Account-8 Final 2077

Electronic communication service Communication is the act of exchanging news, views, experiences or information between or among the individuals, place or office using any means. The means of communication may be oral, written or symbolic. The process of exchanging the message or information through electronic device is known as electronic communication service. It is the latest and advanced technology in the field of communication. Most of the traditional functions of post office related to the paper works are being replaced by this technology. Electronic communication service is being more popular day by day because it provides fast and reliable service to the individuals and organizations for world wide communication. The electronic communication service is more useful to the different individuals, community and the nation as well. It is due to the following reasons:  It provides the facility for exchanging message and information in easiest way.  It helps to improve living standard of the people by creating employment opportunities.  It unites the people and creates the feeling of belongingness among the family members and relatives.  It helps to increase the governmental revenue of the nation.  It provides safe and reliable services in the field of communication.  It helps to save the valuable time as the messages can be exchanged conveniently. Electronic communication service is the act of exchanging message or information between or among the individuals and organizations using electronic means like e-mail, internet, fax etc. Key Terms Aerogram – a printed sheet of paper issued by the post office having benefit of envelope and postal stamp for sending message. Electronic post – an advanced networking of computer and information technology that provides the postal service as per the demand of clients. Express mail service – an advanced postal service to dispatch the sensitive documents and merchandise items of the clients. Philately – act of collecting postal stamps and performing the detailed study related to it. Postal Service 51

Post card – a printed card of thick paper issued by the post office for sending Post office short message. Postal service Return receipt – a government institution established for providing postal services to the public. – services provided by post office that include communication service, banking service and insurance service. – the printed paper which is sent by attaching to the letter to collect the signature of the receiver. 1. What is postal service? Describe briefly the historical development of postal service in Nepal. 2. How do you send different types of letter through post ? Describe briefly. 3. Write the differences between ordinary letter and registered letter. 4. What is aerogramme ? Write its usefulness. 5. Why is the postal service still popular even though there are other modern means of communication available ? Explain. 6. What is electronic communication service? Write its usefulness. 7. Write short notes on: a) Ordinary letter b) Registered letter c) Aerogramme d) Post card  52 Office Management and Accountancy

5 CONCEPT OF BANK Chapter AND INSURANCE Learning Objectives After studying this chapter, the readers will be able to :  define bank and explain its types in brief,  write the meaning and definition of insurance,  mention the parties involved in an insurance contract,  describe about life and non-life insurance,  mention the importance of insurance. Introduction Bank and insurance company are the major financial institutions for economic development. Bank is a financial institution that accepts the deposits from the public and grants loan to the needy people. It contributes the agriculture, industry and commercial sectors by providing loan for productive purpose. There are different types of bank . Central bank, commercial bank and developmenmt banks are the major types of bank operating in Nepal. Central bank is government owned banking institution and other banks are established and run also in private sector. Insurance provides financial profection in case of death of human being or loss of physical properties due to unexpected events. It is a legal contract between insurer and insured. Insurance are also of two types i.e. life insurance and non-life insurance. Life insurance is done for human being and non-life insurance is done for other than life of human beings. Bank and insurance both contribute for economic development of the country. Concept Of Bank And Insurance 53

BANK Concept and definition The word bank is derived from the Italian language ‘Banco’ which means a bench. Traditionally, Italian goldsmiths used to perform the monetary transactions by sitting on a bench. So, the word ‘banco’ was used to denote the bench to perform monetary transactions. Thus, the same word banco was later pronounced as bank. Gradually, a single bench and limited place could not be sufficient for performing increasing number of monetary transactions. The people felt the necessity of establishing an organized institution. As a result, it gave birth to an institution called bank. In Nepal, Nepal Bank Limited was established in 1994 B.S. as the first bank and modern banking started since its establishment. A bank is an institution that accepts the deposits from the public and grants loan to the individuals and organizations. It avails loan to the various sectors such as agriculture, industry and commercial sectors. A bank is a medium of financial transactions. It performs the varities of functions relating to individual, corporation or government. A bank could be established with government or private investment. It may provide loan to the individuals or corporations with or without collateral security against such loan. Finally, a bank as a financial institution contributes to the nation for economic development. Following are some popular definitions of bank: “Bank is the one who, in the ordinary course of his business, receives money which he pays by honouring cheque of persons from whom or whose accounts receives.” Dr. H.L. Hart “A bank is an organization whose principal operations are concerned with the accumulation of the temporarily idle money of the general public for the purpose of advancing to others for expenditure.” Kent “Bank is an institution which collects money from those who have it to spare or who are saving it out of their incomes, and it lends this money to those who require it.” Crowther “Banks are financial institutions that fund in the form of deposits repayable on demand or in short notice.” World bank Bank is a financial institution established under the prevalent act which is involved in financial transactions of accepting deposit, granting loan, performing agency function, transferring money etc. for the economic development of the nation. Types of bank According to the functions, banks can be classified into different groups. Some banks operate their activities in industrial and commercial sector; some extend their services 54 Office Management and Accountancy

in agricultural sectors whereas others contribute for the rural area. Thus, the following are the main types of bank presently operating in Nepal: Figure: 5.1 Types of bank Bank Central bank Commercial bank Development bank Central bank In every country, in order to control the monetary system and banking structure as well as monitor the financial activities of all the financial institutions, a head bank is established which is known as central bank. It is the supreme bank of a nation, which holds the topmost position in the monetary and banking structure of the country. It exercises the special rights like issuing notes and coins, controlling foreign exchange, controlling credit and acting as the representative of the government. It gives permission to establish other banks and control their financial activities. It collects the deposits from commercial banks and other banks and provides loan in financial crisis. The central bank also provides technical and financial support to other financial institutions whenever required. It collects all the revenues of the government and makes payment of expenditure on behalf of the government. Thus, the central bank is regarded as the apex financial institution in the country. It is also called bank of other banks. Finally, it acts as the lender of the last resort to other banking institutions. The central bank of Nepal is Nepal Rastra Bank which was established on 14th Baishakh 2013 B.S. under Nepal Rastra Bank Act 2012. Some important definitions of central bank are presented below: “Central bank may be defined as an institution which is charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of the public welfare.” Prof. R.P. Kent “The central bank is the organ of the government that under takes the major financial operations of the government and by its conduct of these operations and by other means it fences the behaviour of financial institutions so as to support the economic policy of the government.” R.S. Sayers “A central bank is a bank which constitude the apex of the monetary and banking structure of its country and which performs, best it can in the national economic interest .” Dr. D. Kock Central bank is the supreme banking institution of a nation established by the government for controlling the monetary system and banking structure of the country. Concept Of Bank And Insurance 55

Short Notes to Remember (SNR 5.1)  The head office of Nepal Rastra bank i.e. central office is located at Baluwatar, Kathmandu Central bank is fully owned managed and controlled by the government.  It is established with the aim of rendering banking services to the government and public rather than earning profit.  The first central bank in the world is “Reek Bank of Sweden” which was established in 1656 A.D.  “Bank of England” is the central bank of England and “Reserve bank of India” is the central bank of India.  “The National Bank of Denmark” is the central bank of Denmark, “Federal Reserve Bank” is the central bank of USA and “Central Bank of China” is the central bank of China. Commercial bank Generally, a bank refers to commercial bank. Commercial bank is a financial institution which is established to promote the trading, commercial and industrial sectors of the country. It performs the commercial functions such as accepting deposits, granting loan and other agency functions. Commercial bank accepts the deposit from public under various accounts and grants loan under short term, mid term and long-term basis. It avails loan to the individuals, traders, and industrialists against the collateral security. Thus, the commercial bank is fully profit oriented banking institution. Such bank provides the modern facilities to its customers and earns profit. Commercial bank allows its account holders to withdraw the amount through cheque against the deposits. It also performs a number of agency functions by charging commission from its client. Thus, commercial bank assists the trade, commerce and industry and emphasizes for economic development of a nation. In the banking history of Nepal, Nepal Bank Ltd. is the first commercial bank which was established in 1994 B.S. Another commercial bank named “Rastriya Banijya Bank” was established in 2022 B.S. After the restoration of democracy in Nepal, the government has adopted the economic liberalisation policy. As a result, a number of commercial banks have been established and operating in Nepal. Following are the definitions of commercial bank: “Commercial banks are those banks which are established under this act to perform commercial functions except those which are established for specific purpose like development banks, cooperatives etc.” Commercial Bank Act 2031 “A bank is an establishment which makes to individuals such advances of money as may be required and safely made, and to which individuals entrust money when not required by them for use.” Prof Kinley Commercial bank is a profit oriented financial institution of the country established to promote the trading, commercial and industrial sectors by performing various commercial functions like accepting deposits, granting loans and dealing with foreign currencies. 56 Office Management and Accountancy

