AccountingQA Latest Questions

Vijay
VijayCurious
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Capital Expenditure Revenue Expenditure Cash Expense Credit Expense

  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution. Revenue expendituresRead more

    The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution.

    Revenue expenditures are the short-term expenses and consumed within one accounting year and are also known as operating expenses.

    Payment of honorarium to the secretary is treated as revenue expenditure because benefits from the expense are derived in the same accounting period. The honorarium is a type of outside expense and any outside expense is revenue in nature. It is a daily allowance incurred to cover the hotel/stay expense.

    Payment of honorarium to the secretary is shown on the Expenditure side of the Income and Expenditure Account.

    Capital Expenditure is the expense incurred on acquiring an asset and honorarium cannot be a capital expenditure as benefits derived from it cannot be carried forward to the next year.

    It cannot be treated as cash or credit expense although it is paid in cash or credit. In this case, it will be treated as a revenue expense while preparing financial statements.

    Payment of honorarium is mainly a topic of not-for-profit organizations.

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Astha
AsthaLeader
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CreditDebitOpening Balance
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Let us begin with a short explanation of what opening balance is: The opening balance is the amount of funds that are bought forward from the end of one accounting period to the beginning of a new accounting period. In a firm’s account, the first entry done is of the opening balance. It can either hRead more

    Let us begin with a short explanation of what opening balance is:

    The opening balance is the amount of funds that are bought forward from the end of one accounting period to the beginning of a new accounting period.

    In a firm’s account, the first entry done is of the opening balance. It can either have a debit balance or a credit balance depending upon whether the firm has a negative or positive balance.

    Opening balance of a ledger

    Opening balance is the first entry of the ledger account at the beginning of an accounting period.

    In the case of a newly started business, there will be no closing balances and as such there will be no balances to be carried forward. In such a case, the investment and capital of the business will be entered as an opening balance for the current accounting period.

    So the first and foremost part is to identify on which side of the ledger i.e. the debit side or the credit side the opening balance is to be entered.

    For Example, A trial balance is given which represents the debit and credit balances, accordingly, I will prepare different ledger accounts to make it simpler.

    The trial balance shows the opening balance of various accounts. Now posting them in ledger accounts.

    As the Furniture is an Asset account, the opening balance will be on the debit side of the ledger account.

    As Sundry creditor is a credit account,  we put the opening balance on the credit side.

    As the Capital is a credit account,  we put the opening balance on the credit side.

    As Wages is a debit account,  we put the opening balance on the debit side.

    As the Discount received is a credit account,  we put the opening balance on the credit side.

    Exception

    Drawing Account.

    Drawing account is an exception to this topic. It is considered a contra account to the owner’s capital account because it reduces the value of the owner’s equity. Drawings, therefore, have no opening balance.

    Contra Entry.

    Contra entry involves transactions of cash and bank. Any entry which involves both the cash and bank is contra entry.

    For example, we deposit cash 5000 into the bank.

    Accounting entry for this transaction would be

    In this case, the ledger entry would be

    As the bank account has a debit balance, the opening balance would come on the debit side.

    As the cash account has a credit balance, the opening balance would come on the credit side.

    Alternatively, If we withdraw cash 5000 from the bank.

    Accounting entry would be

    In this case, the ledger entry would be

    As the Cash account has a debit balance, the opening balance would come on the debit side.

    As the Bank account has a credit balance, the opening balance would come on the credit side.

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Anushka Lalwani
Anushka Lalwani
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1) Cash Book 2) Statement 3) Journal 4) None of these

  2. ShreyaSharma none
    This answer was edited.

    1) A simple petty cash book is like a cash book.   Definition The term 'petty' means small. A simple petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recordRead more

    1) A simple petty cash book is like a cash book.

     

    Definition

    The term ‘petty’ means small. A simple petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recorded on the debit/ receipt side whereas, the cash he pays is recorded on the credit/ payment side. The difference between the sum of the debit and credit items represents the balance of the petty cash in hand.

