Unit 2: Books of Accounts, Returns & Forms of Financial Statements: Notes | Advanced Accounting for CA Intermediate PDF Download

 Page 1


  
8.10 ADVANCED ACCOUNTING 
LEARNING OUTCOMES 
UNIT 2: BOOKS OF ACCOUNTS, RETURNS 
AND FORMS OF FINANCIAL 
STATEMENTS 
 
 
 
 
After studying this unit, you will be able to: 
? Learn the main characteristics of a bank’s system of book 
keeping. 
? Understand the methods in which all detailed accounts in 
subsidiary books and principal books are maintained by a 
bank and their purposes. 
? Make a list of various other registers, departmental journals 
and memorandum books generally maintained by a bank. 
? Familiarize with the monthly, quarterly and annual returns 
filed by a bank to the RBI. 
? Appreciate the formats of Banks Financial Statements in Form 
A for Balance Sheet and Form B for Profit and Loss Statement 
of the Banking Regulation Act. 
 
Page 2


  
8.10 ADVANCED ACCOUNTING 
LEARNING OUTCOMES 
UNIT 2: BOOKS OF ACCOUNTS, RETURNS 
AND FORMS OF FINANCIAL 
STATEMENTS 
 
 
 
 
After studying this unit, you will be able to: 
? Learn the main characteristics of a bank’s system of book 
keeping. 
? Understand the methods in which all detailed accounts in 
subsidiary books and principal books are maintained by a 
bank and their purposes. 
? Make a list of various other registers, departmental journals 
and memorandum books generally maintained by a bank. 
? Familiarize with the monthly, quarterly and annual returns 
filed by a bank to the RBI. 
? Appreciate the formats of Banks Financial Statements in Form 
A for Balance Sheet and Form B for Profit and Loss Statement 
of the Banking Regulation Act. 
 
 
 
 8.11 
 
BANKING COMPANIES 
 2.1 MAIN CHARACTERISTICS OF A BANK’S 
BOOK-KEEPING SYSTEM 
The book-keeping system of a banking company is substantially different from that 
of a trading or manufacturing enterprise. A bank maintains a large number of 
accounts of various types for its customers. As a safeguard against any payment 
being made in the account of a customer in excess of the amount standing to his 
credit or a cheque of a customer being dishonoured due to a mistake in the balance 
in his account, it is necessary that customers’ accounts should be kept up -to-date 
and checked regularly. In many other mercantile enterprises, books of primary entry 
(i.e., day books) are generally kept up-to-date while their ledgers including the 
general ledger and subsidiary ledgers for debtors, creditors etc. are written 
afterwards. However, a bank cannot afford to ignore its ledgers, particularly those 
concerning the accounts of its customers and has to enter into the ledgers every 
transactions as soon as it takes place. In bank accounting, relatively less emphasis 
is placed on day books. These are merely treated as a means to an end-the end 
being to keep up-to-date detailed ledgers and to balance the trial balance every-
day and to keep all control accounts in agreement with the detailed ledgers. 
Presently most if not all of the Banks' accounting is done on Core Banking Solutions 
(CBS) wherein all accounts are maintained on huge servers with posting being 
affected instantly through vouchers, debit cards, internet banking etc. 
The main characteristics of a bank’s system of boo k-keeping are as follows: 
(a) Voucher posting – Vouchers are nothing but loose leaves of journals or cash 
books on which transactions are recorded as they occur. Entries in the 
personal ledger are made directly from vouchers instead of being posted 
from the books of prime entry. 
(b) Voucher summary sheets - The vouchers entered in different personal 
ledgers each day are summarised on summary sheets, totals of which are 
posted to the control accounts in the general ledger. 
(c) Daily trial balance - The general ledger trial balance is extracted and agreed 
every- day. 
(d) Continuous checks - All entries in the detailed personal ledgers and 
summary sheets are checked by persons other than those who have made the 
entries. A considerable force of such check is employed, with the general 
result that most clerical mistakes are detected before another day begins. 
Page 3


  
8.10 ADVANCED ACCOUNTING 
LEARNING OUTCOMES 
UNIT 2: BOOKS OF ACCOUNTS, RETURNS 
AND FORMS OF FINANCIAL 
STATEMENTS 
 
 
 
 
After studying this unit, you will be able to: 
? Learn the main characteristics of a bank’s system of book 
keeping. 
? Understand the methods in which all detailed accounts in 
subsidiary books and principal books are maintained by a 
bank and their purposes. 
? Make a list of various other registers, departmental journals 
and memorandum books generally maintained by a bank. 
? Familiarize with the monthly, quarterly and annual returns 
filed by a bank to the RBI. 
? Appreciate the formats of Banks Financial Statements in Form 
A for Balance Sheet and Form B for Profit and Loss Statement 
of the Banking Regulation Act. 
 