Development bank The banking institution which is established to develop the basic infrastructure of the country by providing technical and financial assistance is known as development bank. Development bank provides mid-term and long-term loan to the different sectors such as trade, industry, transport, communication, hydroelectricity, agriculture etc. The main objective of such bank is to develop the specific sector of the country by providing long term capital. Besides, technical and financial assistance, development bank also provides administrative and managerial assistance. In Nepal, development banks are established under the Development Bank Act 2052. Before enactment of this act, Nepal Industrial Development Corporation (NIDC), Agriculture Development Bank (ADB) and Rural Development Banks were established according to the legal framework of the country. Development bank is a financial institution established to develop the basic infrastructure in the country by providing financial, technical and administrative assistance. INSURANCE Concept and definition Human beings have to face the various kinds of risk in their daily life. They may suffer from the sudden death of any member of their family or lose their physical properties due to unexpected events. Such unexpected events may cause huge loss. A person or group of people cannot avoid the risk caused by uncertain events. But they can reduce the financial burden with the help of certain cooperative scheme which is called insurance. Insurance provides the financial compensation to the person in case of death of human being or loss of his/her properties due to unexpected events like fire, theft, flood, earthquake etc. It is the way of reducing the financial loss through the mutual agreement of two parties. Doing insurance means to transfer one’s risk to other by paying certain amount which is called insurance premium. Thus, insurance is a contract or agreement made between two parties to insure life or other physical properties for compensating the loss. It may be caused by any uncertain events i.e. risk in consideration of the payment of a certain sum of money called premium. The following are some of the major definitions of insurance:– “Insurance is a contract by which one party, for a compensation called the premium, assumes particular risk of other party and promises to pay to him or his nominee a certain or ascertainable sum of money on a specified contingency.” Edwin W. Peterson “Insurance is a plan by which a large number of people associate themselves and transfer, to the shoulder of all, risks attached to individuals.” D.H. Magee “Insurance business means life insurance business and nonlife insurance business which also refers to the reinsurance too.” Insurance Act 2049 “Insurance distributes the costs of the risk over a large group of individuals subject to the same risk, in order to reimburse the few who actually suffer from the risk.” S.B. Acker Man Concept Of Bank And Insurance 57

Insurance is a contract between two parties in which the insurer promises to pay a certain sum of money to the insured in case of death of person or loss of property due to unexpected events that may take place within the certain period. Parties involved in insurance contract The following are the parties involved in insurance contract: Insurer The party which promises to pay the financial compensation to the suffered from the death of a person or loss of properties is called insurer. The insurer receives the premium from the insured as mentioned in the contract and provides financial security to the insured against the risk and uncertainty. It compensates the loss at the happening of any event. In insurance contract, the insurance company becomes the insurer. Insured The person or party who makes the payment of the insurance premium to insurer to get the financial security of life or physical property is called insured. The insured should pay the premium to the insurer upto the certain period till the event takes place or policy expires. Short Notes to Remember (SNR 5.2)  Insurance premium is the amount paid by the insured to the insurer in regular intervals till the specified period as mentioned in the contract i.e. insurance policy.  Insurance premium can be paid on weekly, monthly, quarterly, half yearly or yearly basis depending upon the agreement. The rate of premium is determined on the basis of age of the person, condition and value of properties, probability of happening the events etc.  Insurance policy is the document of contract between the insurer and insured which mentions the terms and conditions of the contract, premium payable, duration of policy, condition of compensation etc. Types of insurance Insurance can be classified into two types as follows: Figure: 6.1 Types of insurance Types of insurance Life insurance Non-life insurance 58 Office Management and Accountancy

Life insurance Life insurance is the insurance of human beings. It is one of the most popular form of insurance. It was started in England and other European countries in 16th century. Life insurance makes financial compensation against the risk of early death. It is not only the financial protection of life but also the compulsory saving and profitable investment because a certain sum is refundable to the insured at the death or at the expiry of the period along with bonus. Under this, if the policy holder dies before the maturity of policy, his/her nominee will be paid the policy amount. But if the policy holder remains alive, the policy amount will be paid to him/her along with bonus. Thus, one can get financial security or support by doing life insurance. Life insurance is also termed as contingent contract because the loss of life cannot be compensated but only a specified sum of money is paid in case of death of the insured. Life insurance is a contract in which the insurer promises to pay a certain sum of money to the insured or his/her nominee on maturity or death of the insured in consideration of the periodical payment of the premium. Non-life or general insurance The insurance which is done for the things other than the life of human beings is called non-life insurance. It includes fire insurance, marine insurance and others which are explained below: In non-life insurance, the insured person or party will not get any amount back if the event does not take place or loss does not occur. The amount of premium paid in such a case is lapsed and that is the benefit of the insurance company. Fire insurance The property of the individuals and organizations may have greater risk of burning by fire. The loss or damage or destruction of an individual’s or organization’s properties may cause a greater financial loss to them. Thus, in order to get the financial compensation in case of loss or damage of the properties due to fire, one can insure his/her properties by paying certain amount as premium which is called fire insurance. Fire insurance is the co-operative effort of minimizing the financial loss caused by fire. It covers the risk of fire only and the amount of financial compensation becomes equal to the value of properties destroyed by fire or the amount insured whichever is less. The properties like residential building, cinema hall, warehouse, plant and machinery, business premises can be insured against the risk of fire. Fire insurance is a contract between the insured and the insurer in which the insurer promises to provide financial compensation to the insured in case of loss or damage of the properties caused by fire. Concept Of Bank And Insurance 59

Marine insurance Marine insurance is the insurance against the risks which may arise in course of sea transportation. It is supposed to be the oldest form of insurance in the world. It covers a number of risks like collision with rock or another ship, attack from enemies, fire, hijacking, sinking, burning of the ship, accident, jettison, barratry, explosion, capture by sea pirates etc. It covers the risk of ship, cargo and passenger as per the policy formed. Marine insurance is a contract between the insurer and the insured in which the insurer promises to indemnify the insured against the loss or damage of properties in sea travel. Miscellaneous insurance Besides the above mentioned insurance, there are some other forms of non life insurance which are explained below: i) Motor insurance The insurance which covers the risk of damage or loss to the motor car or other vehicles caused by an accident, theft etc is called motor insurance. Such type of insurance is compulsory in Nepal and should be renewed every year. It covers the risk of all types of vehicles, loaded goods and passengers within the certain period. ii) Aviation insurance The insurance which compensates the loss occurred in the air transportation due to crash or other similar types of risk is known as aviation insurance. This type of insurance provides the financial security to the aircraft, cargo, passengers and third party. iii) Employer’s liability insurance The insurance which is done by the employer to compensate the workers of a factory or institutions or their dependents in case of death, injury, accident or disability while they are at work is known as employer’s liability insurance. In this type of insurance, the employer pays the insurance premium regularly to the insurance company for the purpose of getting financial compensation. The insurance company provides financial compensation to the worker or his/ her dependents on happening of event. It helps to motivate the workers which increases the productivity of an organization. Short Notes to Remember (SNR 5.3)  Insurance business in Nepal was started after the establishment of Nepal Insurance and Transport Co. Ltd. in 2003 B.S. under the ownership of Nepal Bank Ltd.  Life and general insurance began at the national level only in 2024 B.S. after the establishment of Rastriya Beema Sansthan.  At present, a number of insurance companies have been performing life and non-life insurance business in Nepal. 60 Office Management and Accountancy

Importance or advantages of insurance Insurance is beneficial for different parties such as individuals and family, business sector, society, government and nation etc. The importance and advantages of insurance can be highlighted from the following points: a. Financial protection : It provides the financial protection to the individuals by providing the assured amount on death of the person or expiry of the period in life insurance and loss or damage of physical properties due to any risk in non life insurance. b. Regular saving : It encourages for regular saving. Mainly in life insurance, the insured can get the whole amount of money on the happening of events i.e. death of person or expiry of the policy period. c. Self respect : It increases a person’s self respect by providing financial compensation so that the insured and his/her family members can survive without depending upon others. d. Improve in living standard : It helps to improve and maintain the living standard of a person and his/her family. e. Fulfillment of need : It helps the individuals to fulfill their future personal needs regarding household, educational, social and cultural matters. f. Loan facility : It provides facility to the insured to borrow loan from bank, financial institutions and money lenders by putting their insurance policy as security. g. Promotion of trade : It helps to promote and expand the foreign trade by bearing various types of risk which may take place in transit. h. Employees motivation : It motivates the employees of a factory and other institutions which increases their moral and productivity. i. Social awareness : It helps to create social awareness by bringing positive change in the mind of people and their behavior and thoughts. j. Social security : It also provides financial protection to the life and properties of the people in the society that helps to maintain social security. k. Capital foramation : It helps to collect the huge amount of funds as premium and forms the capital which is required for the economic development of the country. Short Notes to Remember (SNR 5.4)  The advantages of insurance are: • provides financial protection • encourages for saving • increases self respect • improves living standard • fulfills individual needs • provides loan facility • promotes and expands foreign trade • motivates employees • creates social awareness • creates employment opportunities • forms capital. Concept Of Bank And Insurance 61

Key – a financial institution established under the certain act to perform Terms monetary and credit transactions. – wrongful or willful act of theft setting fire to the ship and Bank fraudlent selling of the cargo by the captain or crew of the ship. – dependent on something that may or may not happen. Barratry – a written agreement between two parties. – insurance which is done for getting compensation of financial Contingent loss arising due to uncertain events. Contract – a way of transferring risk to the insurer by paying certain Fire insurance amount to compensate the financial loss arising due to risk and uncertainty. Insurance an amount paid to the insurance company to get financial compensation. Insurance premium – a party which agrees to pay the insurance premium regularly till the stated period. Insured – a party which promises to pay the financial compensation in case of life and non life insurance. Insurer – voluntary act of throwing away the goods by the crew to protect the ship from sinking or other happening. Jettison – insurance related to life of human beings. insurance that covers the risk against the perils incurred in the Life insurance – sea. probability of unexpected events occurring like death of persons Marine insurance – or loss of physical properties. Risk – 1. What is insurance? Explain the parties involved in insurance contract. 2. What is life insurance? Describe in brief. 3. What do you mean by non-life insurance? Write in short about fire insurance and marine insurance. 4. State the importance or advantages of insurance. 5. Write in short on: a) Motor insurance b) Aviation insurance c) Employer’s liability insurance  62 Office Management and Accountancy

6 CONCEPT OF Chapter TAXATION Learning Objectives After studying this chapter, the readers will be able to :  define the term tax and taxation,  state the importance of tax,  describe the different types of tax. Introduction The government is a responsible body of the nation. It has to perform the various administrative and developmental functions in the country. It is liable for providing various facilities to the citizens and creating good environment for the social and economic development of the country. The government needs the regular source of income to carry out all those functions. There are various sources of income for the government. Collection of tax is one of them. The government collects the different types of tax from individuals and organizations. It is utilized for various administrative and developmental works. Concept Of Taxation 63

