Revenue Receipt
1. It has short-term effect. The benefit
is enjoyed within one accounting
period.
2. It occurs repeatedly. It is recurring
and regular.
3. It is shown in profit and loss account
on the credit side.
4. It does not produce capital receipt.
5. This does not increase or decrease
the value of asset or liability.
6. Sometimes, expenses of capital
nature are to be incurred for revenue
receipt, e.g. purchase of shares of a
company is capital expenditure but
dividend received on shares is a
revenue receipt.
Capital Receipt
1. It has long-term effect. The benefit is
enjoyed for many years in future.
2. It does not occur again and again. It is
nonrecurring and irregular.
3. It is shown in the Balance Sheet on the
liability side.
4. Capital receipt, when invested,
produces revenue receipt e.g. when
capital is invested by the owner,
business gets revenue receipt (i.e. sale
proceeds of goods etc.).
5. The capital receipt decreases the value
of asset or increases the value of
liability e.g. sale of a fixed asset, loan
from bank etc.
6. Sometimes expenses of revenue
nature are to be incurred for such
receipt e.g. on obtaining loan (a capital
receipt) interest is paid until its
repayment.
 Revenue Expenditure
1. Its effect is temporary, i.e. the benefit
is received within the accounting year.
2. Neither an asset is acquired nor the
value of an asset is increased.
3. It has no physical existence because it
is incurred on items which are used by
the business.
4. It is recurring and regular and it occurs
repeatedly.
5. This expenditure helps to maintain the
business.
6. The whole amount of this expenditure
is shown in trading P & L A/c or income
statement.
7. It does not appear in the balance sheet. 7. It appears in the balance sheet until its
benefit is fully exhausted.
8. It reduces revenue (profit) of the
business.
Cash Book
1. It is written by the depositor.
2. Money deposited is recorded on the debit
side and money withdrawn on credit side.
3. A check deposited for collection is recorded
on the date of deposit.
4. A check when issued to a creditor is
recorded on the date of issue.
5. Its debit balance shows cash at bank and
credit balance shows bank overdraft.
Capital Expenditure
1. Its effect is long-term, i.e. it is not
exhausted within the current accounting
year-its benefit is received for a number of
years in future.
2. An asset is acquired or the value of an
existing asset is increased.
3. Generally it has physical existence except
intangible assets.
4. It does not occur again and again. It is
nonrecurring and irregular.
5. This expenditure improves the position of
the business.
6. A portion of this expenditure (depreciation
on assets) is shown in trading & P & L A/c
and the balance is shown in the balance
sheet on asset side.
8. It does not reduce the revenue of the
concern. Purchase of fixed asset does not
affect revenue.
Pass Book
1. It is written by the bank but remains in the
depositor's possession.
2. Money deposited is entered on the credit side and
withdrawn on the debit side.
3. It is recorded on the date when it is actually
collected from the debtor's bank.
4. It is recorded when it is paid by the bank to the
creditor.
5. Its debit balance shows bank overdraft and credit
balance shows cash at bank.
 Trading Account Profit and Loss Account
It is the second stage of the final
1 It is the first stage of final accounts. 1
accounts.
It shows the gross result (gross It shows the net results (net profit or
2 2
profit or gross loss) of the business. net loss) of the business.
All direct expenses (expenses
All expenses connected with sales and
connected with purchase or
3 3 administration (indirect expenses) of
production of goods) are considered
business are considered.
in it.
It always starts with the balance of a
It does not start with the balance of
4 4 trading account (gross profit or gross
any account.
loss).
Its balance (G.P or G.L) is
Its balance (N.P or N.L) is transferred
5 transferred to profit and loss 5
to capital account in balance sheet.
account.

Gross Profit Net Profit

1 It is the excess of net sales over 1 It is the excess of gross profit
cost of purchase or manufacture over all indirect expenses.
(all expense relating to purchase
or manufacture of goods) of
goods.

2 It is not true profit of the business 2 It is true profit of the business.

3 It shows credit balance of the 3 It shows credit balance of the

trading account profit and loss account.

4 The progress of the business can 4 The profitability of the business

be judged by the comparison of can be measured by the
gross profit with net sales comparison of net profit with net
sales.