 
 
 8.11 
 
BANKING COMPANIES 
 2.1 MAIN CHARACTERISTICS OF A BANK’S 
BOOK-KEEPING SYSTEM 
The book-keeping system of a banking company is substantially different from that 
of a trading or manufacturing enterprise. A bank maintains a large number of 
accounts of various types for its customers. As a safeguard against any payment 
being made in the account of a customer in excess of the amount standing to his 
credit or a cheque of a customer being dishonoured due to a mistake in the balance 
in his account, it is necessary that customers’ accounts should be kept up -to-date 
and checked regularly. In many other mercantile enterprises, books of primary entry 
(i.e., day books) are generally kept up-to-date while their ledgers including the 
general ledger and subsidiary ledgers for debtors, creditors etc. are written 
afterwards. However, a bank cannot afford to ignore its ledgers, particularly those 
concerning the accounts of its customers and has to enter into the ledgers every 
transactions as soon as it takes place. In bank accounting, relatively less emphasis 
is placed on day books. These are merely treated as a means to an end-the end 
being to keep up-to-date detailed ledgers and to balance the trial balance every-
day and to keep all control accounts in agreement with the detailed ledgers. 
Presently most if not all of the Banks' accounting is done on Core Banking Solutions 
(CBS) wherein all accounts are maintained on huge servers with posting being 
affected instantly through vouchers, debit cards, internet banking etc. 
The main characteristics of a bank’s system of boo k-keeping are as follows: 
(a) Voucher posting – Vouchers are nothing but loose leaves of journals or cash 
books on which transactions are recorded as they occur. Entries in the 
personal ledger are made directly from vouchers instead of being posted 
from the books of prime entry. 
(b) Voucher summary sheets - The vouchers entered in different personal 
ledgers each day are summarised on summary sheets, totals of which are 
posted to the control accounts in the general ledger. 
(c) Daily trial balance - The general ledger trial balance is extracted and agreed 
every- day. 
(d) Continuous checks - All entries in the detailed personal ledgers and 
summary sheets are checked by persons other than those who have made the 
entries. A considerable force of such check is employed, with the general 
result that most clerical mistakes are detected before another day begins. 
  
 
8.12 ADVANCED ACCOUNTING 
(e) Control Accounts - A trial balance of the detailed personal ledgers is 
prepared periodically, usually every two weeks, agreed with general ledger 
control accounts. 
(f) Double voucher system - Two vouchers are prepared for every transaction 
not involving cash - one debit voucher and another credit voucher. 
2.1.1  Slip (or Voucher) System of Ledger Posting 
The bank has to ensure that customers (depositors) ledger accounts are up-to-date 
so that when a cheque is presented to the bank for payment, the bank can 
immediately decide whether to honour or dishonour the cheque. It is therefore 
necessary that transactions in the bank are immediately recorded or are updated 
online.  
For this purpose slip system of ledger posting is adopted. Under this system entries 
are made in the (personal) accounts of customers in the ledger directly from various 
slips rather than from subsidiary books or journals and then a Day Book is written 
up. Subsequently, entries in the accounts of the customers are tallied with the Day 
Book. In this way the posting in the ledger accounts and writing of the day -book 
can be carried out simultaneously without any loss of time. A slip is also called 
voucher.  
In general, the types of slips used in bank book-keeping are: pay-in-slips, cheques 
or withdrawal forms.  
As these slips are filled by the customers there is much saving of time and labour 
of the employees of the bank. 
(a) Pay-in-slip: When a customer deposits money with a bank, he has to fill-up 
a printed pay-in-slip form and submit it to the ‘receiving cashier’ of the bank 
along with cash. The form of pay-in-slip has two parts. The left-hand side 
portion of the pay-in-slip is called ‘counterfoil’. It is returned by the receiving 
cashier after he receives and counts the cash. The counterfoil bears signature 
of the receiving cashier and it is duly stamped with the rubber stamp of the 
bank. Pay-in-slip serves as an acknowledgement of the deposit by the 
customer with the bank. The remaining portion of pay-in-slip that is, its right-
hand-side part remains with the bank for making entry in the cash book, after 
which it is given to the ‘personal accounts ledger keeper’ for crediting the 
ledger account of the customer. However, with the advancement of banking 
through computerization, these days the cheques can be deposited merely 
Page 4


