Accountancy Working Notes: What to Show and Where

You arrive at a goodwill adjustment of Rs. 18,000. You know where it came from. But when you return to the answer ten minutes later, all you can see is a number squeezed beside a journal entry.

Was it the firm’s goodwill, the incoming partner’s share, or one old partner’s compensation?

This is exactly what a good working note prevents. It gives a calculated amount a name, shows how you found it, and connects it to the account where it belongs.

You do not need pages of extra writing. You need a short, readable trail from the question to your final answer. Let’s build that trail for partnership, shares, ratios, and cash flow questions, using original worked examples.

What is a working note in accountancy?

A working note is a supporting calculation or explanation used to prepare the main answer. It may establish a ratio, separate an amount into its components, reconcile opening and closing balances, or explain an adjustment.

For example, the main journal might credit a partner’s capital account by Rs. 18,000. The linked note explains that this is the partner’s share of a goodwill premium, calculated using the sacrificing ratio.

A working note supports the required journal, account, statement, or ratio. It does not replace it. If a question asks for journal entries, calculations alone are an incomplete response.

A useful note generally contains four things:

1. A number and descriptive heading, such as WN 2: Goodwill premium distribution.
2. The relevant rule, formula, or opening balance.
3. Substitution of the question’s figures and the result.
4. A clear reference from the main answer to that result.

Not every note needs four separate lines. A simple multiplication may fit comfortably into one.

Where should you write working notes?

A practical layout is to put numbered working notes immediately below the answer they support. For a long question, you can place the notes before the main account if that makes the solution easier to follow. Follow any specific instructions in the question paper or your teacher’s required format.

Treat this as a presentation choice, not a universal rule about page position. What matters is that the reader can find the calculation without searching through unrelated answers.

Use the same question number on a continuation page. Restart working-note numbering for a new question, or use another consistent system. Do not squeeze essential calculations into a margin where figures become difficult to read.

Situation	A practical way to present it
One short ratio calculation	Formula and substitution directly beneath the ratio heading
Several goodwill and capital adjustments	Separate numbered notes, referenced from the accounts
One amount used in two statements	Calculate it once and refer to the same note twice
Missing cash payment derived from balances	A reconciliation or ledger account, with a named result
A figure supplied directly in the question	Transfer it accurately; add a note only if its treatment needs explaining

WN simply means working note. It is a convenient label, not an accounting entry.

Do not use the journal’s L.F. column for working-note numbers. Ledger folio has its own purpose. Put a brief reference with the relevant description, in the narration, or beside the statement line without changing the required account format.

Partnership: separate the ratios before calculating the money

Partnership questions often contain several ratios that serve different purposes. A note headed only “Ratio” can hide the very mistake you need to avoid.

Use precise headings: old profit-sharing ratio, new profit-sharing ratio, sacrificing ratio, or gaining ratio. For admission, sacrifice is each old partner’s old share less their new share. The NCERT chapter on admission of a partner explains this calculation and the allocation of goodwill compensation.

Example: unequal old shares but equal sacrifice

Asha and Bharat share profits in the ratio 3:2. Charu joins, and the new ratio of Asha, Bharat, and Charu becomes 5:3:2. Charu brings Rs. 36,000 as goodwill premium in cash. The premium is retained in the business. Assume fluctuating capital accounts.

The question asks for the journal entries relating to the premium.

WN 1: Sacrificing ratio

Asha's sacrifice   = 3/5 - 5/10 = 1/10
Bharat's sacrifice = 2/5 - 3/10 = 1/10

Sacrificing ratio = 1 : 1
Check: Total sacrifice = 2/10 = Charu's new share.

The old ratio is 3:2, but the sacrifice is equal. Writing this note prevents an incorrect 3:2 distribution of the premium.

WN 2: Goodwill premium distribution

Asha's share   = Rs. 36,000 x 1/2 = Rs. 18,000
Bharat's share = Rs. 36,000 x 1/2 = Rs. 18,000
Check: Rs. 18,000 + Rs. 18,000 = Rs. 36,000.

