Accounting Errors, Final Accounts and Nepal Government Accounting Explained
Chapter 6: Accounting Errors
Short Answer Questions
1. Meaning of compensating error with example.
A compensating error is an accounting error in which one error is balanced by another error of an equal amount. Such errors do not affect the agreement of the trial balance.
Example: Purchases account is overcast by Rs. 2,000 and sales account is also overcast by Rs. 2,000. These errors compensate for each other.
2. Types of accounting errors.
The major types of accounting errors are:
- (i) Error of omission
- (ii) Error of commission
- (iii) Error of principle
- (iv) Compensating error
- (v) Error of duplication
3. Meaning of errors of principle with examples.
An error of principle occurs when a transaction is recorded against the fundamental principles of accounting. It usually involves incorrect classification of capital and revenue items.
Examples:
- (i) Purchase of machinery recorded in purchases account.
- (ii) Repair expenses recorded as machinery.
- (iii) Purchase of furniture recorded as office expenses.
Such errors generally do not affect the trial balance agreement.
4. Meaning of error of omission and error of commission.
Error of omission: An error that occurs when a transaction is completely or partially omitted from accounting records. Example: Credit sales of Rs. 5,000 are not recorded in the books.
Error of commission: An error caused by incorrect recording, posting, calculation or balancing of transactions. Example: Rs. 4,000 received from Ram is posted to Shyam’s account.
5. Any four errors disclosed by the trial balance.
- (i) Posting an amount only on the debit side.
- (ii) Posting an amount only on the credit side.
- (iii) Posting different amounts on the debit and credit sides.
- (iv) Incorrect totaling or balancing of ledger accounts.
6. Two-sided error with three examples.
A two-sided error is an accounting error that affects both the debit and credit aspects of a transaction. It generally does not disturb the agreement of the trial balance.
Examples:
- (i) Complete omission of a credit purchase.
- (ii) Purchase of furniture recorded as purchases.
- (iii) Credit sales recorded in the wrong customer’s account.
7. Differences between one-sided and two-sided errors.
- (i) One-sided errors affect only one side of accounting records, whereas two-sided errors affect both sides.
- (ii) One-sided errors generally cause disagreement in the trial balance, whereas two-sided errors generally do not.
- (iii) One-sided errors may require a suspense account for correction, whereas two-sided errors generally do not.
- (iv) Example of one-sided error: Failure to post an amount to a ledger account. Example of two-sided error: Complete omission of a transaction.
8. Suspense account and reasons for its preparation.
A suspense account is a temporary account opened to record the difference in a trial balance when the debit and credit totals do not agree.
Reasons:
- (i) To temporarily balance the trial balance.
- (ii) To facilitate the preparation of financial statements.
- (iii) To help identify and rectify accounting errors.
- (iv) To close the difference after correcting all relevant errors.
9. Errors of duplication with example.
An error of duplication occurs when the same transaction is recorded twice in the books of accounts.
Example: Goods purchased for Rs. 8,000 are recorded twice in the purchases book and posted twice to the ledger.
Such errors overstate the relevant accounts and generally do not affect trial balance agreement.
Chapter 7: Final Account
Short Answer Questions
1. Meaning and components of final accounts.
Final accounts are financial statements prepared at the end of an accounting period to determine the profit or loss and financial position of a business.
Major components:
- (i) Trading account: Determines gross profit or gross loss.
- (ii) Profit and loss account: Determines net profit or net loss.
- (iii) Balance sheet: Shows assets, liabilities and capital.
These statements help owners and other users evaluate business performance.
2. Profit and loss account and reasons for preparation.
A profit and loss account is an account prepared to calculate the net profit or net loss of a business during an accounting period.
Objectives:
- (i) To determine net profit or net loss.
- (ii) To record indirect expenses and incomes.
- (iii) To evaluate operating efficiency.
- (iv) To provide information for financial planning and decision-making.
3. Differences between gross profit and net profit.
- (i) Gross profit is the excess of net sales over the cost of goods sold, whereas net profit is the remaining profit after adjusting indirect expenses and incomes.
- (ii) Gross profit is calculated in the trading account, whereas net profit is calculated in the profit and loss account.
- (iii) Gross profit reflects trading performance, whereas net profit reflects overall profitability.
- (iv) Gross profit = Net sales − Cost of goods sold. Net profit = Gross profit + Other incomes − Indirect expenses.
4. Prepaid expense and its adjustment in final accounts.
A prepaid expense is an expense paid in advance for a future accounting period.
Adjustments:
- (i) Deduct the prepaid amount from the related expense in the profit and loss account.
- (ii) Show the prepaid amount under current assets in the balance sheet.
Example: If insurance paid is Rs. 12,000 and Rs. 3,000 relates to next year, Rs. 9,000 is charged as insurance expense and Rs. 3,000 is shown as a current asset.