  
8.10 ADVANCED ACCOUNTING 
LEARNING OUTCOMES 
UNIT 2: BOOKS OF ACCOUNTS, RETURNS 
AND FORMS OF FINANCIAL 
STATEMENTS 
 
 
 
 
After studying this unit, you will be able to: 
? Learn the main characteristics of a bank’s system of book 
keeping. 
? Understand the methods in which all detailed accounts in 
subsidiary books and principal books are maintained by a 
bank and their purposes. 
? Make a list of various other registers, departmental journals 
and memorandum books generally maintained by a bank. 
? Familiarize with the monthly, quarterly and annual returns 
filed by a bank to the RBI. 
? Appreciate the formats of Banks Financial Statements in Form 
A for Balance Sheet and Form B for Profit and Loss Statement 
of the Banking Regulation Act. 
 
 
 
 8.11 
 
BANKING COMPANIES 
 2.1 MAIN CHARACTERISTICS OF A BANK’S 
BOOK-KEEPING SYSTEM 
The book-keeping system of a banking company is substantially different from that 
of a trading or manufacturing enterprise. A bank maintains a large number of 
accounts of various types for its customers. As a safeguard against any payment 
being made in the account of a customer in excess of the amount standing to his 
credit or a cheque of a customer being dishonoured due to a mistake in the balance 
in his account, it is necessary that customers’ accounts should be kept up -to-date 
and checked regularly. In many other mercantile enterprises, books of primary entry 
(i.e., day books) are generally kept up-to-date while their ledgers including the 
general ledger and subsidiary ledgers for debtors, creditors etc. are written 
afterwards. However, a bank cannot afford to ignore its ledgers, particularly those 
concerning the accounts of its customers and has to enter into the ledgers every 
transactions as soon as it takes place. In bank accounting, relatively less emphasis 
is placed on day books. These are merely treated as a means to an end-the end 
being to keep up-to-date detailed ledgers and to balance the trial balance every-
day and to keep all control accounts in agreement with the detailed ledgers. 
Presently most if not all of the Banks' accounting is done on Core Banking Solutions 
(CBS) wherein all accounts are maintained on huge servers with posting being 
affected instantly through vouchers, debit cards, internet banking etc. 
The main characteristics of a bank’s system of boo k-keeping are as follows: 
(a) Voucher posting – Vouchers are nothing but loose leaves of journals or cash 
books on which transactions are recorded as they occur. Entries in the 
personal ledger are made directly from vouchers instead of being posted 
from the books of prime entry. 
(b) Voucher summary sheets - The vouchers entered in different personal 
ledgers each day are summarised on summary sheets, totals of which are 
posted to the control accounts in the general ledger. 
(c) Daily trial balance - The general ledger trial balance is extracted and agreed 
every- day. 
(d) Continuous checks - All entries in the detailed personal ledgers and 
summary sheets are checked by persons other than those who have made the 
entries. A considerable force of such check is employed, with the general 
result that most clerical mistakes are detected before another day begins. 
  