Main answer: journal entries

Particulars	Debit (Rs.)	Credit (Rs.)
Bank A/c Dr.	36,000
To Premium for Goodwill A/c		36,000
Premium for Goodwill A/c Dr.	36,000
To Asha’s Capital A/c		18,000
To Bharat’s Capital A/c		18,000

The first entry records receipt of the premium. The second distributes it in the sacrificing ratio, as calculated in WN 1 and WN 2.

No withdrawal entry is needed because the question says the premium is retained. Under the fixed capital method, the relevant adjustment would ordinarily go through partners’ current accounts instead. State or follow the method given in the question.

What if the question also asks for capital adjustment?

Add another note after making the relevant reserve, revaluation, and goodwill adjustments:

Required capital - adjusted existing capital = cash to be brought in, when the result is positive and the question requires cash adjustment.

A negative result represents excess capital to withdraw under that arrangement. Do not compare the required capital with an opening balance that has not yet received the other adjustments.

For more practice with the ratios themselves, use the guide to profit-sharing, sacrificing, and gaining ratios.

Shares: distinguish the forfeited batch from the reissued batch

Share forfeiture questions become much clearer when you keep three quantities separate: shares forfeited, shares reissued, and shares still unreissued.

The transferable surplus relates to the shares that have been reissued. A balance attached to unreissued shares stays in Share Forfeiture Account. This treatment is explained in NCERT’s Accounting for Share Capital chapter.

Example: only some forfeited shares are reissued

A company forfeits 800 shares of Rs. 10 each, fully called up. The shareholder had paid Rs. 7 per share towards capital and failed to pay the final call of Rs. 3. There is no securities premium.

The company reissues 500 of these shares at Rs. 9 each as fully paid. All the forfeited shares belong to this one batch and have the same amount paid on them.

WN 1: Amounts at forfeiture

Called-up share capital = 800 x Rs. 10 = Rs. 8,000
Final call unpaid       = 800 x Rs. 3  = Rs. 2,400
Capital already received = 800 x Rs. 7 = Rs. 5,600
Check: Rs. 8,000 = Rs. 2,400 + Rs. 5,600.

The forfeiture entry debits Share Capital by Rs. 8,000 and credits Share Final Call by Rs. 2,400 and Share Forfeiture by Rs. 5,600. If the unpaid call has already been transferred to Calls in Arrears, credit that account instead of crediting the final call again.

WN 2: Reissue discount

Bank receipt = 500 x Rs. 9 = Rs. 4,500
Capital credited on reissue = 500 x Rs. 10 = Rs. 5,000
Reissue discount = Rs. 5,000 - Rs. 4,500 = Rs. 500

The reissue entry debits Bank by Rs. 4,500 and Share Forfeiture by Rs. 500, and credits Share Capital by Rs. 5,000.

WN 3: Capital reserve and remaining forfeiture balance

Forfeiture amount attached to reissued shares:
500 x Rs. 7 = Rs. 3,500

Capital reserve = Rs. 3,500 - Rs. 500 = Rs. 3,000

Forfeiture amount attached to unreissued shares:
300 x Rs. 7 = Rs. 2,100

Transfer Rs. 3,000 by debiting Share Forfeiture and crediting Capital Reserve. The remaining Rs. 2,100 stays in Share Forfeiture Account.

A useful control equation is:

Rs. 5,600 = Rs. 500 discount + Rs. 3,000 capital reserve + Rs. 2,100 remaining balance.

Why is the note valuable? Without it, you might subtract the Rs. 500 discount from the whole Rs. 5,600 and transfer Rs. 5,100 to capital reserve. That would include Rs. 2,100 relating to shares that have not been reissued.

Ratios: show the components before the division

A ratio can look perfectly neat and still use the wrong denominator. Show how you classified the amounts, then substitute them into the formula.

The NCERT Accounting Ratios chapter distinguishes current assets from quick assets and illustrates missing-figure calculations. When applying a formula, use the definitions required by the question and be alert to separately listed items such as advance tax.

Example: current ratio and quick ratio

A business has the following balances. Assume there are no other current items.

Item	Amount (Rs.)
Inventory	60,000
Trade receivables	90,000
Cash and bank	30,000
Prepaid insurance	20,000
Trade payables	70,000
Outstanding wages	10,000

WN 1: Current assets and current liabilities

Current assets = 60,000 + 90,000 + 30,000 + 20,000
               = Rs. 2,00,000

Current liabilities = 70,000 + 10,000
                    = Rs. 80,000

WN 2: Quick assets

Quick assets = Current assets - Inventory - Prepaid insurance
             = 2,00,000 - 60,000 - 20,000
             = Rs. 1,20,000

Main answer

Current ratio = Rs. 2,00,000 / Rs. 80,000 = 2.5:1.