Concept and definition Tax is the amount paid by individuals and corporations to the government. Payment of tax to the state or government is the liability of the person and organizations. Tax is also the contribution or support to the government to carry out various public welfare, developmental, peace, security and defense activities. In order to collect the amount of tax properly, the government makes necessary rules, provisions and adopts a certain method which is called taxation. The rate of tax is determined by the government which is based upon the level of income, nature and types of business or value of goods and property. Following are the definitions of tax and taxation: “A tax is compulsory contribution imposed by a public authority irrespective of the exact amount of service rendered to the taxpayer in return and not imposed as a penalty for any legal offence” Dalton “A tax is a compulsory payment to government without expectation of direct expenses of direct return in benefit to the tax payer.” P.E. Taylor “Taxation is the compulsory payment made by a person or organization to the government to meet the expenses incurred in the common interest of the people and nation without getting any special benefit.” Prof. Seligman • Tax is the amount to be paid by the individuals and organizations to the government directly and indirectly that helps the government to perform various welfare activities to the people. • Taxation is the system adopted by the government by making necessary rules and provisions in order to collect tax from different individuals and corporations. Importance or advantages of tax Tax is the major source of income for the government. Payment of tax in time is the liability of every individual and organization. The importance and advantages of tax can be highlighted in the following points: a. Collection of funds: It helps the government to collect funds for performing various administrative and developmental functions. b. Equitable distribution of national income: It helps for equitable distribution of national income to all the people and fulfills gap between rich and poor people. c. Supply of basic utility service: It supports the government for providing basic utility services such as water, electricity, communication, health, education etc. to the people. d. Balanced development: It helps to maintain the balanced development of all the geographical regions of the country. e. Employment opportunities: It increases the saving and investment of the government which is required for economic development. As a result, it increases employment opportunities. f. Impose on luxurious product: It imposes the customers for using luxurious products rather than the products of basic requirement. g. Control on inflation: It controls inflation by reducing the purchasing power of the people. 64 Office Management and Accountancy

Short Notes to Remember (SNR 6.1)  The importance and advantages of tax are: collection of government fund, equitable distribution of national income, supply of basic utility service, balanced development, economic development, Impose to customer and control on inflation etc. Types of tax The following are the main types of tax: Personal income tax The tax which is imposed on the income of a person or family is called personal income tax. This type of tax is paid by all the employees of private and public sectors such as engineers, doctors, teachers whose level of income falls under taxable income. The individual and family having annual income more than exemption limit have to pay tax at the prescribed tax rate. Corporate tax The tax which is collected by the government from the business organizations on their net income of the year is called corporate tax. Generally, the government imposes tax to the business enterprises on flat rate system. However, small business organizations pay less amount of corporate tax. Custom duty The tax which is collected by the government across the boundary of the country on import or export of the goods is called custom duty. This tax is charged on the value of goods traded between two countries. Custom duty can be divided into two groups i.e. import duty and export duty. The tax imposed on imported goods is called import duty and the tax imposed on exported goods is called export duty. It is also known as boarder tax or custom. In Nepal, the government has made export duty free on certain goods to promote export trade. This tax is collected by the government from different locations such as international airport, gateway, seaport etc. Value added tax The tax which is imposed on the goods and services on the value added at the different stages of production and sales is called value added tax. Its short form is VAT. It is an advanced form of sales tax. The value added for tax purpose is meant for the difference amount between purchase price and selling price. For example, if a buyer buys goods at Rs. 5,000 and sells the same for Rs. 7,000, then the value added in this stage is Rs. 2,000. Now, the VAT is charged on the added value of Rs. 2,000. Excise duty The tax which is charged on manufacturing, selling and consuming the goods of luxurious nature and harmful to the public health is called excise duty. Such goods may be cigarette, alcohol and other tobacco and liquor items. The main aim of imposing such tax is to collect the revenue and control the production and consumption of injurious and luxurious commodities. Concept Of Taxation 65

Local tax The tax which is collected by the local level body in the form of property tax, vehicle tax or business tax etc is called local tax. While carrying raw materials for production purpose also, this type of tax can be charged. Different local levels like ward, rural municipality, municipality, metropolitan city, district coodination committee etc may impose local tax in order to collect the revenue for local development. Land revenue tax The tax which is collected by the government from the landlord is called land revenue tax. Such tax is charged according to the nature and area of land. This tax may vary from one place to another depending upon village, town or city areas. It is called “Malpot Kar’ in Nepali. Land tax is charged on buying and selling of land and the years afterward. Short Notes to Remember (SNR 6.2)  The tax which is collected directly from the people and organizations are called direct tax. The types of direct tax are personal income tax, corporate tax, land revenue tax etc.  The tax which is collected from the users of different goods and service are called indirect tax. The examples of indirect tax are value added tax, excise duty, custom duty etc.  Value added tax was introduced first in France in 1954 A.D. but Nepal introduced VAT only since 2054 Mangsir 1. At present , the rate of value added tax is 13%. Key – tax which is imposed on the income of an organization. Terms – tax which is imposed on import and export of goods. – tax which is imposed on the goods that are injurious to health Corporate tax and luxurious. Custom duty general rise in the price of goods and services resulting in a fall Excise duty in the value of money. tax which is imposed on consumption of land. Inflation – tax imposed by the local government or body. tax which is imposed on the income of an individual. Land revenue tax – amount which has to be paid to the government by individuals Local tax – and organizations out of their incomes or using any property. Personal income tax – system adopted by the government for collecting amount by tax. Tax – tax which is imposed on the added value of goods in each stage. Taxation – Value added tax – 1. Define the terms tax and taxation. 2. Mention the importance or advantages of collecting tax from the people or organizations. 3. Explain the different types of taxes in brief. 4. Write in short about value added tax with example. 5. Differentiate between direct tax and indirect tax.  66 Office Management and Accountancy

7 INTRODUCTION TO Chapter BUSINESS Learning Objectives After studying this chapter, the readers will be able to :  define the term business and explain its features,  describe the importance of business.  tell the various forms of business organization and describe them. Introduction Human beings are engaged in varieties of activities throughout their life. Some activities are performed with the inspiration of social, cultural, and religious sentiment which are called non economic activities. A housewife cooking food for her family, a person donating blood at a blood donation camp and a person visiting temple for worshipping god are the examples of non-economic activities. On the other hand, human may perform certain activities to earn money which are done to meet the demand of goods or services. The people gain monetary benefits by performing such activities. A person working in an office, a shopkeeper running a shop to sell goods, a doctor treating his/her patient at the clinic are the examples of economic activities. Introduction To Business 67

Concept and definition The literal meaning of business is the state of being busy. However, all types of activities done by human which make them busy cannot be said as the business. People may be busy in doing non economic activities and some other professions and employments. Such involvement does not mean business in broader sense. Thus, business refers to all those human activities which involve monetary character and directed towards acquiring wealth. Non economic activities which are inspired by love, kindness, affection and patriotism are excluded from the subject business. Following are some of the definitions of business: “Business means the human activities directed towards producing and acquiring wealth through buying and selling of goods.” Prof. L.H. Haney “Business may be defined as an activity in which different persons exchange something of value, whether goods or services for mutual gain or profit.” Peterson and Plowman. “Business includes all the activities of production, distribution and exchange performed to provide goods and services to fulfill wants of the society with an equitable adjustment of profit and public welfare.” Y.K. Bhusan On the basis of above discussion and definitions, it can be concluded that business means the economic activities which are operated regularly to earn money by producing and exchanging goods or services. Wholesale and retail shops, travel and trekking agencies, supermarkets, hotels, transport companies, tailoring houses etc. are some of the examples of business. Business is the human economic activity concerned with the production and distribution of goods or services for earning wealth by satisfying customers. Short Notes to Remember (SNR 7.1)  The activities which are performed by rendering the professional services of an expert or specialist for the payment of a certain fees are called profession. The service provided by doctors, teachers, chartered accountants, engineers are examples of profession.  The economic activity of rendering the professional services under the agreement with the firm by taking certain remuneration as salary, wage etc is known as employment. If a doctor renders his services to the hospital under the agreement of certain remuneration, it becomes employment.  The economic activities like profession, employment and business are collectively known as occupations.  Besides production, purchase and sale of goods, other activities like transportation, banking, insurance and warehousing facilities also fall under business. Features of business Business is different from other economic activities like profession and employment due to its following features: 68 Office Management and Accountancy

a. Capital investment Memory Tips Capital investment is a major requirement of  Capital investment business. It is needed for establishment and  Economic activity regular operation of business. If any activity  Dealing in goods or services is done without capital investment, it cannot  Production and exchange be said as business. Thus, the profession and  Regularity in transaction employment though they have economic  Profit motive dealing can not be called business. Such  Customer satisfaction activities are performed without capital  Risk and uncertainty investment. b. Economic activity Business is human economic activity which can be measured in terms of monetary value. Thus, it involves the exchange of goods or services for money. Non economic activities like social, political and religious activities are not included in the term business. c. Dealing in goods or services Business involves in dealing with goods or services. It produces and exchanges the consumer goods like foods, clothes etc and the industrial goods such as machine and equipments, tools etc. On the other hand, business may offer the various service facilities to the consumers in the form of banking, transportation, insurance, water and electricity supply, communication etc. d. Production and exchange Every business activity involves the production and exchange of goods or services directly or indirectly. The goods or services produced by a business organization are exchanged for money. Thus, the production of goods or service for individual consumption does not constitute a business. e. Regularity in transaction Business activities should be carried out on a regular basis. One time transaction or a single transaction of sale or exchange does not mean for business. For example, if a person sells his old car for Rs. 1,50,000, it is not called a business. But if he/she sells old car regularly as second hand car dealer, it is called business activity. f. Profit motive The main objective of business is to earn profit. Thus, all the business activities are directed towards earning profit. If any activity is performed without profit motive, it is not a business. The survival of a business depends upon its ability to earn the profit through production and distribution of goods or services. g. Customer satisfaction The ultimate goal of every business is to satisfy the customers by producing goods or services and to earn profit. The business should make the goods or service available at a convenient place at reasonable price. Thus, the business cannot operate its activities in long run without satisfying customers. Introduction To Business 69