Cash Book Cash Account

1. It is a separate book in which cash 1. It is an account in a Ledger in which

transactions are directly recorded. posting is made from journal.
2. It serves the purpose of both journal 2. It serves the purpose of a Ledger only.
and ledger and hence cash transactions If Cash A/C is opened in the Ledger,
need not be primarily recorded in all cash transactions are first recorded
Journal. in journal.
3. Narration is required. 3. Narration is not required.
4. A column for Ledger Folio is provided. 4. A column for Journal Folio is provided.
 Trial Balance Balance Sheet

It is prepared to verify the 1 It is prepared to disclose the true

1 arithmetical accuracy of books of financial position of the business
accounts

It is prepared with balances of all 2 It is prepared with the balances of

2
the ledger accounts assets and liabilities accounts.

It is not a part of final accounts 3 It is an important part of final

3
accounts.

It is prepared before the 4 It is prepared after the preparation

4 preparation of final accounts of trading and profit and loss
account.

It may be prepared a number of 5 It is generally prepared once at the

5
time in an accounting year. end of accounting year.

Generally, it includes opening stock 6 It always includes closing stock but

6
but not closing stock. not opening stock.

There is no rule for arranging the 7 Assets and liabilities must be

7 ledger balances in it. shown in it according to the rule of
marshaling.

It is not required to be filed to 8 It must be filed with the registrar

8 anybody. of companies if the business is a
company.

9 Auditor need not to sign it. 9 Auditor must sign it.

 Double Entry System Single Entry System
1. Both the aspects of a transaction are recorded 1. For some transactions both the aspects are
in it. So complete analysis of a transaction is recorded, while for some other transactions only
possible. one aspect is considered. Again, some
transactions are not recorded at all. Thus,
complete analysis of a transaction is not always
possible.
2. All the difference classes of accounts - assts 2. Only cash accounts and personal accounts are
a/c, liability a/c, capital a/c, expense a/c and maintained.
revenue a/c - are maintained.
3. It is possible to verify the arithmetical accuracy 3. As under this system both the aspects of all
of books through trial balance. transactions are not recorded, it is not possible to
prepare trial balance and thereby verify
arithmetical accuracy of books of account.
4. In this system profit and loss account can be 4. Under this system no account is maintained in
prepared and the result of the business can be respect of income or expenditure. So it is not
determined thereby possible to prepare profit and loss account.
However, profit and loss is determined through a
statement by comparing closing capital with the
opening capital, but is is not so reliable.
5. The financial position of the business can be 5. No account is maintained in respect of assets and
compared through balance sheet. liabilities. So, balance sheet cannot be prepared.
However, a statement of affairs is prepared on the
lines of balance sheet. But it is not regarded as a
reliable document, since the values of assets and
liabilities are not obtained from the regular books
of accounts.
6. All the necessary information is available from 6. As no detailed record is maintained in respect of
this system at any time. all transactions full information is not available
from the books of account.
7. It is easier to detect mistakes and deflections 7. Mistakes and deflections cannot be detected
under this system. easily under this system.
8. This system is based on scientific method 8. It does not follow any scientific rules.
9. Accounting is complex and costly under this 9. Accounting is less complex and less costly under
system this system.
10. This system requires men with special 10. Men with common knowledge will do in this case.
knowledge.
11. In the first stage each transaction is recorded 11. There is no rule here as such.
in a book named "journal" and therefore it is
posted in another book named "ledger" in the
second stage.
12. Since accounting under this system requires a 12. Here secrecy can be maintained, since only a few
large number of employees, it may not be persons are sufficient for performing accounting
possible to maintain secrecy. job.
 Receipts and Payments
Cash Book
Account

1 It is a book of account within thedouble 1 It is an account outside the double

entry system. entry system.

2 Each transaction is recorded here 2 Each transaction is not recorded

separately in chronological (according separately - all the transactions are
to date) order. recorded at a time at the end of
accounting year in a classified from.

3 Each entry is followed by narration 3 No narration is written here.

4 Ledger reference is recorded here 4 No ledger reference is recorded

5 Daily cash balance can be ascertained 5 Daily cash balance cannot be

from this book. ascertained.

6 All concerns (non-profit seeking and 6 Only non-profit seeking

profit seeking) organizations prepare it. organizationsprepare it.

7 Whenever a cash transaction takes 7 It is prepared on the last day of the

place, it is recorded in this book. In year. In other words, it is a periodical
other words, it is a current account. account.