 
8.12 ADVANCED ACCOUNTING 
(e) Control Accounts - A trial balance of the detailed personal ledgers is 
prepared periodically, usually every two weeks, agreed with general ledger 
control accounts. 
(f) Double voucher system - Two vouchers are prepared for every transaction 
not involving cash - one debit voucher and another credit voucher. 
2.1.1  Slip (or Voucher) System of Ledger Posting 
The bank has to ensure that customers (depositors) ledger accounts are up-to-date 
so that when a cheque is presented to the bank for payment, the bank can 
immediately decide whether to honour or dishonour the cheque. It is therefore 
necessary that transactions in the bank are immediately recorded or are updated 
online.  
For this purpose slip system of ledger posting is adopted. Under this system entries 
are made in the (personal) accounts of customers in the ledger directly from various 
slips rather than from subsidiary books or journals and then a Day Book is written 
up. Subsequently, entries in the accounts of the customers are tallied with the Day 
Book. In this way the posting in the ledger accounts and writing of the day -book 
can be carried out simultaneously without any loss of time. A slip is also called 
voucher.  
In general, the types of slips used in bank book-keeping are: pay-in-slips, cheques 
or withdrawal forms.  
As these slips are filled by the customers there is much saving of time and labour 
of the employees of the bank. 
(a) Pay-in-slip: When a customer deposits money with a bank, he has to fill-up 
a printed pay-in-slip form and submit it to the ‘receiving cashier’ of the bank 
along with cash. The form of pay-in-slip has two parts. The left-hand side 
portion of the pay-in-slip is called ‘counterfoil’. It is returned by the receiving 
cashier after he receives and counts the cash. The counterfoil bears signature 
of the receiving cashier and it is duly stamped with the rubber stamp of the 
bank. Pay-in-slip serves as an acknowledgement of the deposit by the 
customer with the bank. The remaining portion of pay-in-slip that is, its right-
hand-side part remains with the bank for making entry in the cash book, after 
which it is given to the ‘personal accounts ledger keeper’ for crediting the 
ledger account of the customer. However, with the advancement of banking 
through computerization, these days the cheques can be deposited merely 
 
 
 8.13 
 
BANKING COMPANIES 
by writing the account number of the depositor on the back of the cheque. 
Similarly cash can be deposited through ATMs (Automatic Teller Machines). 
In such cases, the documents used for entries are the cheques deposited and 
the deposit slips in the ATMs. 
(b) Withdrawal slip or cheque: When a customer withdraws money from the 
bank, he has to fill-up or write a cheque or withdrawal form and submit it to 
the paying cashier who makes payment, after checking the signature of the 
customer and adequacy of amount in his ledger account. The paying cashier 
credits the cash account and the ledger-keeper debits the customer’s 
account. These days the cashier may himself debit the customer’s account in 
the computer based ledger immediately before making the payment. 
(c) Dockets: Sometimes the bank staff also prepares slips for making entries in 
the ledger accounts for which there are no original vouchers. For example, 
the loan department of a bank prepares vouchers when the interest is due. 
This slip or voucher is known as docket. 
2.1.2  Need of the Slip System  
The need for slip system arises due to following reasons: 
(i) Updated Accurate Accounts: The bank must keep its customers’ accounts 
accurate and up-to-date because a customer may present a cheque or 
withdrawal slip anytime during business hours of the bank. 
(ii) Division of Work: As the number of transactions in bank is very large, the 
slip system permits the distribution of work of posting simultaneously among 
many persons of the bank staff. 
(iii) Smooth Flow of Work: The accounting work moves smoothly without any 
interruption. 
However, as mentioned above these days due to complete computerization of the 
banking sector, pay in slips are not used in many banks. 
 2.2 PRINCIPAL BOOKS OF ACCOUNTS 
(a) The General ledger contains accounts of all personal ledgers, the profit and 
loss account and different asset accounts. The accounts in the general ledger 
are arranged in such an order that a balance sheet can be readily prepared 
therefrom. There are certain additional accounts known as contra accounts 
which are a feature of bank accounting. These are kept with a view to keep 
Page 5


  
8.10 ADVANCED ACCOUNTING 
LEARNING OUTCOMES 
UNIT 2: BOOKS OF ACCOUNTS, RETURNS 
AND FORMS OF FINANCIAL 
STATEMENTS 
 
 
 
 
After studying this unit, you will be able to: 
? Learn the main characteristics of a bank’s system of book 
keeping. 
? Understand the methods in which all detailed accounts in 
subsidiary books and principal books are maintained by a 
bank and their purposes. 
? Make a list of various other registers, departmental journals 
and memorandum books generally maintained by a bank. 
? Familiarize with the monthly, quarterly and annual returns 
filed by a bank to the RBI. 
? Appreciate the formats of Banks Financial Statements in Form 
A for Balance Sheet and Form B for Profit and Loss Statement 
of the Banking Regulation Act. 
 