h. Risk and uncertainty Risk is the chance of occurring loss in business. The business always involves some risks. Every business organization wants to earn profit. However, due to risk and uncertainties in the future, it may not earn more profit as expected or even goes on loss. The various risks associated with business are change in demand of customers, change in fashion or technology, strike by employees, shortage of materials, tough competition etc. Thus, the risk and uncertainty is always involved in business. Importance of business Today, the business activity has become the important part of human life. It is the back bone of the nation’s economy. Business plays an important role in the country for maintaining economic and political stability by developing the business sector. Without business, we can not imagine the over all development of modern life. Most of the countries in the world like America, Japan, Korea are developed due to their business success. Thus, the business has greater importance. The following points further highlight the importance of business: a. Utilization of resources There are various resources like human M Tresources, natural resources and financial emory ips resources. In the world, business needs to  Utilization of resources utilize all types of resources for the purpose of  Economic development producing and distributing goods or services.  Employment opportunities Business involves industrial and commercial  Source of national revenue activities which require manpower and other  Increase in living standard  Maintain international relationship resources. The different industries utilize the  Earning foreign currency raw materials drawn from agriculture, forest and other sectors and produce final consumer products. Besides this, the financial resources are also utilized with the help of business in the country. b. Economic development The economic development of any country depends upon the development of business sector. Business also includes various sectors like industry, commerce, banking, insurance, transportation etc. If all the sectors are well developed, the country becomes self dependant. Thus, the economic condition of the country is possible by the development of business activities. c. Employment opportunities The development of business helps to solve the unemployment problem in the country. The establishment of industrial and commercial organizations require different administrative and technical manpower. So, a great number of people are employed in different sectors. Thus, it helps to minimize the unemployment problem to some extent. 70 Office Management and Accountancy

d. Source of national revenue The development of business causes the establishment of number of business organizations in the country. Such business organizations also pay the huge amount of tax to the government. On the other hand, individuals also should pay tax to the government on their income. As a result, the income of the nation will be increased. e. Increase in living standard The development of business also helps to improve the living standard of the general peoples. The availability of employment opportunities increases the income of people. So, they can consume the facilities required for maintaining quality of life. As a result, living standard of the people will be improved. f. Maintain international relationship The development and expansion of business increases the import and export of goods or services. Due to expansion of foreign trade, the businessmen of different countries come in contact with each other. It helps to create help and co-operation, mutual understanding and cordial relationship among themselves. Thus, the business helps to maintain good international relationship for long-term mutual benefit. g. Earning foreign currency Business is the major source of earning foreign currencies. The different industrial and commercial organizations produce goods or services in the country. Such goods may be of international quality and standard. After the domestic consumption of goods or services, the surplus goods or services can be exported to different countries. It extends the foreign market and helps to earn foreign currency. Forms of business organization Business organization may be established in different forms. It may be established by a single person or a group of persons, government or others. Thus, on the basis of owner- ship, management and operation, business organizations are of following forms: Figure: 7.1 Forms of business organization Forms of business organization Sole trading Partnership Joint stock Public Cooperative Multinational concern firm company enterprise organization company Introduction To Business 71

Sole trading concern Sole trading concern is a form of business which is owned, managed and controlled by a single person. In this type of business organization, a single person invests the capital, runs his business, takes whole profit and bears all the risks created in day to day activities. He may appoint other staffs to look after business activities but the owner is fully responsible for all kinds of functions. It is the oldest and simplest form of business organization in the world. The person who establishes and runs this type of business is called sole trader. It is also called sole proprietorship or single ownership. In sole trading concern, the single person plays the role of investor, owner, manager, decision maker, controller, risk bearer, profit taker etc. The sole trading concern can be established by registering under Private Firm Registration Act 2014 in the concerned department of government of Nepal. The local shops like stationery, grocery, garment, beauty parlor, hotel, restaurant etc. are the examples of this form of business organization. Followings are some of the definitions of sole trading concern: “The individual proprietorship form of business organization is an organization at the head of which stands an individual as the one who is responsible, who directs its operations and who alone runs the risks of failure.” L.H. Haney “A sole trader is a person who carries on business exclusively by and for himself., He is not only the owner of the capital of the undertaking but is usually the organizer and manager and takes all the profit or responsibility for losses.” James Stephenson “A sole proprietorship is a business whose ownership and management are vested in one person, this individual assumes all risks of loss and failure of the enterprises and takes all profit from its successful operation.” Peterson and Plowman Sole trading concern is a business organization established, managed and controlled by a single person having right to take whole profit and responsibility to bear whole losses resulted from the business operations. Partnership firm Partnership firm is an association of two or more individuals established to conduct the business operations by sharing the combined resources with a view to earn profit. This type of business organization has evolved due to many disadvantages of sole trading concern like less capital, limited managerial ability, limited scope for expan- sion, loss in absence etc. In this type of business, two or more individuals take joint responsibility for the running of business and to share profit or loss resulted from operations. In this business organization, the persons make an agreement to con- tribute capital, manage the business and expand its activities for earning profit. The individuals who enter into the agreement and involve in partnership are known as partners. They are equally responsible for managing and controlling the overall busi- ness activities. In Nepal, partnership firm should be registered under the Partnership 72 Office Management and Accountancy

Act 2020 in the concerned department of government of Nepal. The following are some of the definitions of partnership organization: “In a more specific business sense, the partnership may be defined as the relation existing between persons who agree to carry on a business in common with a view of private gain. Prof. L.H. Haney “Partnership means any business registered in the books of government of Nepal which is carried on by some persons under one name for sharing the profit and with the agreement of participation in the transactions by all partners or a single partner acting for all.” Nepal Partnership Act 2020 “Partnership has two or more partners, each of whom is responsible for the obligation of the partnership Each of the partners may bind the others and the assets of the partners may be taken for the debts of the partnership.” W.R. Spriegal Partnership firm is the association of two or more individuals established with joint investment to run on the business under joint ownership management and agreement for mutual benefit. Joint stock company Sole trading concern and partnership firms are not sufficient for large scale production and distribution of goods or services mainly due to limited capital of sole trader or even partners. Thus, a huge form of business organization came into existance to avoid those disadvantages which is called joint stock company. It is established under the certain act of the country. It is a morden form of business organization. It is a voluntary association of number of persons or organizations created by law under company act. It collects large amount of capital by issuing a number of transferable shares to the public. In Nepal, public limited companies are registered under Company Act 2063. The persons or organizations who invest in the company are called shareholders. The day to day management of joint stock company is handled by a separate body which is called board of directors. The members of the board are elected by the shareholders through election. Joint stock company distributes the profit to the shareholders in the form of dividend according to the ratio of their capital. It has permanent life and thus incoming, outgoing or even death of any shareholder does not affect the survival of the company. Some of the definitions of joint stock company are as follows: “A joint stock company is a voluntary association of individuals for profit having a capital divided into transferable shares, the ownership of which is the condition of membership.” Prof. L.H. Haney “A joint stock company is an association of individuals for the purpose of carrying on some trade, business or undertaking usually with limited liability, but sometimes with unlimited liabili. Heelis “A joint stock company is an incorporated association which is an artificial person created by law having a common seal and perpetual succession.” Sherlekar Joint stock company is a voluntary association of number of individuals established under company act that collects huge capital for running business by issuing transferable shares with limited financial liability and perpetual existence. Introduction To Business 73

Public enterprise Public enterprise is a form of business organization which is established, managed and controlled by the government. It is incorporated by the government holding at least 51% share in investment of the government. It provides various goods and ser- vices to the general people at reasonable price. Traditionally, the role of government was to maintain peace and order in the country and to perform the constructional and maintenance works of religious place and properties. However in modern days, it led the government to enter into business activities mainly in public utility sectors like water, electricity, transport , communication, banking, insurance etc. Thus, the different industrial and commercial organizations are established under the full or partial ownership of the government in order to supply the goods or service of basic utility. The main objective of public enterprise is to render services to the general people of the society. Public enterprises are also called corporations. Nepal Bank Ltd., Nepal Oil Corporation, Dairy Development Corporation, Nepal Food Corporation, Nepal Airlines Corporation, Nepal Electricity Authority are some examples of public enterprise. The first public enterprise of Nepal is Nepal Bank Limited which was established in 30th Kartik 1994 B.S. The major definitions of public enterprise are given below: “Public enterprises are autonomous bodies, which are owned and managed by the government and which provide goods or services for a price. The ownership with the government should be 51% or more to make an entity public enterprise.” Laxmi Narayan “Public enterprises may be defined as an undertaking that is owned by a national, state or local government and supplies services or goods at a price and operated on a more or less self supporting basis.” Encyclopedia Britannica “Public enterprises mean state ownership and operation of industrial, agricultural, financial and commercial undertakings.” A.H. Hansen Public enterprise is a state owned enterprise having full or partial investment of the government which is established to supply the qualitative goods or services to the public at fair price. Cooperative organization A cooperative organization is a form of business organization where the different individuals associate themselves together under equality basis for the promotion of economic, social and cultural benefits. The growth and development of other forms of business organization led the world towards profit and ignored the consumer welfare. Such organizations created the complicated hierarchy of middlemen between producers and consumers. Due to this, middle and lower class people are highly exploited. As a result, the consumers started to unite themselves to fulfill their desires and to protect the people from economic exploitation by eliminating the role of middlemen. The main slogan of cooperative organization is ‘each for all and all for each’. It works with the motto of service rendering rather than profit maximization. It utilises the co-ordinated effort of all the members jointly to fulfill their requirements by working 74 Office Management and Accountancy

