CA (Chartered Accountancy) Foundation: Accounting Syllabus

What are Accounting Standards?

Written policy documents issued by a recognised body (in India, ICAI / National Financial Reporting Authority) covering recognition, measurement, presentation and disclosure of accounting transactions, intended to standardise accounting practice.

State the main objectives/benefits of Accounting Standards.

They reduce variations in accounting treatment, ensure uniformity and comparability of financial statements, improve reliability and transparency, reduce scope for manipulation, and assist auditors and users.

What is Capital Expenditure? Give two examples.

Expenditure incurred to acquire or improve a fixed/long-term asset, or that increases earning capacity, the benefit of which extends beyond one accounting year. Examples: purchase of machinery, cost of installing a plant.

What is Revenue Expenditure? Give two examples.

Expenditure incurred in the normal day-to-day running of the business whose benefit is exhausted within the accounting year. Examples: rent, wages, repairs, purchase of goods for resale.

Distinguish Capital Receipt from Revenue Receipt.

A capital receipt arises from non-recurring transactions such as sale of fixed assets, loans raised or capital introduced (it is not income). A revenue receipt arises in the ordinary course of business such as sale of goods, interest or commission received (it is income).

What is Deferred Revenue Expenditure?

A revenue expenditure whose benefit extends over more than one accounting period; it is written off over several years (e.g., heavy advertising for launching a product). The unwritten-off portion is shown as an asset.

What is an Accounting Estimate? Give an example.

An approximation of a monetary amount in the absence of a precise means of measurement, requiring judgement based on the latest information—e.g., estimating the useful life of an asset, provision for doubtful debts, or warranty obligations.

What are the common bases of measurement/valuation in accounting?

Historical cost, current cost, realisable (settlement) value, and present value. Historical cost is the most commonly used basis.

What is a Journal and what is the process of recording in it called?

The journal is the book of original/prime entry in which transactions are first recorded in chronological order in the form of journal entries. The process is called journalising.

What is a Ledger and what is posting?

The ledger is the principal book containing all the accounts (the book of final entry). Posting is the process of transferring entries from the journal to the respective accounts in the ledger.

What are Subsidiary Books? Name them.

Special journals used to record numerous transactions of a similar nature: Purchases Book, Sales Book, Purchases Returns Book, Sales Returns Book, Cash Book, Bills Receivable Book, Bills Payable Book, and Journal Proper.

State the rules of debit and credit under the traditional (British) approach.

Personal accounts: Debit the receiver, Credit the giver. Real accounts: Debit what comes in, Credit what goes out. Nominal accounts: Debit all expenses and losses, Credit all incomes and gains.

State the rules of debit and credit under the modern (American/accounting equation) approach.

Debit increases in assets and expenses, and decreases in liabilities, capital and income. Credit increases in liabilities, capital and income, and decreases in assets and expenses.

What is the Double Entry System?

A system in which every transaction is recorded in at least two accounts—one debit and one corresponding credit of equal amount—so that total debits always equal total credits, ensuring arithmetical accuracy.

What is recorded in the Purchases Book versus the Cash Book?

The Purchases Book records only credit purchases of goods dealt in (trading goods). The Cash Book records all cash and bank receipts and payments. Cash purchases are recorded in the Cash Book, not the Purchases Book.

What is recorded in the Sales Returns Book and what document supports it?

The Sales Returns (Returns Inward) Book records goods returned by customers (returns of credit sales). It is supported by a Credit Note issued to the customer.

What is a Three-column Cash Book?

A cash book with three amount columns on each side—Cash, Bank and Discount—recording cash transactions, bank transactions and cash discounts allowed (debit side) and received (credit side) together.

What is a contra entry in the cash book?

An entry that affects both the cash and bank columns of the cash book (e.g., cash deposited into bank or cash withdrawn from bank for office use). It is marked with the letter 'C' and not posted to the ledger.

What is a Trial Balance?

A statement listing the debit and credit balances (or totals) of all ledger accounts on a particular date, prepared to check the arithmetical accuracy of the books—total of the debit column should equal the total of the credit column.

Does an agreed Trial Balance guarantee that the books are free from error? Explain.

No. Errors that do not affect the agreement—errors of omission, commission (same side), principle, compensating errors, and errors of complete omission/wrong-account postings of equal amount—are not disclosed by the trial balance.

List the types of accounting errors.

(1) Errors of omission, (2) Errors of commission, (3) Errors of principle, and (4) Compensating errors. By disclosure, they are classified as errors that affect the trial balance (one-sided) and errors that do not (two-sided).

What is an Error of Principle? Give an example.

An error arising from non-compliance with accounting principles, especially treating capital expenditure as revenue or vice versa—e.g., recording purchase of machinery in the Purchases Account, or charging a repair to the asset account.

What is a Compensating Error?

Two or more errors that cancel out each other's effect on the trial balance, so the trial balance still agrees—e.g., one account overdebited by 100 and another overcredited by 100.

What is a Suspense Account and when is it opened?

A temporary account opened to make the trial balance agree when one-sided errors cause a difference. The difference is placed in the Suspense Account; it is closed when all errors are located and rectified.

How are one-sided errors rectified before preparing the trial balance versus after a suspense account is opened?

Before the trial balance (and before a suspense account), a one-sided error is corrected by a note/explanatory entry on the affected side. After opening a suspense account, it is rectified by a journal entry using the Suspense Account as the contra.

What is a Bank Reconciliation Statement (BRS)?

A statement prepared to reconcile and explain the difference between the bank balance as per the firm's Cash Book and the balance as per the bank Pass Book/bank statement on a particular date.

List four common causes of difference between the Cash Book and Pass Book balances.

(1) Cheques issued but not yet presented for payment, (2) Cheques deposited but not yet collected/credited, (3) Bank charges/interest debited only in the pass book, and (4) Direct deposits/collections and direct payments (standing orders) made by the bank, plus errors in either book.

Starting from a favourable Cash Book balance (debit), how do unpresented cheques and uncredited cheques affect the Pass Book balance in a BRS?

Cheques issued but not yet presented are added (bank balance is higher); cheques deposited but not yet credited are subtracted, to arrive at the balance as per the Pass Book.

Define Depreciation.

The systematic allocation of the depreciable amount (cost less residual value) of a tangible fixed asset over its useful life, representing the loss in value due to use, wear and tear, efflux of time or obsolescence.

State the Straight Line Method (SLM) formula for annual depreciation.

$$\text{Depreciation per year} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life (years)}}$$ The SLM rate is $\frac{\text{Annual Depreciation}}{\text{Cost}-\text{Residual Value}} \times 100$.

How does the Written Down Value (Diminishing Balance) Method compute depreciation, and how does it differ from SLM?

Depreciation $= \text{Rate} \times \text{Opening Book Value}$, so a fixed percentage is charged on the reducing book value each year, giving higher depreciation in early years. Under SLM a constant amount is charged each year on cost. Amortisation is the equivalent systematic write-off of intangible assets (e.g., goodwill, patents).