NTS NAT-ICOM Accounting Syllabus

State the fundamental rule of the double entry system.

For every debit there must be an equal and corresponding credit (Debit = Credit).

Name the three types of accounts under the traditional classification.

Personal accounts, Real accounts, and Nominal accounts.

What is a Personal Account? Give the golden rule.

An account of persons, firms or institutions (e.g., debtors, creditors). Rule: Debit the receiver, Credit the giver.

What is a Real Account? Give the golden rule.

An account of assets and properties (e.g., cash, machinery, building). Rule: Debit what comes in, Credit what goes out.

What is a Nominal Account? Give the golden rule.

An account of expenses, losses, incomes and gains (e.g., rent, salaries, commission). Rule: Debit all expenses and losses, Credit all incomes and gains.

Under the modern (accounting equation) approach, how are Assets and Expenses treated?

Assets and Expenses increase by Debit and decrease by Credit.

Under the modern approach, how are Liabilities, Capital and Income treated?

Liabilities, Capital and Income increase by Credit and decrease by Debit.

What is a Journal?

The book of original (prime) entry in which transactions are recorded for the first time in chronological order, with debit and credit, before being posted to the ledger.

What is journalizing?

The process of recording business transactions in the journal in the form of journal entries according to the rules of debit and credit.

What is a Narration in a journal entry?

A brief explanation written below each journal entry describing the nature of the transaction.

What is a compound (combined) journal entry?

A single journal entry that involves more than two accounts (more than one debit and/or more than one credit) for transactions occurring on the same date.

What is an Opening Entry?

The first journal entry of a new accounting period that brings forward the balances of assets, liabilities and capital from the previous period.

What is a Ledger?

The principal/main book of accounts that contains all the individual accounts in which transactions from the journal are classified and summarized.

What is Posting?

The process of transferring entries from the journal (or subsidiary books) to the respective accounts in the ledger.

What does 'balancing an account' mean?

Finding the difference between the total of the debit side and the credit side of a ledger account to determine the closing balance carried down.

What are Subsidiary Books (Books of Original Entry)?

Special journals used to record specific types of repetitive transactions separately instead of in the general journal (e.g., purchases book, sales book, cash book).

Which transactions are recorded in the Purchases Book?

Only credit purchases of goods (goods meant for resale); cash purchases and purchases of assets are excluded.

Which transactions are recorded in the Sales Book?

Only credit sales of goods; cash sales and sales of fixed assets are excluded.

What is recorded in the Purchases Returns (Returns Outward) Book?

Goods returned to suppliers that were originally bought on credit.

What is recorded in the Sales Returns (Returns Inward) Book?

Goods returned by customers that were originally sold on credit.

What is a Cash Book?

A subsidiary book that records all cash and bank receipts and payments; it also serves as a ledger account, so cash/bank accounts are not separately kept in the ledger.

What is a Single Column Cash Book?

A cash book with only one amount column on each side, used to record only cash transactions (receipts on debit side, payments on credit side).

What is a Double Column Cash Book?

A cash book having two amount columns on each side — commonly cash and bank columns (or cash and discount columns).

What is a Three Column Cash Book?

A cash book with three columns on each side: discount, cash and bank.

What is a Petty Cash Book?

A book used to record small, routine cash payments (postage, stationery, conveyance) usually maintained by a petty cashier.

What is the Imprest System of petty cash?

A system where the petty cashier is given a fixed sum (the imprest amount); at the end of the period the amount spent is reimbursed to restore the float to its original level.

What is a Contra Entry in the cash book?

An entry that affects both cash and bank columns of the cash book (e.g., cash deposited into bank or cash withdrawn from bank), marked with the letter 'C'.

What is a Trial Balance?

A statement listing the debit and credit balances of all ledger accounts on a particular date, prepared to check the arithmetical accuracy of the books.

What is the main purpose of preparing a Trial Balance?

To verify the arithmetical accuracy of ledger postings by ensuring total debits equal total credits; it also helps in preparing final accounts.

Name two methods of preparing a Trial Balance.

The Balance Method (using closing balances of accounts) and the Totals Method (using totals of debit and credit sides).

Does agreement of the Trial Balance guarantee no errors? Why or why not?

No. Some errors (errors of omission, commission, principle, compensating errors, and wrong original entries) do not affect the agreement of the trial balance.

What is an Error of Omission?

An error in which a transaction is completely or partially omitted from being recorded in the books; a complete omission does not affect trial balance agreement.

What is an Error of Commission?

An error caused by wrong recording, wrong posting, wrong casting (totaling) or posting to the wrong account but of the same class (e.g., posting to the wrong customer's account).

What is an Error of Principle?

An error arising from recording a transaction in violation of accounting principles, e.g., treating a capital expenditure as revenue expenditure or vice versa; it does not affect trial balance agreement.

What is a Compensating Error?

Two or more errors that cancel out each other's effect, so the trial balance still agrees despite the mistakes.

What is the Rectification of Errors?

The process of correcting accounting errors in a systematic way through rectifying journal entries (and a suspense account where needed) without erasing the original entry.

How are one-sided errors (before preparing trial balance) generally rectified?

By passing an explanatory note or correcting the affected single side of the account directly (no full double entry), since only one account is wrong.

How are errors rectified after the trial balance has been prepared (with a suspense account)?

By passing a proper rectifying journal entry; the difference for one-sided errors is routed through the Suspense Account.

What is a Suspense Account?

A temporary account opened to make the trial balance agree when its two sides do not tally; the difference is placed in it until the errors are located and rectified.

When is the Suspense Account closed?

When all the errors causing the trial balance disagreement have been located and rectified, the suspense account balance becomes zero and is automatically closed.

Differentiate between Trade Discount and Cash Discount.

Trade discount is a reduction in list price for buying in bulk and is not recorded in the books; cash discount is allowed for prompt/early payment and is recorded in the books.

Differentiate between Journal and Ledger.

The Journal is the book of original entry recording transactions chronologically; the Ledger is the book of final entry where transactions are classified account-wise. Journal has narration; ledger has balances.

State the rule for recording in the Cash Book.

All receipts (cash/bank coming in) are recorded on the debit (Dr) side and all payments (cash/bank going out) are recorded on the credit (Cr) side.