5. Accounting treatment of depreciation, outstanding expenses and accrued income.
- (i) Depreciation: Charged to the profit and loss account and deducted from the related fixed asset in the balance sheet.
- (ii) Outstanding expenses: Added to the related expense in the profit and loss account and shown as current liabilities.
- (iii) Accrued income: Added to the related income in the profit and loss account and shown as current assets.
These adjustments ensure that income and expenses relate to the correct accounting period.
6. Balance sheet and its preparation.
A balance sheet is a financial statement showing the assets, liabilities and owner’s equity of a business on a particular date.
Preparation:
- (i) Determine the closing balances of assets and liabilities.
- (ii) Adjust capital with net profit, net loss and drawings.
- (iii) Record assets under appropriate headings.
- (iv) Record liabilities and capital under appropriate headings.
- (v) Ensure Assets = Liabilities + Capital.
7. Objectives of a balance sheet.
- (i) To determine the financial position of a business.
- (ii) To show the value of assets, liabilities and capital.
- (iii) To evaluate liquidity and solvency.
- (iv) To help owners, creditors and investors make financial decisions.
- (v) To compare the financial position of different accounting periods.
Chapter 8: Government Accounting System of Nepal
Short Answer Questions
1. Short note on government accounting system of Nepal.
The government accounting system of Nepal is a systematic process of recording, classifying, summarizing and reporting government financial transactions.
Its major features are:
- (i) It follows government laws, regulations and prescribed procedures.
- (ii) It maintains records of public revenue, expenditure and funds.
- (iii) It uses approved budget classifications and accounting forms.
- (iv) It promotes transparency, financial control and accountability.
- (v) It supports financial reporting and auditing.
2. Central-level and operating-level accounting with major documents.
Central-level accounting is maintained by central government accounting authorities to consolidate financial information from subordinate offices. Its documents include consolidated financial statements, budget reports and revenue and expenditure summaries.
Operating-level accounting is maintained by government offices that directly collect revenue or make expenditures. Its documents include journal vouchers, bank cash books, budget ledgers, revenue records and statements of expenditure.
Central-level accounting provides consolidated information, whereas operating-level accounting records individual transactions.
3. Major bases of government accounting in Nepal.
- (i) Cash basis: Transactions are generally recognized when cash is received or paid under the traditional cash-based system.
- (ii) Budgetary basis: Expenditures are controlled according to approved budget allocations.
- (iii) Legal basis: Transactions must comply with financial laws, regulations and government instructions.
- (iv) Classification basis: Revenue and expenditure are recorded using prescribed codes and headings.
- (v) Reporting basis: Financial information is prepared in prescribed formats for accountability and auditing.
Nepal also uses accounting reforms and standards that may require additional disclosures and reporting.
4. Types of forms used in government accounting.
- (i) Revenue accounting forms.
- (ii) Expenditure accounting forms.
- (iii) Journal voucher forms.
- (iv) Bank cash book forms.
- (v) Budget ledger forms.
- (vi) Store accounting forms.
- (vii) Advance and deposit accounting forms.
- (viii) Financial reporting forms.
These forms help maintain uniform government accounting records.
5. Types of chart of accounts of Government of Nepal.
The major classifications include:
- (i) Revenue classification.
- (ii) Expenditure classification.
- (iii) Financing classification.
- (iv) Assets and liabilities classification.
- (v) Functional classification.
These classifications are used to identify, record and report government financial transactions systematically.
6. Fund accounting.
Fund accounting is a system in which financial resources are recorded and controlled separately according to their specific purposes and legal restrictions.
Its major features are:
- (i) Separate records are maintained for different funds.
- (ii) Money is used only for authorized purposes.
- (iii) Receipts, payments and balances are monitored.
- (iv) It supports transparency and accountability.
Example: A government fund established for a specific development programme.
7. Main areas or scopes of government accounting in Nepal.
- (i) Revenue accounting: Recording government income from taxes and other sources.
- (ii) Expenditure accounting: Recording payments made under approved budgets.
- (iii) Fund accounting: Managing government funds and financial resources.
- (iv) Store accounting: Recording government materials and properties.
- (v) Deposit and advance accounting: Controlling deposits, advances and their settlement.
- (vi) Financial reporting and auditing: Preparing statements and verifying financial transactions.
8. Objectives of TSA.
TSA stands for Treasury Single Account. It is an arrangement for managing government cash through a unified treasury banking structure.
Objectives:
- (i) To centralize government cash management.
- (ii) To minimize idle balances in different bank accounts.
- (iii) To improve control over government receipts and payments.
- (iv) To ensure timely and efficient payments.
- (v) To strengthen transparency and financial reporting.
- (vi) To improve cash forecasting and budget execution.