    Format

    Explanation

    Cash Book – A simple petty cash book is recorded and maintained just like the cash book. Just like a cash book records all the major transactions of the business, a petty cash book only focuses on the expenses which are of little value. Just like the cash book is maintained by the accountant of the business, the petty cash book is maintained by the petty cashier.

    Therefore, a petty cash book is like a sub-part of a cash book itself.

    Statement – A statement in accounting terms refer to a report. They are prepared to show some accounting data and different types of statements show different perspectives of the company’s financial health and performance. For e.g Balance sheet, trial balance, cash flow statements, etc.

    Thus, a petty cash book is not a part of statements in accounting.

    Journal – A petty cash book is not a part of a journal as a journal entry records business transactions in the accounting system for an organization and is also called the building block of the double-entry accounting method. While a petty cash book is maintained to record the small expenses of a business that are of little value.

    Therefore, 1) Cash book is the correct option.

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Aadil
AadilCurious
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  2. Rahul_Jose Aspiring CA currently doing Bcom

    A statutory reserve is any reserve that has to be maintained by an Act or law. When it comes to insurance, a statutory reserve is a reserve that an insurance company is legally bound to maintain to ensure that the company is able to meet its policy obligations. In India, as per the Banking RegulatioRead more

    A statutory reserve is any reserve that has to be maintained by an Act or law. When it comes to insurance, a statutory reserve is a reserve that an insurance company is legally bound to maintain to ensure that the company is able to meet its policy obligations. In India, as per the Banking Regulations Act, every banking company has to maintain at least 25% of its net profits as statutory reserves.

    The companies are required to maintain such reserves to guarantee the availability of cash when it is required by the customer. Common examples of statutory reserves are Cash reserve ratio (CSR), Statutory Liquidity Ratio (SLR).

    Treatment

    • Statutory reserves are shown in the Profit and Loss account under the head “appropriations”.
    • It is also shown under the head Reserves and Surplus (Schedule 2) in the Balance Sheet.

    Method

    Rule-Based Approach – The company calculates the amount required by using standard formulas. However, since they are pre-determined formulas, it does not cover all risk determining factors.

    Principle-based approach – This method is used to protect customers and ensure that the company stays solvent. They hold a higher amount of reserves than required after predicting all possible risks.

    Statutory reserves are different from general reserves as general reserves are maintained voluntarily by the company. A company that does not follow statutory requirements will face financial penalties. These reserves are mostly maintained in the form of cash.

    Maintenance of reserves gives confidence to investors that their money is secure. However, funds from these reserves can be used only for specific purposes. They should also maintain such reserves whether or not they earn profits.

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Before answering the question let’s understand what a government grant is. Meaning of government grants Government grants are the assistance provided by the government in cash or kind to any enterprise for any past or future compliance. This assistance can be subsidies, cash incentives, duty drawbacRead more

    Before answering the question let’s understand what a government grant is.

    Meaning of government grants

    Government grants are the assistance provided by the government in cash or kind to any enterprise for any past or future compliance. This assistance can be subsidies, cash incentives, duty drawback, or assets provided at concessional rate or at no cost etc.

    These grants when provided have some rules and conditions attached to them. If such conditions are not fulfilled or rules are violated, the grant becomes refundable to the government.

    Treatment

    AS-12 ‘Government Grant’ provides two approaches  for the treatment of government grants in the books of accounts of an enterprise:

    • Income approach: Under this approach, the grant is treated as income and taken to profit and loss A/c in one or more accounting periods.

    For example, X Ltd purchase an asset for ₹ 10,00,000 and the government provided a grant of ₹2,00,000 to X Ltd. The useful life of the asset is 4 years and the residual value is nil.

    Now there are two methods to treat this grant as income.

    Method – 1:  The grant amount will be deducted from the asset’s value. This will result in a decreased amount of depreciation. This is an indirect way to recognize government grants as income.

    The journal entries are as follows: (Method-1)

    The journal entries for the 3rd and the 4th years will be the same as of 2nd year.