Quick ratio = Rs. 1,20,000 / Rs. 80,000 = 1.5:1.

The quick ratio is lower because inventory and prepaid insurance are excluded from its numerator. The current liabilities denominator stays Rs. 80,000 in both calculations here.

Missing figures: show the equation, not a guessed amount

Suppose the current ratio is 2.5:1 and working capital is Rs. 90,000.

Let current liabilities = L.
Then current assets = 2.5L.

Working capital = Current assets - Current liabilities
90,000 = 2.5L - L = 1.5L
L = Rs. 60,000
Current assets = 2.5 x 60,000 = Rs. 1,50,000

Check both facts: Rs. 1,50,000 divided by Rs. 60,000 is 2.5, and their difference is Rs. 90,000.

This short algebra note proves that the answer fits both conditions. Merely writing the final current assets and liabilities does not show that connection.

Cash flow: reconcile the movement before calling it cash

Opening and closing balance sheet figures tell you what changed. They do not always tell you how much cash moved.

An asset can change because of purchases, depreciation, disposals, or non-cash transactions. A tax liability can change because of the expense recognised and the payment made. The NCERT Cash Flow Statement chapter uses supporting accounts and working notes to separate these effects.

Example 1: tax expense is different from tax paid

Assume the opening income tax payable is Rs. 24,000, the current year’s tax expense is Rs. 32,000, and closing income tax payable is Rs. 29,000. There are no advance tax balances, refunds, deferred tax movements, or other adjustments.

WN 1: Income tax paid

Opening tax payable + Current tax expense - Tax paid
= Closing tax payable

24,000 + 32,000 - Tax paid = 29,000
Tax paid = Rs. 27,000

If the operating section starts with profit before tax, do not add this Rs. 32,000 expense again. If you start with profit after tax and need to reach profit before tax, add back the tax expense once. The cash payment is a separate figure.

Under the usual operating classification for this example, deduct Rs. 27,000 as income tax paid after cash generated from operations. A tax payment specifically identifiable with investing or financing activity requires the corresponding classification.

Example 2: machinery purchases and disposal proceeds

Opening machinery at carrying amount is Rs. 2,40,000. Closing machinery at carrying amount is Rs. 3,10,000. Depreciation for the year is Rs. 30,000.

During the year, machinery with original cost Rs. 50,000 and accumulated depreciation of Rs. 20,000 is sold for Rs. 25,000. Assume all additions are purchased for cash, with no revaluation or other movements.

WN 2: Carrying amount and loss on disposal

Carrying amount sold = 50,000 - 20,000 = Rs. 30,000
Loss on sale = 30,000 - 25,000 = Rs. 5,000

WN 3: Cash purchase of machinery

Opening carrying amount + Additions
- Carrying amount disposed of - Depreciation
= Closing carrying amount

2,40,000 + Additions - 30,000 - 30,000 = 3,10,000
Additions = Rs. 1,30,000

The two Rs. 30,000 deductions have different meanings. Label them even though their values happen to match.

Now connect the notes to the statement:

Figure established	Where it goes in this example
Depreciation: Rs. 30,000	Added back in the indirect operating reconciliation if deducted in the starting profit
Loss on disposal: Rs. 5,000	Added back in that reconciliation if deducted in the starting profit
Sale proceeds: Rs. 25,000	Investing cash inflow
Machinery purchased for cash: Rs. 1,30,000	Investing cash outflow

The loss is not a separate cash payment. Adding it back in the operating reconciliation and showing the actual sale proceeds under investing serve different purposes.

Also notice the assumption about cash purchases. If part of the machinery was acquired by issuing shares, you would need to separate that non-cash acquisition before reporting the cash outflow.

How much detail is enough?

Show any step that involves choosing an accounting treatment, separating mixed information, or deriving an amount that is not supplied directly.

A multiplication such as 500 shares x Rs. 9 can take one line. A machinery balance containing depreciation and a disposal needs a reconciliation. A sacrificing ratio needs the old and new fractions, not merely its final simplified form.