Chapter 9: Revenue Accounting
Short Answer Questions
1. Major classification of revenue.
Government revenue can be classified into:
- (i) Tax revenue: Compulsory payments collected by the government, such as income tax, VAT and customs duties.
- (ii) Non-tax revenue: Income from fees, fines, service charges, royalties and government property.
- (iii) Grants: Financial assistance received from domestic or foreign sources, generally reported separately from revenue under government classifications.
Revenue is also classified into specific headings and subheadings according to the government chart of accounts.
2. Major forms used in revenue accounting.
- (i) Revenue receipt: Evidence of money received from a payer.
- (ii) Revenue voucher or slip: Document used for depositing government revenue into a bank.
- (iii) Revenue cash book: Records revenue receipts and deposits.
- (iv) Revenue ledger: Classifies revenue according to prescribed headings.
- (v) Revenue bank reconciliation statement: Reconciles revenue records with bank records.
- (vi) Revenue statement: Summarizes revenue collection for reporting.
The prescribed form names and numbers depend on the applicable government accounting manual.
3. Revenue bank reconciliation statement and its purpose.
A revenue bank reconciliation statement is prepared to reconcile revenue recorded in government accounting books with revenue shown in the bank statement.
Purposes:
- (i) To identify differences between bank and office records.
- (ii) To detect omissions and incorrect entries.
- (iii) To verify deposits and bank transactions.
- (iv) To ensure accuracy of revenue balances.
- (v) To support financial control and auditing.
4. Banking management of revenue accounting.
Banking management of revenue accounting refers to collecting, depositing, controlling and reporting government revenue through authorized banking channels.
Major procedures:
- (i) Revenue is collected using approved methods.
- (ii) Collected revenue is deposited in designated government accounts.
- (iii) Bank deposit evidence is maintained.
- (iv) Revenue is classified under correct headings.
- (v) Bank records are reconciled with accounting records.
- (vi) Collection and deposit reports are submitted to concerned authorities.
5. Major reporting provisions of revenue accounting.
- (i) Revenue collection must be recorded under prescribed headings.
- (ii) Periodic revenue statements are prepared.
- (iii) Actual collection is compared with revenue estimates.
- (iv) Bank deposits and accounting balances are reconciled.
- (v) Reports are submitted to authorized treasury and government offices.
- (vi) Supporting receipts, vouchers and records are preserved for auditing.
6. Preparation of a revenue slip.
As an accountant, I would prepare a revenue slip using these steps:
- (i) Enter the name and details of the concerned office.
- (ii) Mention the date and revenue account details.
- (iii) Enter the payer’s name and purpose of payment.
- (iv) Write the correct revenue heading or code.
- (v) Enter the amount in figures and words.
- (vi) Verify the details and obtain required authorization.
- (vii) Deposit the amount through the authorized bank or electronic system and preserve the receipt.
Chapter 10: Expenditure Accounting
Very Short Answer Questions
1. Introduce expenditure accounting.
Expenditure accounting is the systematic recording, classification and reporting of expenses incurred by government offices.
2. Write any two uses of expenditure accounting.
It helps control expenditure within the approved budget and provides financial information for reporting and auditing.
3. Define charged expenditure.
Charged expenditure is expenditure charged directly to the concerned consolidated fund under constitutional or legal provisions without requiring the ordinary annual vote of the legislature.
4. Meaning of votable expenditure.
Votable expenditure is government expenditure that requires approval through voting by the concerned legislature.
5. Meaning of recurrent expenditure.
Recurrent expenditure is expenditure incurred regularly for day-to-day government operations, such as salaries, rent and utilities.
6. Short note on capital expenditure.
Capital expenditure is spending on the acquisition or construction of long-term assets, such as buildings, roads and machinery.
7. Define financial expenditure.
Financial expenditure refers to government financial transactions such as loan investment, share investment and repayment of loan principal, as classified in the budget.
8. Major forms used in expenditure accounting.
Major forms include journal vouchers, bank cash books, budget ledgers, payment orders and statements of expenditure.
9. Budget sub-head numbers for employee remuneration and furniture and fixtures.
Employee remuneration: 21111; Furniture and fixtures (capital purchase): 31123.
10. Budget sub-head numbers for house rent and purchase of machinery and tools.
House rent: 28142; Purchase of machinery and tools: 31122.
Chapter 11: Journal Voucher
Short Answer Questions
1. Payment order and why it is prepared.
A payment order is an authorized instruction directing payment of a specified amount to a person or institution.
Purposes:
- (i) To authorize payment.
- (ii) To verify supporting documents.
- (iii) To ensure payment is made under an approved budget.
- (iv) To maintain evidence of government expenditure.
- (v) To strengthen financial control.