under self help and mutual cooperation. It is a voluntary association of number of per- sons. It is run under democratic management having separate legal entity. Some of the definitions of cooperative organization are as follows: “A cooperative is an organization wherein persons voluntarily associate together as human beings on the basis of equality for the promotion of economic interest of themselves.” Prof E. Henry Calvert “Cooperative organization will be formed with a view to increase self-reliance, mutual cooperation and economy for the development of farmers, draftsmen and capital constrained persons.” Cooperative Act 2048 “A cooperative is an association of the weak who gather for a common economic need and try to lift themselves from weakness into strength through business organization.” Talmaki Cooperative organization is a voluntary association of individuals which is formed to fulfill the social, economic and cultural expectations of all the members through mutual cooperation. Multinational company Multinational company is a business organization having its head office in one country and branches or subsidiary companies in two or more countries in the world. In other words, mul- tinational company is a company whose ownership, management and control is extended over two or more countries of the world. It is bigger form of business organization having huge capital and advanced technology which produces and sells its goods or services in many coun- tries. It establishes its head office in one country and operates its business activities in two or more countries with the help of subsidiary companies. Multinational company is involved in large scale production and sale of goods or services using advanced technology. It produces the goods or services of international standard and covers the market share. The ownership of multinational company depends upon the capital investment of head office and its subsidiary companies. However, the management and controlling functions will be in the hand of head or parent company. Pepsi-cola Company, Coca-cola Company, Nepal Unilever Ltd., Asian Paints, Nepal Arab Bank, Sony Company, Honda Company etc are some examples of multinational company. Some of the definitions of multinational company are given below: “A multinational company is any firm which performs its main operations either manufacturer or the provision of service, in at least two countries. M.Z. Brook and H.L. Remmers “Multinational companies are corporations which have their home is one country but operate and live under the laws and customs of other countries as well. David E. Lilenthal “Multinational company can be defined in the broad sense to cover all enterprises which control assets, factories, mines, sales and the other in two or more countries.” ....... Nations Development of Economic Social Affairs Multinational company is a huge business organization established with huge capital and advanced technology to operate business activities in two or more countries under same name and trademark. Introduction To Business 75

Key Terms Business – act of producing and distributing the goods or services for Business organization earning profit. Cooperative organization Economic activity – an effective combination of factors of production and other Industry resources to produce and distribute goods or services. Joint stock company Limited liability – voluntary association of financially weaker persons established to meet social, economical and cultural benefits. Multinational company Partnership firm – the activities which are performed with the intention of Perpetual existence maximizing wealth having monetary value. Public enterprise – act of producing raw materials, semi finished goods or Share finished goods. Sole trading concern Trade – a business organization having perpetual legal existence Unlimited liability established by issuing transferrable shares. – financial liability of an owner or partner which is limited upto the capital investment of an owner/partner/ shareholder. – a business organization carrying out the business activities worldwide using advanced technology and huge capital. – a business organization having ownership and management of two or more individuals. – long term or permanent life. – a business organization having full or partial ownership of the government established to provide goods or services to the people at reasonable price. – a divided part of capital having certain monetary value. – a business firm established, owned and run by a single person. – act of buying and selling of goods for earning profit. – financial liability of the owner or partner which is not limited to his capital invested in the organization. 1. Define business and describe its major features. 2. Explain the importance of business in five points. 3. What do you mean by a sole trading concern? 4. What is partnership organization? 5. Define a joint stock company. 6. Differentiate between a sole trading concern and a partnership firm. 7. Write about a public enterprise. 8. What do you mean by a cooperative organization? Why is it established? 9. Define a multinational company.  76 Office Management and Accountancy

8 ACCOUNTING Chapter Learning Objectives After studying this chapter, the readers will be able to :  define accounting and state its objectives,  mention the various accounting terminologies and state their meaning,  define single entry system and state its features,  write the advantages and disadvantages of single entry system,  define double entry system and explain its features,  write the advantages and disadvantages of double entry system of accounting,  differentiate between double entry system and single entry system. Introduction Every organization performs the different activities in order to achieve the predetermined objective. It requires to collect a number of information for effective mobilization of office resources. Accounting is a major and reliable source for collection of financial information. According to the nature, objective and need, a number of financial transactions are performed daily in office. Furthermore, a business firm deals with a number of financial events such as purchase and sale of goods, receipt and payment of money, deposit and withdrawal of cash etc. Such transactions should be recorded systematically in the books of account. It helps to know the receivables and payables, income and expenditures, profit and loss, assets and liabilities etc. at the end of certain period. Thus, accounting is the process of recording, classifying, analysing, interpreting and communicating the financial information to the various users. The systematic and scientific recording and reporting of financial transcations play an important role in the business firm. Accounting 77

Concept and definition The term ‘accounting’ is broader than the book keeping. Book keeping is a part of accounting. It is concerned only with the systematic recording of financial transactions. But accounting is concerned with the act of recording, classifying, summarizing and analyzing the financial transactions of a business firm in order to determine the profit or loss and financial condition of the firm. It also helps to communicate the operating results and financial position to all the concerned parties of the firm. Following are the definitions of accounting: “Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the user of information.”American Accounting Association “An accounting system is a means of collecting, summarizing, analyzing and reporting in monetary terms, information about the business.” R.N. Anthony Accounting is the systematic process of recording, classifying, analyzing and interpreting the financial transactions of the firm and communicating the results of the profit or loss and financial position to the various users . Short Notes to Remember (SNR 8.1)  Book keeping is concerned with the act of maintaining permanent records of day to day financial transactions of the firm in systematic manner and chronological order.  Book keeping is the part of accounting and thus can be said that accounting starts when book keeping ends. Objectives of accounting The main objectives of accounting are as follows:  To keep the permanent record of financial transactions.  To classify the financial transactions as per their nature.  To provide summary of the classified transactions.  To determine the operating result of the business firm.  To disclose the true financial position of the firm on a particular date.  To communicate the financial information of profit or loss and financial condition of the firm to various users.  To facilitate in auditing the books of account of the firm. Accounting terminologies There are various terminologies in accounting. Some of the terminologies with their meaning are as follows: a. Financial transaction Financial transaction refers to that business dealing which can be measured in terms of money or money’s worth. Purchase and sale of goods, receipt and 78 Office Management and Accountancy

payment of loan, payment of expenses like salary, rent, wage, commission, receipt of M Tincome etc. are some examples of financial transactions. emory ips  Financial transaction  Capital  Assets  Liabilities  Debtors b. Capital  Creditors  Account  Debit and credit  Purchase The amount invested by the owner at the  Sales  Revenue/Income time of starting business is known as capital.  Expenses  Profit or loss The owner may invest cash or any kind to  Bank overdraft  Drawing establish and run the business.  Stock  Loan and c. Assets interest  Depreciation The total resources or properties belonging  Bad debts to the business firm which help to generate revenues are called assets. Such assets may be materials, physical properties and rights of the firm. Land and building, plant and machinery, furniture, cash in hand, cash at bank, debtors, bills receivable etc are some examples of assets. d. Liabilities The amount payable by the business organization to the outsiders within a certain period of time is known as liabilities. Bank loan, creditors, bills payable, bank overdraft, outstanding expense etc are the examples of liabilities. e. Debtors The persons or organizations from whom the business firm has to collect the amount against the credit sale of goods are called debtors. In other words, debtors are the persons or organizations who purchase goods on credit and have to pay to the business firm. f. Creditors The persons or organizations to which the business firm has to pay the amount against the credit purchase of goods are called creditors. In other words, the person or organizations who supplies goods on credit are called creditors. g. Account The financial detail or statement of the particular type of transactions over a certain period relating to any person, property or subject is called account. For example, cash account, furniture account, computer account, salary account, commission account, Ram’s account, Manju’s account etc. h. Debit and credit Debit and credit are the traditional accounting terms used for recording the financial transactions. Debit refers to the left hand side of an account and credit refers to the right hand side of an account. Accounting 79

i. Purchase The act of buying goods in a business for the purpose of selling them to customers at a profit either in the same form or after manufacturing them into readymade products is known as purchase. Thus, the business may purchase raw materials, semi finished goods or finished goods. Goods may be purchased in cash or on credit from the suppliers. j. Sales The act of transferring the ownership of trading goods to customer with the certain monetary value with a view to earn profit is called sales. Sales is the direct income of the business firm. k. Revenue/Income The amount received or to be received by the business firm from sale of goods or providing services to the customer is known as revenue or income. If goods sold to Hari for Rs. 40,000, Rs. 40,000 is revenue or income of the business. l. Expenses The amount which is incurred for the production and distribution of goods or services is called expenses. In other words, an expense is the cost of the business which is borne in order to earn revenue or generate income. Salary, wage, advertisement, communication, rent, insurance etc are the examples of expenses. m. Profit or loss Profit means the excess of income over expense. When all expenses are deducted from total revenue of the firm, it becomes profit. On the other hand, the excess of expenditure over income is known as loss. The profit or loss of business firm is determined at the end of year by preparing profit and loss account. n. Bank overdraft The excess amount of withdrawal from bank over bank balance is known as bank overdraft. It is the facility provided by the bank to its reliable customer against the certain interest rate. For example, if a business firm has bank balance Rs.60,000 and withdraws Rs.70,000, the excess amount of withdrawal Rs.10,000 is called bank overdraft. o. Drawing The value of money or goods withdrawn by the owner from the business firm or bank for his personal or domestic use is known as drawing. The utilization of business cash or goods for the payment of owner’s personal expenses is also termed as drawing and recorded separately by opening a drawing account. p. Stock The value of goods remained unsold in the warehouse of the business firm at the particular date is known as stock. On the basis of time, stock may be of two types 80 Office Management and Accountancy