    In absence of a government grant, the annual depreciation would have been ₹2,50,000 (₹10,00,000 / 4). Hence, due to the grant, the profit will be 50,000 more for the 4 consecutive accounting years.

    Method – 2: The grant amount is credited to a special account called the ‘deferred government grant’ account. Over the useful life of the asset, the grant will be credited to the profit and loss account in equal instalments. This is a direct way to recognize government grants as income.

    The journal entries are as follows: (Method-2)

    The journal entries for the 3rd and the 4th years will be the same as of 2nd year.

    • Capital approach: Under this approach, the grant is treated as part of the shareholders’ funds (as capital reserve)

    When any grant is given is in nature of promoter’s contribution i.e. as a percentage of total investment to be done by an enterprise, and then such grant received from government will be treated as part of shareholder’s funds.

    The grant amount will be transferred to the capital reserve account and it will be treated neither as deferred income nor to be distributed as a dividend.

    Example: ABC Ltd has set up its business in a designated backward area which entitles the company to receive from the government a subsidy of 20% of total investment. ABC Ltd fulfilled all the conditions associated with the scheme and received ₹20 crores toward its total investment of ₹100 crores.

    This ₹20 crore will be transferred to the capital reserve account.

    Special case: If the grant is received in relation to a non-depreciable asset like land, then the entire amount of the grant will be recognized in the profit and loss account in the same year.

    Treatment of non-monetary government grant

    When a government grant is in the form of non-monetary assets like land or other resources at a concessional rate, then the assets are to be recognised at their acquisition cost.

    If the assets are acquired at no cost, then they are to be recorded at their nominal value.

    For example, if an enterprise receives land for free as a government grant, then it has to record the land at cost based on prevailing market rates.

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Anushka Lalwani
Anushka Lalwani
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Meaning of Workmen's Compensation Reserve Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on thRead more

    Meaning of Workmen’s Compensation Reserve

    Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on the premises of the firm, then they will be compensated from the money kept aside in the workmen’s compensation reserve.

    Workmen’s compensation reserve is created using the profits of a business. The journal entry for the creation of workmen compensation reserve is as follows:

    When a claim arises, the claim amount is transferred to Provision for workmen compensation claim A/c

    Treatment of workmen compensation reserve in revaluation account

    At the time of admission, retirement or death of partner or change in profit sharing ratio, the reserve is distributed among the old or existing partners or kept intact.

    Workmen’s compensation reserve is also distributed among the old or existing partners subject to the claim arising on the reserve.

    Here are the three situations:

     

    The revaluation account comes into the picture only when the claim is more than the amount available in the reserve. For example, the claim is Rs. 20,000 but the amount in the reserve is only Rs. 15,000.

    In such a case, the excess claim will be met by debiting the revaluation account.

    The journal will as  given below:

    Since the revaluation account is debited, it is a loss and this loss will be written from old or existing partners’ capital in the old profit sharing ratio. The journal entry is given below:

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Aadil
AadilCurious
In: >

  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Receipts and payment account is a summary of cash transactions prepared at the end of the accounting period from the cash book where the transactions are recorded in chronological order. It is an Asset/ Real Account that records both revenue and capital receipts and payments. It is mainly prepared fRead more

    Receipts and payment account is a summary of cash transactions prepared at the end of the accounting period from the cash book where the transactions are recorded in chronological order. It is an Asset/ Real Account that records both revenue and capital receipts and payments. It is mainly prepared for non-profit organizations and helps in the preparation of final accounts.

    Proforma

    Income and Expenditure Account is an account prepared by not-for-profit organizations to see whether the income of a particular period is sufficient to cover the expenses of that period. If the revenue is more than the expenses, it is known as “Surplus” or “Excess of Income over Expenditure” and if the expenses are more than Income, it is known as “Deficit” or “Excess of Expenditure over Income”. The account is prepared on the accrual basis of accounting i.e. all revenue incomes whether received or not and all revenue expenditures of the period whether paid or not are taken into account. However, in case of surplus, the money is not distributed among the members. Similarly, if there is a deficit it is not borne by the members.

    Proforma

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