2. Rules of debit and credit while preparing journal vouchers.
- (i) Personal account: Debit the receiver and credit the giver.
- (ii) Real account: Debit what comes in and credit what goes out.
- (iii) Nominal account: Debit expenses and losses and credit incomes and gains.
- (iv) In government accounting, follow the prescribed account codes and debit-credit rules for budget, bank, advance and other transactions.
- (v) The total debit amount must equal the total credit amount.
3. Journal voucher for budget expenditure and its preparation.
A journal voucher for budget expenditure is prepared to record payments made from an approved budget.
Preparation:
- (i) Identify the expenditure transaction.
- (ii) Check the approved budget and supporting documents.
- (iii) Debit the appropriate expenditure account.
- (iv) Credit the relevant bank, cash or payable account.
- (v) Record the amount, date, voucher number and narration.
- (vi) Obtain authorization and post the transaction to the concerned records.
4. Journal voucher for advance transactions.
A journal voucher for advance transactions records advances given to employees, suppliers or other parties and their settlement.
Preparation:
- (i) When an advance is paid, debit the advance account and credit bank or cash.
- (ii) When the advance is settled, debit the appropriate expenditure or asset account and credit the advance account.
- (iii) Any refunded balance is recorded by debiting bank or cash and crediting the advance account.
- (iv) Supporting bills and documents are verified and attached.
5. Transactions recorded under miscellaneous journal vouchers.
- (i) Correction of accounting errors.
- (ii) Adjustment of previous entries.
- (iii) Transfer of amounts between accounts.
- (iv) Settlement or adjustment of advances.
- (v) Adjustment of deposits and liabilities.
- (vi) Other non-routine transactions that require journal entries.
6. Individual and subsidiary accounts.
Individual account: An account maintained separately for a particular person, institution or transaction. It helps determine the balance relating to that party.
Subsidiary account: A detailed supporting account maintained under a main or control account.
Importance:
- (i) Provides detailed financial information.
- (ii) Helps track individual balances.
- (iii) Supports reconciliation with control accounts.
- (iv) Facilitates financial control and auditing.
7. Types of journal vouchers.
In the conventional government accounting syllabus, journal vouchers are generally studied in three major categories:
- (i) Budget expenditure journal voucher: Records transactions relating to approved budget expenditure.
- (ii) Advance journal voucher: Records advances and their settlements.
- (iii) Miscellaneous journal voucher: Records adjustments, corrections, transfers and other miscellaneous transactions.
All vouchers must contain supporting documents and authorization.
8. Types of miscellaneous journal vouchers.
Common miscellaneous journal vouchers include:
- (i) Rectification voucher: Corrects accounting errors.
- (ii) Adjustment voucher: Records required accounting adjustments.
- (iii) Transfer voucher: Transfers amounts from one account to another.
- (iv) Settlement voucher: Adjusts or settles outstanding balances.
The classification may differ according to the prescribed accounting system.
Chapter 12: Bank Cash Book
Short Answer Questions
1. Bank cash book and why it is prepared.
A bank cash book is a government accounting record used to record bank and cash transactions along with related budget expenditure and advance information.
It is prepared:
- (i) To maintain records of receipts and payments.
- (ii) To determine bank and cash balances.
- (iii) To control budget expenditure.
- (iv) To monitor advances and their settlement.
- (v) To provide information for reporting and auditing.
2. Importance of bank cash book.
- (i) Maintains systematic records of financial transactions.
- (ii) Helps determine available bank and cash balances.
- (iii) Supports control over budget expenditure.
- (iv) Provides information about advances and settlements.
- (v) Facilitates preparation of financial statements.
- (vi) Helps detect errors and irregularities.
3. Considerations while preparing a bank cash book.
- (i) Record transactions chronologically.
- (ii) Use the correct voucher number and date.
- (iii) Enter amounts under appropriate account columns.
- (iv) Follow prescribed debit and credit rules.
- (v) Ensure entries are supported by authorized documents.
- (vi) Calculate totals and balances correctly.
- (vii) Reconcile bank records regularly.
4. Accounts used for different purposes in a bank cash book.
- (i) Bank account: Records transactions through the bank.
- (ii) Cash account: Records cash receipts and payments.
- (iii) Budget expenditure account: Records expenditure against approved budget headings.
- (iv) Advance account: Records advances paid and settled.
- (v) Miscellaneous account: Records transactions not covered by regular budget expenditure and advance columns.
- (vi) Budget release account: Records funds released or made available for expenditure.
The exact column titles depend on the prescribed bank cash book format.
5. Six accounts used in a bank cash book.
- (i) Bank account: Shows receipts, payments and bank balance.
- (ii) Cash account: Shows cash received, paid and remaining.
- (iii) Budget expenditure account: Records government spending under approved budget headings.
- (iv) Advance account: Records advance payments and settlements.