i.e. opening stock and closing stock. Opening stock is the value of goods in hand at the beginning of the period where as closing stock means the stock of goods remained unsold at the end of the year. According to the nature, there may be three types of stock i.e. stock of raw materials, stock of semi - finished goods and stock of finished goods. q. Loan and interest The amount borrowed from the individual, bank or other financial institutions for utilizing in business is called loan and the additional amount paid at certain rate against the loan borrowed is called interest. r. Depreciation The gradual decrease in the value of fixed assets like plant and machinery, furniture etc due to any reason such as regular use, interval of time, wear and tear etc is called depreciation. Depreciation is non- cash expense of the business firm. s. Bad debts The amount which is declared as uncollectible from the customers out of the credit sales is called bad debts. Sometimes, the customer may not pay the full or partial amount of the credit sales and such irrecoverable amount is termed as bad debts. It is a kind of loss to the business firm. Accounting system The system which is adopted by the business firm for recording, classifying, analyzing and communicating the financial transactions is known as accounting system. Following are the accounting system used for recording the financial transactions: Figure: 8.1 Accounting system Accounting system Single entry system Double entry system SINGLE ENTRY SYSTEM Concept and definition The accounting system which maintains the record of financial transactions considering the single effect is known as single entry system. It does not follow the basic accounting principles for recording of transactions. It does not consider the dual effect of financial Accounting 81

transactions. It maintains only the record of personal accounts and cash items. It ignores real and nominal accounts. Thus, it prepares cash book and personal account of debtors and creditors. For example, while making payment of salary to staffs Rs. 10,000, it records the effect of cash but ignores the salary account as expense. Similarly, for purchase of goods worth Rs. 5,000 on credit, the record is maintained only for creditor not for the goods. Thus, single entry system is called incomplete, unsystematic and traditional type of accounting system. Some of the definitions under single entry system are as follows: “Single entry system is a system of book keeping in which as a rule, the records of only cash and personal accounts are maintained. It is always incomplete double entry varying with the circumstance.” Eric Kohler “Single entry is method employed for recording transactions which ignores the two fold aspects and consequently fails to provide the businessman with the information necessary for him to be able to ascertain the position.” R.N. Carter Single entry system is a traditional, incomplete and unscientific accounting system that maintains the record of financial transactions by considering only the singe effect of each transaction without follwong sepcific rules nd principles. Features of single entry system Single entry system has the following features:  It is a simple type of accounting system to record the financial transactions of a firm.  It does not follow the set of rules and principles for recording the financial transactions.  It does not consider the dual effect of financial transactions.  It requires to maintain the less number of books of account and does not require qualified and experienced accounting staffs.  It prepares a cash book in order to know the cash receipt and cash payment in the firm.  It maintains only the transactions relating to personal account and cash items. Short Notes to Remember (SNR 8.2)  The features of single entry system are: - simple - lack of rules and principles - unscientific - economical - preparation of cash book - less time consuming Advantages of single entry system The main advantages of single entry system are as follows:  It does not require to follow the modern accounting rules and principles. Thus, it is easy to maintain the record of financial transactions.  It does not require to maintain a large number of books of account and thus the staffs having less knowledge can also use it. 82 Office Management and Accountancy

 It becomes easy in determining the amount of profit or loss by comparing opening capital and closing capital.  It is possible to save the valuable time of accounting staffs as it does not maintain the record of all types of account.  It is suitable to small scale business firm having limited number of financial transactions. Short Notes to Remember (SNR 8.3)  The main advantages of single entry system are: - simple - economical - suitable for smaller firms - easy to determine profit or loss - saving of time Disadvantages of single entry system Following are the main disadvantages of single entry system:  It does not follow the accounting principles and rules for recording financial transactions. Thus, it is unscientific and unsystematic system.  It is incomplete type of accounting system because it does not maintain the record of real and nominal accounts.  It is not possible to ascertain the true profit or loss of the business firm due to lack of information relating to nominal accounts.  It is not possible to check the arithmetical accuracy of books of account because this system does not consider the dual effect of transactions.  It is unacceptable system for the tax authorities due to its incompleteness.  It may have more chances of making frauds and errors by the concerned staffs and others because the arithmetical accuracy can not be proved.  It is not possible to ascertain the true financial position of the firm due to lack of information relating to capital, liabilities and assets on a particular date. Short Notes to Remember (SNR 8.4)  The main disadvantages of single entry system are: - unscientific - incomplete - lack of checking arithmetical accuracy - difficulty in determination of true profit or loss - unacceptable system - chance of errors and frauds - difficult to determine the financial position. DOUBLE ENTRY SYSTEM Concept and definition In order to avoid the disadvantages of single entry system of accounting, a modern and scientific system has been introduced and used in the world which is known as double entry system. Modern business organizations follow this accounting system Accounting 83

for recording the transactions. It was originally propounded by Franciscan Monk Luca De Pacioli in 1494 A.D. According to this system, every financial transaction affects two aspects where one aspect is called debit and another aspect is called credit. Thus, each financial transaction is recorded on the debit side of one account and on the credit side of other accounts. Double entry system follows the scientific assumption i.e. every debit has its corresponding credit with equal amount. Under this system, transactions are recorded into personal, real and nominal accounts. It prepares a trial balance with the help of ledger balances to check arithmetical accuracy of books of account. It determines the profit or loss at the end of accounting period by preparing profit and loss account. It also prepares the balance sheet to ascertain the true financial position of the firm on a particular date. Following are the definitions of double entry system of accounting: “Double entry system is the system under which each transaction is regarded to have two fold aspects and both the aspects are recorded to obtain complete record of dealings.” Juneja, Chawla and Saxena “Every business transaction has two fold effects and that it affects two accounts in opposite directions if the complete records were to be made of each such transaction, it would be necessary to debit one account and credit the other. It is the recording of the two fold effect of every transaction that has given rise to the term”Double entry.” J.R. Batliboi Double entry system is a modern, scientific and systematic process of accounting for recording which considers the double effects of each transaction under two different accounts with equal amount. Short Notes to Remember (SNR 8.5)  Luca De Bourga Pacioli is the father of modern accounting who propounded double entry system in 1494 A.D. The concept of double entry system is illustrated below: Transaction: Bought a furniture for Rs. 20,000 The journal entry of the above transaction is given below: Journal Entry Date Particulars L.F. Debit Rs. Credit Rs. 20,000 20,000 Furniture a/c ................................................................Dr. To Cash a/c (Being furniture bought in cash) 84 Office Management and Accountancy

The effect of above journal entry into ledger accounts will be as follows: Dr. Furniture Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount To Cash a/c 20,000 Dr. Cash Account Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount By Furniture a/c 20,000 Objectives of double entry system The main objectives of double entry system are as follows :  To maintain the permanent and systematic record of financial transactions.  To classify the financial transactions into personal, real and nominal accounts.  To find out the arithmetical errors and correct them.  To determine the amount of profit or loss of a business firm during a period.  To ascertain the amount of income and expenditure of non-trading organization.  To ascertain the true financial position of a firm during a period of time.  To communicate the financial information to the various users.  To fulfill the legal formality to the books of account maintained in the firm.  To help in solving the problems and making decision on financial matters.  To facilitate in auditing the books of account in the firm. Features of double entry system Following are the main features of double entry system: a. Double effect Memory Tips Double entry system considers the two fold effect of each financial transaction. It records  Double effect them into two different accounts in two  Effect of equal amount opposite sides. Thus, it shows double effect  Classification of accounts once by debiting one account and again by  Scientific and systematic crediting another account.  Complete system  Auditing b. Effect of equal amount Double entry system makes the effect on two different accounts with equal amount. Thus, it assumes that debit equals to credit and shows the amount accordingly. c. Classification of accounts Double entry system classifies the accounts into personal, real and nominal heads. It records the transactions as per the rules of debit and credit under different accounts. Accounting 85

d. Scientific and systematic Double entry system follows the accounting rules and principles for the financial transactions. It also prepares the financial statements following its own assumptions and concepts which are widely accepted and followed. Thus, it is regarded as scientific and systematic method for maintaining the record of financial transactions. e. Complete system Double entry system maintains the record of all personal and impersonal accounts of the firm. It helps to determine the profit or loss of the business firm. It also facilitates to ascertain the true financial position of the firm. On the basis of personal accounts of debtors and creditors, it helps to know about the amount of receivables and payables. Thus, double entry system is considered as complete type of accounting system. f. Auditing Auditing is the act of examining the books of account to ensure whether they are maintained as per accounting principles or not. Double entry system provides information relating to all types of accounts. Thus, under this system, an authorized auditor examines the books of account maintained in the firm. It minimizes the chances of errors and frauds in accounting and makes the staffs more responsible in their accounting jobs. Advantages of double entry system The double entry system of accounting has the following advantages:  It maintains the permanent record of financial transactions in systematic and scientific manner.  It helps to know about the receivables and payables of the business firm.  It facilitates to prove the arithmetical accuracy of books of account by preparing trial balance.  It helps to determine the operating result of the business firm by preparing profit and loss account.  It ascertains the true financial position of the firm by preparing a balance sheet at the end of accounting period.  It facilitates for auditing the books of account maintained in the firm.  It communicates the financial information to the internal and external users.  It helps to fulfill the legal formality to the books of account of the business firm. Short Notes to Remember (SNR 8.6)  The main advantages of double entry system are: – systematic and scientific record – information about receivables and payables – facility of checking arithmetical accuracy – determination of operating result – information of true financial position – provision of auditing – communicating the financial information – fulfillment of legal formality. 86 Office Management and Accountancy