 
 
 8.11 
 
BANKING COMPANIES 
 2.1 MAIN CHARACTERISTICS OF A BANK’S 
BOOK-KEEPING SYSTEM 
The book-keeping system of a banking company is substantially different from that 
of a trading or manufacturing enterprise. A bank maintains a large number of 
accounts of various types for its customers. As a safeguard against any payment 
being made in the account of a customer in excess of the amount standing to his 
credit or a cheque of a customer being dishonoured due to a mistake in the balance 
in his account, it is necessary that customers’ accounts should be kept up -to-date 
and checked regularly. In many other mercantile enterprises, books of primary entry 
(i.e., day books) are generally kept up-to-date while their ledgers including the 
general ledger and subsidiary ledgers for debtors, creditors etc. are written 
afterwards. However, a bank cannot afford to ignore its ledgers, particularly those 
concerning the accounts of its customers and has to enter into the ledgers every 
transactions as soon as it takes place. In bank accounting, relatively less emphasis 
is placed on day books. These are merely treated as a means to an end-the end 
being to keep up-to-date detailed ledgers and to balance the trial balance every-
day and to keep all control accounts in agreement with the detailed ledgers. 
Presently most if not all of the Banks' accounting is done on Core Banking Solutions 
(CBS) wherein all accounts are maintained on huge servers with posting being 
affected instantly through vouchers, debit cards, internet banking etc. 
The main characteristics of a bank’s system of boo k-keeping are as follows: 
(a) Voucher posting – Vouchers are nothing but loose leaves of journals or cash 
books on which transactions are recorded as they occur. Entries in the 
personal ledger are made directly from vouchers instead of being posted 
from the books of prime entry. 
(b) Voucher summary sheets - The vouchers entered in different personal 
ledgers each day are summarised on summary sheets, totals of which are 
posted to the control accounts in the general ledger. 
(c) Daily trial balance - The general ledger trial balance is extracted and agreed 
every- day. 
(d) Continuous checks - All entries in the detailed personal ledgers and 
summary sheets are checked by persons other than those who have made the 
entries. A considerable force of such check is employed, with the general 
result that most clerical mistakes are detected before another day begins. 
  
 
8.12 ADVANCED ACCOUNTING 
(e) Control Accounts - A trial balance of the detailed personal ledgers is 
prepared periodically, usually every two weeks, agreed with general ledger 
control accounts. 
(f) Double voucher system - Two vouchers are prepared for every transaction 
not involving cash - one debit voucher and another credit voucher. 
2.1.1  Slip (or Voucher) System of Ledger Posting 
The bank has to ensure that customers (depositors) ledger accounts are up-to-date 
so that when a cheque is presented to the bank for payment, the bank can 
immediately decide whether to honour or dishonour the cheque. It is therefore 
necessary that transactions in the bank are immediately recorded or are updated 
online.  
For this purpose slip system of ledger posting is adopted. Under this system entries 
are made in the (personal) accounts of customers in the ledger directly from various 
slips rather than from subsidiary books or journals and then a Day Book is written 
up. Subsequently, entries in the accounts of the customers are tallied with the Day 
Book. In this way the posting in the ledger accounts and writing of the day -book 
can be carried out simultaneously without any loss of time. A slip is also called 
voucher.  
In general, the types of slips used in bank book-keeping are: pay-in-slips, cheques 
or withdrawal forms.  
As these slips are filled by the customers there is much saving of time and labour 
of the employees of the bank. 
(a) Pay-in-slip: When a customer deposits money with a bank, he has to fill-up 
a printed pay-in-slip form and submit it to the ‘receiving cashier’ of the bank 
along with cash. The form of pay-in-slip has two parts. The left-hand side 
portion of the pay-in-slip is called ‘counterfoil’. It is returned by the receiving 
cashier after he receives and counts the cash. The counterfoil bears signature 
of the receiving cashier and it is duly stamped with the rubber stamp of the 
bank. Pay-in-slip serves as an acknowledgement of the deposit by the 
customer with the bank. The remaining portion of pay-in-slip that is, its right-
hand-side part remains with the bank for making entry in the cash book, after 
which it is given to the ‘personal accounts ledger keeper’ for crediting the 
ledger account of the customer. However, with the advancement of banking 
through computerization, these days the cheques can be deposited merely 
 