- (v) Miscellaneous account: Records other financial transactions and adjustments.
- (vi) Budget release account: Records budget funds released for government operations.
These accounts help monitor government financial transactions systematically.
Chapter 13: Budget Ledger
Short Answer Questions
1. Budget ledger and its importance.
A budget ledger is a government accounting record used to maintain details of approved budgets, expenditure and remaining balances under different budget headings.
Importance:
- (i) Controls expenditure within budget limits.
- (ii) Provides heading-wise expenditure information.
- (iii) Shows remaining budget balances.
- (iv) Supports financial reporting and auditing.
- (v) Helps prepare future budgets.
2. Objectives of preparing a budget ledger.
- (i) To record the approved budget under each heading.
- (ii) To maintain details of expenditure.
- (iii) To calculate unspent budget balances.
- (iv) To prevent unauthorized or excess expenditure.
- (v) To support preparation of expenditure statements.
- (vi) To promote financial discipline and accountability.
3. Parts of a budget ledger.
A budget ledger generally contains:
- (i) Heading section: Name of office, fiscal year and budget heading.
- (ii) Budget section: Original budget, additional budget and adjustments.
- (iii) Expenditure section: Date, voucher number, particulars and expenditure amount.
- (iv) Balance section: Remaining budget available for expenditure.
- (v) Other relevant sections: Commitments, advances or remarks where prescribed.
4. Transactions recorded in different parts of a budget ledger.
- (i) Budget section: Original allocation, supplementary allocation and budget transfers.
- (ii) Expenditure section: Actual expenses under the concerned budget heading.
- (iii) Adjustment section: Corrections, refunds and authorized changes.
- (iv) Balance section: Unspent budget after deducting expenditure.
- (v) Remarks section: Important explanations or references.
These records help ensure that expenditure remains within the authorized budget.
Chapter 14: Statement of Expenditure
Short Answer Questions
1. Statement of expenditure and why it is prepared.
A statement of expenditure is a financial report showing the budget allocation, actual expenditure and remaining budget under different expenditure headings for a particular period.
Purposes:
- (i) To report government expenditure.
- (ii) To compare expenditure with approved budgets.
- (iii) To determine remaining budget balances.
- (iv) To support financial control and decision-making.
- (v) To provide information for auditing and higher authorities.
2. Columns of a statement of expenditure.
The number of columns depends on the prescribed form and version. A commonly taught detailed format uses eleven main columns:
- (i) Serial number.
- (ii) Budget heading or code.
- (iii) Particulars.
- (iv) Annual budget.
- (v) Budget release.
- (vi) Expenditure up to the previous period.
- (vii) Expenditure of the current period.
- (viii) Total expenditure to date.
- (ix) Remaining budget.
- (x) Remaining release or fund balance.
- (xi) Remarks.
The official format used by the concerned office should be followed when preparing the statement.
Chapter 15: Store Accounting
Short Answer Questions
1. Importance of store accounting.
- (i) Maintains accurate records of government materials and goods.
- (ii) Prevents misuse, loss and theft of store items.
- (iii) Helps determine stock quantities and values.
- (iv) Ensures timely purchase and issue of materials.
- (v) Supports physical verification and auditing.
- (vi) Promotes economical use of government resources.
2. Major forms used in store accounting.
- (i) Purchase or requisition form: Used to request required materials.
- (ii) Goods receipt or inspection form: Records materials received and verified.
- (iii) Store entry form: Records items entered into the store.
- (iv) Store issue form: Authorizes and records materials issued.
- (v) Store ledger: Maintains item-wise receipt, issue and balance records.
- (vi) Physical verification report: Records the results of stock inspection.
Government offices use prescribed store forms and their applicable form numbers.
3. Durable and non-durable store ledger.
Durable store ledger:
It records long-lasting materials such as furniture, computers and machinery. It maintains details of receipt, issue, location, condition and balance of durable goods.
Non-durable store ledger:
It records consumable materials such as stationery, paper, ink and cleaning supplies. It maintains details of receipts, consumption and remaining stock.
Both ledgers support store control, verification and accountability.
4. Uses of store accounting.
- (i) To record the purchase and receipt of materials.
- (ii) To control the issue and consumption of goods.
- (iii) To determine stock balances.
- (iv) To prevent unnecessary purchases and wastage.
- (v) To safeguard government property.
- (vi) To provide reliable information for stock verification and auditing.
Chapter 16: Fund Accounting and Retention Account
Short Answer Questions
1. Major aspects of government fund accounting.
- (i) Fund identification: Identifying different government funds.
- (ii) Fund collection: Recording money received from authorized sources.
- (iii) Fund utilization: Spending money for approved purposes.
- (iv) Fund control: Ensuring compliance with legal and budgetary restrictions.