Disadvantages of double entry system The double entry system of accounting has the following disadvantages:  It is complex system for recording because it requires the detailed knowledge of accounting rules and principles.  It is expensive type of accounting system because it requires to maintain a large number of books and needs to appoint qualified and experienced accounting staffs.  It requires to maintain the record of all types of transactions in large number of books, thus it is time consuming system.  It is not suitable for smaller business firms having limited financial transactions because it is complex and expensive.  It does not detect all types of accounting errors and thus errors may remain in the books of account. Short Notes to Remember (SNR 8.7)  The main disadvantages of double entry system are: – complex system – expensive system – time consuming system – suitable only for larger firms – no detection of all accounting errors. Differences between single entry system and double entry system Following are the main differences between single entry system and double entry system : Basis of difference Single entry system Double entry system 1. Dual effect It maintains the record without It maintains the record by considering dual effect. considering dual effect. 2. Types of account It maintains only the personal It maintains the personal, real accounts and cash book for and nominal accounts for recording the transactions. recording the transactions. 3. Arithmetical It does not check the It checks the arithmetical accuracy arithmetical accuracy as the accuracy of books of account trial balance is not prepared. by preparing a trial balance. 4. Profit or loss It calculates the estimated It calculates the actual profit profit or loss by comparing or loss by preparing profit and opening and closing capital. loss account. 5. Financial It cannot ascertain the true It ascertains the true financial position financial position due to lack position by preparing balance of information about real sheet. accounts except cash. Accounting 87

6. Acceptability It is not acceptable to the tax It is acceptable to the tax 7. Suitability authorities. authorities. It is suitable to small scale It is suitable to large scale organizations. organizations. Key Terms Accounting – the systematic and scientific act of recording classifying, summarising and presenting the financial transactions and communicating the results. Arithmetical accuracy – correctness of having equal amount on both sides. Assets – The properties or resources utilized by the business for generating revenues. Auditing – act of examining the books of account to ensure the correct application of accounting principles and financial acts and rules. Balance sheet – a statement prepared by the firm to know the true financial position at the particular date. Bank overdraft – excess amount of withdrawal from bank over the deposits made in account. Book keeping – act of keeping permanent record of financial transactions of a business. Capital – an amount invested by an owner either in cash or any kind in the beginning or during the life of the business. Double entry system – the accounting system which records the transaction by considering two fold effects. Drawing – cash or any kind taken by owner for personal use. Liabilities – an amount payable by the business to the outsiders within a specific time period. Non-trading organization – an organization established for rendering services rather then earning profit. Profit and loss account – an account prepared to know the profit or loss of the business organization at the end of accounting period. 1. What is accounting? Mention the objectives of accounting in brief. 2. Define single entry system and write its features. 3. Write the advantages and disadvantages of single entry system of accounting. 4. What do you mean by double entry system? State its features. 5. State the advantages and disadvantages of double entry system of accounting. 6. Write short notes on the following: a) Capital b) Assets c) Drawing d) Debtors and creditors e) Stock f) Bank overdraft g) Debit and credit h) Purchase and sales i) Revenue and expenses  88 Office Management and Accountancy

9 FILING AND INDEXING Chapter Learning Objectives After studying this chapter, the readers will be able to :  tell the meaning of filing and explain its importance for office,  define alphabetical filing and state its advantages and disadvantages,  define numerical filing and state its advantages and disadvantages,  define subjective filing and state its advantages and disadvantages,  define geographical filing and state its advantages and disadvantages,  tell the meaning of indexing and state its importance. Introduction There are a large number of letters, reports, bills and other written documents in an office. Some of them are created inside the office and some are received from outside. All types of document contain valuable information which may be needed in the future for various purposes. Such documents should be preserved systematically and scientifically which is known as filing. Filing ensures safety and availability of the official documents. There are different methods of filing. Some of them are alphabetical, numerical, subject wise and geographical filing. As per the nature and requirement of office, any filing method and system can be adopted to ensure the effectiveness in job.In order to make the filing system effective indexing is also important in office. It indicates the physical location of the required file or documents. The main purpose of indexing is to locate the required file easily and promptly. Indexing and filing are complimentary to each other. Indexing without filing is meaning less and filing without indexing is incomplete. Thus, these both should be maintained properly. Filing And Indexing 89

FILING Concept and definition In simple sense, filing means to keep the official documents in file. However, in broad sense, it is the act of arranging and preserving the official documents in a systematic and scientific way in order to obtain the required information whenever needed. It is the function of record management which facilitates the easy and quick future reference. Thus, filing is the systematic arrangement and preservation of past and present official records for future reference. The following are the main definitions of filing:– “Filing is the process of arranging and storing records, so that they can be located when required.” J.C. Denyer “Filing means the systematic and scientific collection, store and arrangement of letters, documents and records of past and present for future reference so that they can be safe and easily obtainable at the time of necessity. George R. Terry “Filing is the process of classifying, arranging and storing records so that they will be obtainable quickly when needed.” Khan, Yerin and Stewarvd Filing is a systematic and scientific process of collecting, classifying, arranging and preserving the official records and documents in a proper place to facilitate their easy availability whenever required. Need and importance of filing Filing is important for all types of office which need to create and preserve the records for the future. It is the part of record management which provides a number of benefits to an office. Thus, the need or importance of filing can be listed as below:  Filing helps to collect, classify, arrange and preserve the official records and documents for future reference.  It helps to fulfill the legal requirements of an office by producing various reports and statements.  It helps to provide details about past activities which can be used by the staff as guidance in the future.  It provides evidence in the future to settle the disputes and misunderstanding between or among the parties relating to various matters.  It protects the document from possible damages which may be caused by fire, dirt, dust, raining, theft and others.  It helps to supply the necessary information to various parties like customers, suppliers, government and other organizations.  It facilitates for making quick decisions over the problems by providing past information. 90 Office Management and Accountancy

Short Notes to Remember (SNR 9.1)  Filing is needed and important for an office because it: • collects, classifies, arranges and preserve the records • fulfills legal requirements • provides details of past activities • settles disputes and misunderstanding • protects the documents • supplies information • facilitates for quick decision Methods of filing Following are some of the methods which can be used to classify the files in an office. Figure: 9.1 Methods of filing Methods of filing Alphabetical Numerical Subjective Geographical filing filing filing filing Alphabetical filing The method of arranging the files or folders in a drawer or cabinet in order of first letter of correspondents is known as alphabetical filing. Under this method, each folder or file is given a name and all the files or folders starting from the same letter are arranged in a place according to their alphabetical order. Thus, the letters A, B, C, D, E ….. in English or c, cf, to cM and s, v, u, to 1 in Nepali are considered for filing purpose. If several files or folders begin with the same letter, second letter of the file name is considered and so on. In order to follow this method, different rules like primary guide, individual folder, special guide and miscellaneous guide etc. are applied. Alphabetical filing is the way of arranging files or folders in a drawer or cabinet according to the alphabetical rule of classification for the name of correspondents. Rules for making order of name in the folder In alphabetical classification of filing, the files are arranged in order of first alphabet of the name of file or folder. Thus, it requires to know some rules for making order of name Filing And Indexing 91

in the folder. Following are some rules to be followed for writing the name of the correspondents to arrange the files of individuals and organizations: a. For individual name The name of individual may be of one or two or three words. In case of three words, surname is to be written at first, then first name and the middle name is to be written at last. In case of two words, surname is to be written at first and the first word is written thereafter. The name having single word is written as it is. All these cases are mentioned below: i) Ramesh Kumar Tamang – Tamang, Ramesh Kumar ii) Elisha Karki – Karki, Elisha iii) Suyogya – Suyogya b. For individual name with title and position If there is title or position before name of a person, The name of individual is arranged as in rules mentioned above. Then, the title or position is written at last using a bracket. It will be as follows: i) Dr. Deepa Bhandari – Bhandari, Deepa (Dr.) ii) Prof. Arun Kumar Bastakoti – Baskoti, Arun Kumar (Prof.) iii) Captain Tilak Karki – Karki, Tilak (Captain) c. For organization name The name of organization is written as it is. It is shown below: i) Sunflower Academy – Sunflower Academy ii) Himal Trading Concern Ltd. – Himal Trading Concern Ltd. iii) Himalayan Bank Ltd. – Himalayan Bank Ltd. d. For individual as well as organization name with position If name of individual having any position is joined with the name of an institution, it is arranged in order of surname, first name, name of organization and position of individual is mentioned lastly in bracket. It is as below: i) Dr. Anita Chhetri Medical Centre – Chhetri, Anita Medical Centre (Dr.) ii) Advocate Badri Poudel Legal Centre – Poudel, Badri Legal Centre (Advocate) Advantages of alphabetical filing The major advantages of alphabetical filing are as follows:  It is easy to understand and simple to use.  It is self indexed, so it does not require separate index.  It is an economical method because a separate index and trained personnel are not needed.  It is a flexible method so that increasing or decreasing the number of files can be done easily.  It is suitable for both the small and large scale organizations. 92 Office Management and Accountancy

Disadvantages of alphabetical filing The major disadvantages of alphabetical filing are as follows:  It is not possible to maintain secrecy because the detailed information is available from the files.  It is not suitable for those offices which have too large number of files or folders.  It makes confusion in arranging or searching the files of individuals or organizations having similar name.  It is unsuitable for those offices for which numbers are more important than name.  It creates difficulty in arranging documents due to misspelling of the names. Numerical filing The method of arranging the files or folders relating to individuals or organizations according to the numerals like 1, 2, 3, 4 … etc is known as numerical filing. All the rules of arranging files under this method are similar to those of alphabetical filing method. But the numbers are used here instead of names of the individuals or organizations. Under this method, numbers are written on the folders and those folders are arranged in the drawer or cabinet in a numerical order. In order to apply this method, certain rules such as preparation of the entry book, index cards etc are followed. The entry book is used to register the name of each person, subject or firm for assigning a number for filing purpose. The index card is a separate card prepared for each correspondent for writing details such as name, address, contact number, file number and other necessary information. All the cards prepared for each correspondent are arranged in a separate drawer in an alphabetical order. Numerical filing method is adopted by organizations having a large number of files. Thus, it is suitable for banks, insurance companies, traffic police offices, transport companies etc. Numerical filing is the way of arranging and placing the files or folders in a drawer or cabinet in numerical order such as 1, 2, 3, 4……. etc. Advantages of numerical filing The advantages of numerical filing are as follows:  It is possible to maintain secrecy because the file or folder contains only the number, not the name of the person or organization.  It becomes easy to find out the file because separate index cards are prepared.  It is a more advanced and scientific than the alphabetical filing method.  It is more flexible method having unlimited scope for expansion because numbers are unlimited. Filing And Indexing 93