 
 8.13 
 
BANKING COMPANIES 
by writing the account number of the depositor on the back of the cheque. 
Similarly cash can be deposited through ATMs (Automatic Teller Machines). 
In such cases, the documents used for entries are the cheques deposited and 
the deposit slips in the ATMs. 
(b) Withdrawal slip or cheque: When a customer withdraws money from the 
bank, he has to fill-up or write a cheque or withdrawal form and submit it to 
the paying cashier who makes payment, after checking the signature of the 
customer and adequacy of amount in his ledger account. The paying cashier 
credits the cash account and the ledger-keeper debits the customer’s 
account. These days the cashier may himself debit the customer’s account in 
the computer based ledger immediately before making the payment. 
(c) Dockets: Sometimes the bank staff also prepares slips for making entries in 
the ledger accounts for which there are no original vouchers. For example, 
the loan department of a bank prepares vouchers when the interest is due. 
This slip or voucher is known as docket. 
2.1.2  Need of the Slip System  
The need for slip system arises due to following reasons: 
(i) Updated Accurate Accounts: The bank must keep its customers’ accounts 
accurate and up-to-date because a customer may present a cheque or 
withdrawal slip anytime during business hours of the bank. 
(ii) Division of Work: As the number of transactions in bank is very large, the 
slip system permits the distribution of work of posting simultaneously among 
many persons of the bank staff. 
(iii) Smooth Flow of Work: The accounting work moves smoothly without any 
interruption. 
However, as mentioned above these days due to complete computerization of the 
banking sector, pay in slips are not used in many banks. 
 2.2 PRINCIPAL BOOKS OF ACCOUNTS 
(a) The General ledger contains accounts of all personal ledgers, the profit and 
loss account and different asset accounts. The accounts in the general ledger 
are arranged in such an order that a balance sheet can be readily prepared 
therefrom. There are certain additional accounts known as contra accounts 
which are a feature of bank accounting. These are kept with a view to keep 
  
8.14 ADVANCED ACCOUNTING 
control over transactions which have no direct effect on the bank’s position 
e.g., letters of credit opened, bills received or sent for collection, guarantees 
given, etc. 
(b) Profit and loss ledger - Some banks keep one account for profit and loss in 
the General Ledger and maintain separate books for the detailed accounts. 
These are columnar books having separate columns for each revenue or 
expense head. Other banks maintain separate books for debits and credits. 
These books are posted from vouchers. The total of debits and credits posted 
are entered into the Profit and Loss Account in the General Ledger. In some 
banks, the revenue accounts are also maintained in the General Ledger itself, 
while in some others broad revenue heads are kept in the General Ledger and 
their details are kept in subsidiary ledgers. 
For management purposes the account heads in the Profit and Loss ledgers are 
more detailed than those shown in the published Profit and Loss Account of the 
bank. For example, there will be separate accounts for basic salary, dearness 
allowance and various other allowances, which are grouped together in the final 
accounts. Similarly, various accounts concerning general charges, interest paid, 
interest received, etc., are maintained separately in the Profit and Loss ledgers. 
 2.3 SUBSIDIARY BOOKS 
(a) Personal Ledgers - Separate ledgers are maintained by a bank for different 
types of accounts. For example, there are separate ledgers for Current 
Accounts, Fixed Deposits (often further classified by length of period of 
deposit), Cash Certificates, Loans, Overdrafts, etc. As has been mentioned 
earlier, these ledgers are posted directly from vouchers, and all the vouchers 
entered in each ledger in a day are summarised into voucher summary sheets. 
The voucher summary sheets are prepared in the department which 
originates the transaction, by persons other than those who write the ledgers. 
They are subsequently checked with the vouchers by different persons 
generally unconnected with the writing up of ledgers on the Voucher 
Summary Sheets. 
(b) Bill Registers - Details of different types of bills are kept in separate registers 
which have suitable columns. For example, bills purchased, inward bills for 
collection, outward bills for collection etc. are entered serially on day-to-day 
basis in separate registers. In case of bills purchased or discounted, party-