- (v) Fund reporting: Preparing statements of receipts, payments and balances.
- (vi) Fund auditing: Verifying proper use of public resources.
2. Need and use of divisible fund.
A divisible fund is a government fund used to collect and distribute revenue that must be shared among different levels of government.
Need and uses:
- (i) To collect shareable revenue systematically.
- (ii) To distribute revenue according to legal provisions.
- (iii) To maintain transparent records of revenue sharing.
- (iv) To support financial coordination among governments.
- (v) To ensure timely transfer of the concerned government’s share.
3. Major headings of revenue allocation.
The major revenue-sharing headings in Nepal include:
- (i) Value Added Tax (VAT) sharing.
- (ii) Domestic excise duty sharing.
- (iii) Natural resource royalty sharing.
- (iv) Other revenue-sharing headings provided by law.
Revenue distribution among federal, provincial and local governments follows the applicable legal provisions and prescribed accounts.
4. Major purposes of retention accounting.
Retention accounting records and controls amounts withheld from payments until specified contractual or legal conditions are fulfilled.
Purposes:
- (i) To maintain records of retained amounts.
- (ii) To ensure fulfillment of contractual obligations.
- (iii) To safeguard government financial interests.
- (iv) To facilitate refund or adjustment of retention money.
- (v) To support transparency and auditing.
5. Procedures of retention accounting.
- (i) Determine the retention amount according to the agreement.
- (ii) Deduct the authorized amount from the payment.
- (iii) Record the deduction in the relevant retention or deposit account.
- (iv) Maintain individual records of retained amounts.
- (v) Verify fulfillment of the required conditions.
- (vi) Refund or adjust the retention amount after approval.
- (vii) Report outstanding balances in the financial statements.
6. Methods of fund accounting.
The commonly discussed methods include:
- (i) Cash basis: Records fund receipts and payments when cash is received or paid.
- (ii) Accrual basis: Records financial events when they occur, regardless of cash movement.
- (iii) Modified accrual basis: Recognizes revenues when measurable and available and expenditures according to applicable recognition rules.
Government accounting applies the method prescribed by the relevant laws and standards.
7. Major provisions of financial statements of retention.
A retention statement should generally show:
- (i) Opening retention balance.
- (ii) Retention amounts deducted during the period.
- (iii) Retention amounts refunded or adjusted.
- (iv) Closing retention balance.
- (v) Individual or contract-wise outstanding amounts.
- (vi) Supporting details and reconciliation.
These provisions support proper control and verification of retention liabilities.
8. Consolidated fund operation in Nepal.
A consolidated fund is the principal government fund into which designated government revenues, loans and other legally specified receipts are deposited.
Its operation includes:
- (i) Collection of government revenue and other authorized receipts.
- (ii) Deposit into the concerned consolidated fund.
- (iii) Withdrawal according to constitutional and legal provisions.
- (iv) Payment of approved government expenditure.
- (v) Maintenance of accounting records and financial statements.
- (vi) Auditing and reporting for public accountability.
Nepal has consolidated funds at the federal, provincial and local levels.
Chapter 17: Internal Control and Auditing
Short Answer Questions
1. Internal control and four features.
Internal control is a system of policies, procedures and activities adopted by an organization to safeguard assets, ensure accurate records and achieve organizational objectives.
Features:
- (i) Proper division of duties and responsibilities.
- (ii) Authorization and approval of transactions.
- (iii) Protection of cash, property and other assets.
- (iv) Regular verification, supervision and monitoring.
2. Auditing and its features.
Auditing is the systematic and independent examination of financial records, transactions and statements to evaluate their accuracy and compliance with applicable rules.
Features:
- (i) Systematic examination of records.
- (ii) Verification of supporting evidence.
- (iii) Evaluation of compliance with laws and standards.
- (iv) Independent and objective assessment.
- (v) Reporting of findings and recommendations.
3. Necessity of auditing in government accounting.
- (i) To verify the proper use of public funds.
- (ii) To detect errors, irregularities and misuse.
- (iii) To ensure compliance with financial laws.
- (iv) To examine the reliability of financial statements.
- (v) To promote transparency and accountability.
- (vi) To recommend improvements in financial management.
4. Meaning and nature of internal auditing.
Internal auditing is an independent evaluation activity carried out within an organization or government system to examine financial transactions, internal controls and compliance.
Nature:
- (i) It is conducted periodically.
- (ii) It evaluates financial and operational activities.
- (iii) It examines compliance with rules and procedures.
- (iv) It identifies weaknesses and recommends improvements.
- (v) It supports management in strengthening internal control.
5. Differences between internal auditing and final auditing.
- (i) Internal auditing is performed within the internal audit framework, whereas final auditing is performed by an external constitutional or statutory audit authority.