Do not turn working notes into another copy of the question. A short heading and a clear calculation are usually more useful than a paragraph retelling every fact.

Avoid assuming a fixed number of marks for a particular note. Credit depends on the actual question and marking scheme. Your aim is to make your method visible and keep the final answer complete.

A quick repair exercise

Here are four incomplete workings. Pause before reading the repairs.

1. “Goodwill = Rs. 18,000.”

Repair: name the amount. In our partnership example, write “Asha’s share of goodwill premium = Rs. 36,000 x 1/2 = Rs. 18,000, using WN 1.” It is not the firm’s total goodwill value.

2. “Capital reserve = Rs. 5,600 - Rs. 500.”

Repair: use the forfeiture amount attached to the 500 reissued shares. Capital reserve is Rs. 3,500 - Rs. 500 = Rs. 3,000. Keep Rs. 2,100 for the unreissued shares.

3. “Quick ratio = Rs. 1,40,000 / Rs. 80,000.”

Repair: the numerator has excluded inventory but still includes prepaid insurance. Deduct that Rs. 20,000 too. Quick assets are Rs. 1,20,000, giving 1.5:1.

4. “Machinery purchased = Rs. 3,10,000 - Rs. 2,40,000.”

Repair: the Rs. 70,000 increase is a net movement. Add back the Rs. 30,000 carrying amount disposed of and Rs. 30,000 depreciation to find cash purchases of Rs. 1,30,000 under the stated assumptions.

A final check before you leave the answer

Read your working notes alongside the main answer, rather than checking each in isolation.

• Does every note have a heading that identifies the amount or ratio?
• Have you used the right share, batch, balance, or time period?
• Do amounts transferred to accounts agree with their notes?
• Have you distinguished rupees, shares, percentages, and ratios?
• Have you counted each adjustment once in the appropriate place?
• Does the journal balance, the reconciliation close, or the answer satisfy the original conditions?

If you discover an error, change both the working and every place that uses its result. An amended note with an unchanged final account still leaves an inconsistent answer.

Frequently asked questions

1. Are working notes the same as rough work?

No. Rough work may contain trials and abandoned calculations. Working notes are the selected, organised calculations that support your submitted answer. Keep the final method easy to identify.

2. Must working notes always come after the answer?

Follow any stated instructions. Otherwise, keeping them immediately below the relevant answer is a practical choice, while placing them before a long account can also be clear. Numbering and references matter more than a universal page position.

3. Should I show workings when my final answer is correct?

Show the material steps that establish calculated amounts. A correct total does not explain which ratios, classifications, or adjustments produced it. Clear workings also help you catch mistakes before submitting.

4. Can I put working-note numbers in the L.F. column?

Avoid doing that. L.F. means ledger folio. Keep working-note references with the relevant explanation or narration without repurposing the prescribed columns.

5. Do I need a separate note for every multiplication?

No. A short calculation can sit beside the relevant line when the format permits. Separate notes are most useful for multi-step calculations, accounting choices, and amounts used in more than one place.

6. Which ratio should a goodwill working note use on admission?

Calculate the sacrificing ratio from the facts. Do not automatically copy the old profit-sharing ratio. In the example above, an old ratio of 3:2 produces equal sacrifice because of the new shares agreed.

7. Why separate reissued shares in the capital reserve calculation?

The surplus transferred relates to shares actually reissued. Any forfeiture amount belonging to unreissued shares remains in Share Forfeiture Account until their treatment is determined.

8. Can I use the closing tax provision as tax paid?

Not automatically. Closing tax payable is a liability at a date. Tax paid is a movement during the period. Reconcile opening payable, tax expense, payments, and any other relevant adjustments.

9. Will working notes guarantee marks if the final figure is wrong?

There is no universal guarantee or fixed allowance. The question’s marking scheme determines credit. Showing a clear method makes the work assessable, but you should still check the final figure and complete the required answer.

10. What is the quickest way to improve my working notes?

Replace vague headings such as “Calculation” with names such as “Tax paid” or “Capital reserve on 500 reissued shares.” Then check that the result is copied accurately into the main answer. Those two habits make a noticeable difference without adding much writing.