8 It is a must. 8 It is not indispensable - it may not be

prepared.
 Receipts and Payments
Account
1 It is a summarized statement of all
cash transactions during an accounting
year.
2 Only cash transactions are recorded
here.
3 The portion of income or expenditure
which has been received or paid in
cash this year, is recorded here
4 Transactions involving cash receipts
are recorded on Debit side and those
involving cash payments are recorded
on Credit side.
5 Transactionsboth capital and
revenue-are recorded here.
6 Its balance can never be credit.
7 Its balance is carried over to Receipts
& Payments Account of the next year.
8 This account shows opening balance
except in the first year.
9 The closing balance of this account
represent in the first year.
10 This account records transactions
relating to past, present and future,
years. Hence, no adjustment is made
for pre-received or accrued incomes
and pre-paid or outstanding expenses.
In a word, it is prepared on cash basis.
11 It is, in fact, an abridged Cash Book.
12 It is outside the Double Entry system.
13 It is not accompanied by Balance
Sheet.
14 Its preparation is not compulsory.
Income and Expenditure
Account
1 It is the account of revenue income and
revenue expenditure of an accounting
year.
2 It is not confined to, cash transactions
only, i.e. non-cash transactions are also
included in it.
3 The whole amount of income or
expenditurewhether received or paid
in cash or notis recorded in it.
4 All expenditures are recorded on Debit
side and all incomes on Credit side.
5 Only revenue transactions are recorded
here.
6 Its balance may be either debit or
credit.
7 Its balance is transferred to Capital
Fund.
8 It has no opening balance.
9 Its. closing balance represents either
surplus or deficit. Credit balance
indicates surplus, while debit balance
indicates deficit.
10 Transactions relating to the current year
only are recorded in it. Hence,
adjustments are invariably made for
pre-received or accrued incomes and
pre-paid or outstanding expenses. In a
word, it is prepared on Accrual basis.
11 It is, infect, similar to Profit & Loss '
Account of a profit-seeking business
concern.
12 It is within the Double Entry system.
13 It is accompanied by Balance Sheet
14 It is compulsory. It must be prepared in
order to ascertain the true result of a
concern.
 Straight Line Method
1. The rate and amount of depreciation
remain the same each year.
2. Depreciation rate per cent is calculated on
cost of assets each year
3. At the end of its life the value of asset is
reduced to zero or scrap value.
4. The older the asset the larger the cost of
its repair. But the amount of depreciation
remain the same each year. Hence, the
total of depreciation and repairs increases
every year. This reduces annual profit
gradually.
5. Computation of depreciation under straight
line method is comparatively easy and
simple.
Reducing Balance Method
1. The rate remains the same, but the amount of
depreciation diminishes gradually.
2. Depreciation rate per cent is calculated on book
value of asset.
3. The value of asset is never reduced to zero at the
end of its life.
4. The amount of depreciation decreases gradually,
while the cost of repairs increases. So the total of
depreciation and repairs remain more or less the
same each year. Hence, it causes little or no
change in annual profit/loss.
5. Depreciation can be computed without any
difficulty, but it is not easy and simple.
Difference Between Provision and Reserve:

The points of difference between provision and reserve are stated in the tabular form:

1. It is a possible loss so it is created by 1. It is a portion of profit earned by

debiting profit and loss account. It is a business. It is created by debiting profit
charge against profit and loss appropriation account. It is an
appropriation of profit.

2. Profit and loss account will not disclose 2. Profit and loss account discloses true
true profit/loss, unless provision is profit/loss, even if no reserve is
created. created.

3. It is created to meet specific loss or 3. It is meant for meeting any unknown

liability. But the amount of loss or loss or liability. It is generally created
liability cannot be determined exactly. with a portion of profit earned by
So the amount of provision is an business.
estimated amount.

4. It must be created irrespective of 4. It cannot be created unless there is a

whether there is a profit or loss. In sufficient profit. Its creation is the
other words its creation is obligatory. discretion of management. In other
words, it is not obligatory.

5. Profit or loss is effected by its creation 5. It does not effect profit or loss, since it
- profit decreases or loss increases. is created after ascertaining profit.

6. Dividend cannot be paid out of it. 6. Dividend can be paid out of it.

7. Its amount must be sufficient to meet 7. Its amount is generally determined by

the loss or liability. management on the basis of the
amount of profit earned.

8. It cannot increase working capital - it is 8. It increases working capital and thereby

utilized for meeting the specific loss or strengthen the financial position of the
liability. business concern.

9. The owner of the business cannot 9. The owner can claim it, since it is
have any claim over it, since it is created out of profit.
created for meeting a specific loss or
liability.

10. It is shown on asset side of the 10. It is shown on liability side of the
balance sheet as deduction from the balance sheet as a separate item.
concerned asset, e.g., provision for
doubtful debts is shown as deduction
from sundry debtors.

11. It is used for the specific purpose for 11. It can be used for the purpose
which is has been created. whatsoever.

12. Auditors must check its adequacy. 12. Auditors are not required to check
adequacy.