- (ii) Internal auditing is generally periodic, whereas final auditing is conducted after the relevant financial period.
- (iii) Internal auditing emphasizes control and improvement, whereas final auditing provides independent assurance and accountability.
- (iv) Internal audit reports are used for internal corrective action, whereas final audit reports are submitted to legally designated authorities.
- (v) In Nepal, the Office of the Auditor General conducts the final audit of government accounts.
6. Final audit and reasons for conducting it.
Final audit is the independent examination of financial statements and transactions after the end of the financial year by an authorized external auditor.
Reasons:
- (i) To verify the reliability of financial statements.
- (ii) To examine compliance with financial laws.
- (iii) To identify errors and irregularities.
- (iv) To ensure accountability for public resources.
- (v) To provide audit findings and recommendations.
In Nepal, the Office of the Auditor General is responsible for the final audit of government accounts.
7. Basic principles of audit.
- (i) Independence: Auditors should remain free from improper influence.
- (ii) Objectivity: Findings should be based on facts and evidence.
- (iii) Integrity: Auditors should be honest and ethical.
- (iv) Confidentiality: Sensitive information should be protected.
- (v) Professional competence: Auditors should possess appropriate knowledge and skills.
- (vi) Sufficient evidence: Conclusions should be supported by reliable evidence.
- (vii) Proper reporting: Findings should be communicated clearly and accurately.
8. Why auditing is compulsory in government and business offices.
- (i) Accuracy: It verifies the correctness and reliability of financial records.
- (ii) Fraud prevention: It helps identify irregularities and misuse of resources.
- (iii) Legal compliance: It checks whether applicable financial rules are followed.
- (iv) Accountability: It increases confidence among stakeholders and promotes responsible financial management.
Auditing also supports better planning and internal control.
Chapter 18: Agencies Involved in Government Accounting System in Nepal
Short Answer Questions
1. Any five functions of the Ministry of Finance.
- (i) Prepares and presents the federal government’s annual budget.
- (ii) Formulates fiscal and financial policies.
- (iii) Manages government revenue and expenditure policies.
- (iv) Coordinates public debt and government financial resources.
- (v) Monitors budget implementation and financial performance.
- (vi) Coordinates financial matters with other government bodies.
2. Office of the Auditor General: introduction, rights, duties and functions.
The Office of the Auditor General is Nepal’s constitutional supreme audit institution responsible for the final audit of government accounts.
Functions:
- (i) Audits accounts of government bodies within its constitutional jurisdiction.
- (ii) Examines regularity, economy, efficiency, effectiveness and propriety.
- (iii) Identifies financial irregularities and weaknesses.
- (iv) Issues audit observations and recommendations.
- (v) Submits its annual report according to constitutional provisions.
- (vi) Promotes transparency and accountability in public financial management.
3. Rights, duties and functions of the Financial Comptroller General Office.
The Financial Comptroller General Office (FCGO) is a central government agency responsible for treasury management, government accounting and financial reporting.
Functions:
- (i) Manages the federal treasury and government accounting arrangements.
- (ii) Maintains and consolidates government financial records.
- (iii) Implements government accounting procedures and systems.
- (iv) Supports operation of the Treasury Single Account.
- (v) Prepares consolidated financial reports.
- (vi) Coordinates and supervises treasury-related activities and financial controls.
4. Rights, duties and functions of the Treasury Controller Office.
A Treasury Controller Office is a government treasury office responsible for implementing prescribed treasury and accounting functions in its jurisdiction.
Functions:
- (i) Facilitates authorized government payments.
- (ii) Maintains treasury-related financial records.
- (iii) Supports budget release and expenditure control.
- (iv) Monitors government financial transactions.
- (v) Prepares and submits prescribed financial reports.
- (vi) Supports reconciliation and compliance with treasury procedures.
5. Province Finance Comptroller: introduction and functions.
The Province Finance Comptroller is a provincial government financial authority concerned with treasury operations, accounting and financial reporting.
Functions:
- (i) Maintains provincial government financial records.
- (ii) Supports provincial treasury operations.
- (iii) Monitors provincial budget execution.
- (iv) Prepares and consolidates financial statements.
- (v) Coordinates with provincial offices on accounting matters.
- (vi) Supports financial control and reporting.
6. Province Ministry of Economic Affairs and Planning and four functions.
The Province Ministry of Economic Affairs and Planning is a provincial government ministry responsible for provincial economic, fiscal and budgetary matters.
Major functions:
- (i) Prepares and presents the provincial annual budget.
- (ii) Formulates provincial economic and fiscal policies.
- (iii) Coordinates resource allocation and development planning.
- (iv) Monitors provincial revenue and expenditure.
- (v) Coordinates provincial financial management and fiscal reporting.
