
A provision is the amount of an expense or reduction in the value of an asset that an entity elects to
recognize now in its accounting system, before it has precise information about the exact amount of
the expense or asset reduction. For example, an entity routinely records provisions for bad debts, sales
allowances, and inventory obsolescence. Less common provisions are for severance payments, asset
impairments, and reorganization costs.
In short, a reserve is an appropriation of profit for a specific purpose, while a provision is a charge for
an estimated expense.