 It is suitable for those organizations which have a large number of files or folders. Disadvantages of numerical filing The following are the major disadvantages of numerical filing method:  It is an expensive method because it requires separate index, filing equipments and technical staffs.  It is time consuming method because it requires more time to arrange, search and use the files.  It cannot be used by smaller organizations because of its high cost.  It is unsuitable for those organizations for which names are more important than numbers.  It is difficult method in comparison to alphabetical filing method due to necessity of preparing entry book, referring separate index card etc. Subjective filing The method of arranging files or folders in a drawer or cabinet according to their subject is called subjective classification of filing. Under this method, all the documents of an office are first classified into different groups according to their subjects. Then, the folders containing a number of documents are arranged alphabetically as per their subjects. The subjects for the filing purpose are determined according to the nature of dealings to be made by organization. Under this method, the priority is given to the subject rather than the name of the individuals or organizations. The different subjects may be computer, furniture, stationery, purchase etc. Again, the sub classification of the subject also can be made. For example, a subject computer can be divided according to its manufacturing company such as ‘Acer’, “Mercantile’, ‘Apple’, ‘Compaq’ etc. and a separate file can be made for each type of computer. The different rules such as primary guide, subject guide, out guide card, individual folders etc are applied to facilitate this filing method. Subjective filing is the way of arranging and classifying the files or folders according to the alphabetical order of the subjects. Advantages of subjective filing The advantages of subject filing are as follows:  It dose not require special knowledge for the operation of filing system. Thus, it is easy to understand and use.  It is flexible method since the number of files can be increased or decreased as and when required. 94 Office Management and Accountancy

 All the papers and documents relating to the same subject are available in one file or folder.  It is suitable for those offices like court for which subjects are more important.  It provides quick location of files due to use of primary guide, guide cards and other indexes. Disadvantages of subjective filing The disadvantages of subjective filing are as follows:  It does not maintain secrecy because each file contains the name of file at the tab of it.  The papers or documents relating to a single person or organization may be placed in different folders, if such documents are related to different subjects.  It is an expensive and time consuming method because it requires separate index, guide cards and filing equipments.  Sometimes, it becomes difficult to classify the papers or documents into the particular subject.  It is unsuitable for large scale organizations having a large number of documents to be preserved. Geographical filing Geographical filing refers to the way of arranging the files or folders of individuals or organizations on the basis of geographical location or places. Under this method, all the paper or documents to be filed are first classified according to their geographical location and the documents relating to a particular area are placed in a separate drawer. Thus, under this method, separate drawer is managed for different geographical places. The classification of geographical places or locations may be ward wise, town wise, district wise, province wisecountry wise or even continent wise as per the necessity. For example, if the classification is made on the basis of district like Kathmandu, Dhading, Solukhumbu, Nuwakot, Baitadi etc, separate drawers should be made for these five districts. A district further can be subdivided into smaller places like Balaju, Putalisadak, Chabahil, Thamel etc for Kathmandu district. It should be kept in mind here that after the classification of documents as per geographical locations, files can be arranged under alphabetical or numerical order like in pervious filing method. Here also different rules such as alphabetical guide, geographical guide, individual folders, miscellaneous files, out guide card etc. can be applied under this filing method. Filing And Indexing 95

Geographical filing is the method of arranging the files or folders in the drawer according to the names of geographical places i.e. ward, municipality, province, country etc. Advantages of geographical filing The following are the advantages of geographical filing method:  It is simple to understand and easy to operate if the name of different places are known.  It is suitable for those organizations which are dealing with a large number of geographical places.  It provides quick location because it uses different guides and indexes.  It can adopt both the alphabetical or numerical order for arrangement of files or folders. Disadvantages of geographical filing The disadvantages of geographical filing method are as follows:  It becomes difficult to arrange the files without the knowledge of different geographical places.  It is a very expensive method because it requires to use various guide cards, separate drawers and other filing equipments.  The files can be easily identified because of the names written in the drawer. Thus, it does not maintain secrecy of the organization.  It may be time consuming to search the file in case of sub division of geographical places.  It is not suitable to smaller organizations having a limited number of files. INDEXING Concept and definition An office creates a number of documents daily in the form of notice, circular, letter, report and statements which are more useful for the future. All types of official documents created in an office and received from outsiders should be preserved well by keeping them in a drawer, a cabinet or in similar place. It is difficult to find the particular document from a large number of files or documents. Thus, in order to facilitate the quick location of such files or documents, an indicative list of their names, subject and location is prepared which is known as indexing. It is a guide or indicator to show the location and position of a particular file or data or information. It is the function of record management and process of determining the name, subject and topic under which the particular documents are to be filled. The table of contents given in a book and alphabets mentioned in a telephone diary are the examples of indexing. Some of the definitions of indexing are given below: 96 Office Management and Accountancy

“An indexing is anything that points out. Its prime function is to act as guide to a body or to a collection of records.” J. C. Denyer “Indexing means a system by which the location of any information can be easily created.” Y.K. Bhusan “Indexing is a system which helps to locate the position of files quickly and easily.” Saxena Indexing is a guide, indicator or indicative list of alphabets, numbers or other information which helps to locate the particular file or document in a drawer or cabinet. Usefulness of indexing Indexing is a very important guide or indicator to all type of offices for locating the required file or documents. It supports the filing system of an office. Its need and importance can be mentioned as follows:  It helps to locate the particular file or document from a large number of written documents which are preserved in a drawer or cabinet.  If facilitates to obtain the required information about different parties like customers, suppliers, banks and other organizations and individuals.  It helps to arrange and preserve the official records and documents in a systematic manner.  It saves the valuable time and physical effort of office staff in maintaining records.  It is the basis of filing which helps to make the filing system modern and scientific.  It increases the efficiency of staff regarding maintenance of records for future reference. Key Terms Chronological – act of arranging the documents in order of date. Document – an official paper that gives information about something that can be used as proof in the future. Filing – act of arranging and preserving the official documents in to a file for future reference. Guide card – a card that gives instruction to locate the required papers and documents. Indexing – act of guiding or indicating the location of a particular file. act of creating, classifying, using and disposing the official Record management – records in a systematic manner. act of consulting something and getting information out of that. Reference – Filing And Indexing 97

1. What is filing? Write any five importance of filing. 2. What is alphabetical filing? State its advantages and disadvantages. 3. Define numerical filing and mention its advantages and disadvantages. 4. Differentiate between alphabetical filing and numerical filing. 5. What do you mean by subjective filing? Write its advantages and disadvantages. 6. Introduce geographical filing and write its merits and demerits. 7. What is indexing? Mention the role of indexing in filing system.  98 Office Management and Accountancy

10 JOURNAL Chapter Learning Objectives After studying this chapter, the readers will be able to :  tell the meaning of journal,  draw a specimen of journal and explain its columns,  mention the importance of journal,  state the rules of debit and credit for journalizing the transactions,  apply the rules of debit and credit and prepare journal entries for different types of business transactions. Introduction Every business firm performs a number of financial transactions daily. Such transactions are related with economic activities such as buying and selling of goods, receipt and payment of cash and cheque, expenses and income, withdrawal and deposit of cash etc. The systematic and scientific recording of day to day financial transactions is essential in the business firm. All the financial transaction of a business are first recorded in a primary book called journal. It is a book of original entry which maintains the initial recording of transactions under double entry concept by applying the rules of debit and credit. Journal 99

Concept and definition The word journal is derived from the French word jour which means daily. Thus, the jour- nal contains a daily record of business transactions which is maintained in a chronological order i.e. in order of date. Journal is also known as primary book of original entry because the financial transactions are recorded at first in journal before posting them into respective ledger accounts. It is the chronological record of financial transactions showing the name of accounts debited and credited along with the amount of debit and credit. Each journal entry should be supported by a brief explanation to make the transaction clear which is known as narration. It is made on the basis of source documents like cash memo, invoice, bill, voucher, cheque, pay-in-slip etc. Following are the important definitions of journ “A journal is a book employed to classify or sort-out transactions in a form convenient for their subsequent entry in the ledger.” L.C. Cropper ‘The journal or daily record as originally used was a book of prime entry in which transactions were copied in order of date from a memorandum or waste book. The entries as they were copied were classified into debits and credits so as to facilitate their being correctly posted after wards in the ledgers.” R.N. Carter Journal is the primary document which is prepared for systematic and chronological recording of the financial transactions showing the accounts debited and credited along with their amounts. Short Notes to Remember (SNR 10.1)  The book which contains the journal or primary recording of financial transactions is called journal book.  The act of recording or entering the transaction in the journal book is called journalizing.  The transaction which is recorded systematically in journal book applying the rules of debit and credit is called journal entry.  The short explanation of the transaction written inside the bracket just below the accounts debited and credited is known as narration. The narration can be written starting with the word ‘Being’ or ‘For’. Specimen of journal The specimen of journal is as follows: Journal Entry Date Particulars L.F. Debit Rs. Credit Rs. 100 Office Management and Accountancy