7. Other institutions involved in government accounting.
- (i) Nepal Rastra Bank: Acts as banker and financial adviser to the government and supports government banking arrangements.
- (ii) Commercial banks: Provide authorized government collection and payment services.
- (iii) Inland Revenue Department: Administers major domestic taxes.
- (iv) Department of Customs: Administers customs revenue.
- (v) Public Accounts Committee: Examines audit reports and public financial accountability matters.
- (vi) National Natural Resources and Fiscal Commission: Recommends fiscal transfers and revenue-sharing arrangements according to constitutional and legal provisions.
8. Banking arrangement of government financial transactions.
Government banking arrangement refers to the system used to collect, hold, transfer and pay government money through authorized banks.
Major features:
- (i) Nepal Rastra Bank performs central banking functions for the government.
- (ii) Authorized commercial banks provide collection and payment services.
- (iii) Treasury Single Account arrangements support centralized cash management.
- (iv) Government revenue is deposited in designated accounts.
- (v) Payments are made according to approved procedures.
- (vi) Bank records are reconciled with government accounting records.
Chapter 19: Use of Information Technology in Office Operation and Accounting
Short Answer Questions
1. Usefulness of computer technology in office operation.
- (i) Speed: Computers process information quickly.
- (ii) Accuracy: They reduce calculation and recording errors.
- (iii) Storage: Large amounts of information can be stored.
- (iv) Communication: Email and online systems improve information sharing.
- (v) Efficiency: Routine office activities can be automated.
- (vi) Reporting: Documents and reports can be prepared conveniently.
2. Different packages used in office operation.
- (i) Word processing packages: Used to prepare letters, reports and documents. Example: Microsoft Word.
- (ii) Spreadsheet packages: Used for calculations, tables and analysis. Example: Microsoft Excel.
- (iii) Presentation packages: Used to prepare slides. Example: Microsoft PowerPoint.
- (iv) Database packages: Used to store and manage organized data. Example: Microsoft Access.
- (v) Accounting packages: Used to record transactions and prepare accounts. Example: Tally.
- (vi) Communication packages: Used for email, meetings and information sharing.
3. Database and its uses.
A database is an organized collection of related information stored electronically for easy access, management and updating.
Uses:
- (i) Stores large quantities of information.
- (ii) Allows quick searching and retrieval.
- (iii) Reduces unnecessary duplication of data.
- (iv) Helps update and organize records.
- (v) Supports report preparation and decision-making.
- (vi) Improves information security through access controls.
4. Information technology systems used in Nepal government accounting.
Major systems include:
- (i) CGAS: Computerized Government Accounting System used for government accounting.
- (ii) TSA: Treasury Single Account system for government cash and payment management.
- (iii) RMIS: Revenue Management Information System for revenue information.
- (iv) SuTRA: Sub-National Treasury Regulatory Application used in local-level financial management.
- (v) LMBIS: Line Ministry Budget Information System used in federal budget preparation and management.
These systems improve recording, control and reporting.
5. Information technology systems used in Nepal’s government accounting.
- (i) CGAS: Helps record and report government financial transactions.
- (ii) TSA: Supports centralized treasury operations.
- (iii) RMIS: Supports recording and monitoring of government revenue.
- (iv) SuTRA: Supports local government budgeting, accounting and reporting.
- (v) LMBIS: Supports preparation and management of federal budget information.
- (vi) P-LMBIS: Supports provincial budget information management.
These systems promote efficiency, transparency and accountability.
6. Information technology systems used in business accounting.
- (i) Tally: Records business transactions and prepares financial reports.
- (ii) QuickBooks: Supports bookkeeping, invoicing and reporting.
- (iii) ERP systems: Integrate accounting, inventory, purchasing and other business functions.
- (iv) Spreadsheet software: Performs calculations and financial analysis.
- (v) Database systems: Store customer, supplier and transaction information.
- (vi) Cloud accounting systems: Enable authorized online access to accounting information.
7. Advantages and disadvantages of information technology.
Advantages:
- (i) Saves time and increases efficiency.
- (ii) Improves accuracy and data processing.
- (iii) Provides convenient storage and retrieval.
- (iv) Improves communication and reporting.
Disadvantages:
- (i) Requires installation and maintenance costs.
- (ii) Creates risks of cyberattacks and data loss.
- (iii) Requires technical knowledge and training.
- (iv) Depends on electricity, devices and network availability.
8. Need for information technology in government accounting.
- (i) To record large numbers of government transactions efficiently.
- (ii) To reduce manual errors and improve accuracy.
- (iii) To strengthen budget and expenditure control.
- (iv) To provide timely financial reports.
- (v) To improve transparency and accountability.
- (vi) To support revenue collection and treasury management.
- (vii) To make financial information accessible to authorized offices.
End of Accounting Notes
Chapters 6–19