AccountingQA Latest Questions

Aadil
AadilCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant

    Goods and services tax (GST) is an indirect tax that was introduced in place of other indirect taxes like value-added tax, service tax, purchase tax, etc. It was introduced to ensure that only one tax would be applicable all over India. Reverse Charge is a mechanism where the liability to pay tax onRead more

    Goods and services tax (GST) is an indirect tax that was introduced in place of other indirect taxes like value-added tax, service tax, purchase tax, etc. It was introduced to ensure that only one tax would be applicable all over India. Reverse Charge is a mechanism where the liability to pay tax on goods and services lies on the recipient instead of the supplier.

    APPLICABILITY

    Reverse charge is applicable when:

    • It is specified by the CBIC for the supply of certain goods and services.
    • Goods are supplied by an unregistered dealer to a registered dealer.
    • There is a supply of services through an E-commerce operator.

    TIME OF SUPPLY

    As per reverse charge in the case of goods, the time of supply is the earliest of the three:

    • Date of receipt of goods
    • Date of payment
    • The date is immediately after 30 days from the date of issue of invoice from the supplier.

    For example, If goods were received by the supplier on 15th June, and the date of the invoice was on 3rd July but the date of entry in the books of the receiver was 25th June, then the time of supply of goods would be on 15th June.

    As per reverse charge in the case of services, the time of supply is the earliest of the two:

    • Date of payment.
    • Date immediately after 60 days from the date of issue of invoice by the supplier.

    For example, if the date of payment of services provided was on 16th July, and the date of issue of the invoice was on 15th May ( 60 days from 15th May is 14th July), then the time of supply of services would be 14th July.

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Simerpreet
SimerpreetHelpful
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  2. GautamSaxena Curious .
    This answer was edited.

    Interest on capital Interest on capital is interest payable to the owner/partners for providing a firm with the required capital to commence the business. It's a fixed return that a business owner is eligible to receive. When the business firm faces a loss, the interest on capital will not be providRead more

    Interest on capital

    Interest on capital is interest payable to the owner/partners for providing a firm with the required capital to commence the business. It’s a fixed return that a business owner is eligible to receive.

    When the business firm faces a loss, the interest on capital will not be provided. It is permitted only when the business earns a profit. Such payment of interest is generally observed in partnership firms. It is provided before the division of profits among the partners in a partnership firm.

    If an owner or partner introduces additional capital to the business, it is also taken into account for providing interest on capital.

    Sample journal entry

    Interest on capital is an expense for business, thus, debited as per the golden rules of accounting, debit the increase in expense, and the owner/partner’s capital a/c is credited as per the rule, credit all incomes and gain.

    As per the modern rules of accounting, we debit the increase in expenditure and credit the increase in capital.

    As we know, as per the business entity concept, business and owner are two different entities and a business is a separate living entity. Therefore, the capital introduced by the owner/partners is the amount on which they’re eligible to receive a return.

    Example:

    Tom is the business owner of the firm XYZ Ltd. He has contributed ₹ 10,00,000 to the business with 10% interest provided to Tom at the end of the year.

    Solution:

    Here interest on capital will be calculated as,

    Interest on capital = Amount invested × Rate of interest × Number of Months/12

    = 10,00,000 × 10% × 12/12

    = ₹ 1,00,000

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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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A_Team
A_Team
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable. Sometimes debtors are unable to pay the amount due either partially or fully. the amount that is not receivableRead more

    Definition

    Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable.

    Sometimes debtors are unable to pay the amount due either partially or fully. the amount that is not receivable is a loss and is called bad debt.

    Bad debts are neither assets nor liabilities they are expenses that are debited to the profit and loss account and reduced from debtors in the balance sheet.

    For example loans from banks are declared as bad debt, sales made on credit and amounts not received from customers, etc.

     

    Related terms

    So there are a few related terms whose meanings you should know

    • Further bad debts :
      • It means the amount of sundry debtors in the trial balance is before the deduction of bad debts. in this situation, entry for further bad debts is also passed into the books of account.
      • That is bad debts are debited and the debtor’s account is credited. And the accounting treatment for them is the same as bad debts which I have shown you above.

     

    • Bad debts recovered :
      • It may happen that the amount written off as bad debts are recovered fully or partially.
      • In that case, the amount is not credited to the debtor’s (personal) account but is credited to the bad debts recovered account because the amount recovered had been earlier written off as a loss.
      • Thus amount recovered is a ‘gain’  and is credited to the profit and loss account.

     

    Accounting methods

    There are two methods for accounting for bad debts which are mentioned below:-

    • First, is the direct written-off method which states that bad debts will be directly treated as expenses and expensed to the income statement, which is called the profit and loss account.

     

    • Second, is the allowance method which means we create provisions for doubtful debts accounts and the debtor’s account remains as it is since the debtor’s account and provision for doubtful debts account are two separate accounts.

     

      • Debts that are doubtful of recovery are provided estimating the debts that may not be recovered .amount debited to the profit and loss account reduces the current year’s profit and the amount of provision is carried forward to the next year.
      • Next year, when debts actually become bad debts and are written off, the amount of bad debts is transferred ( debited ) to the provision for doubtful debts account.
      • The amount of bad debts is not debited to the profit and loss account since it was already debited in earlier years.
      • Provision for doubtful debts is shown in the debit side of the profit and loss account as well as shown as a deduction from sundry debtors in the assets side of the balance sheet. 

     

    Accounting treatment

    Now let me try to explain to you the accounting treatment for bad debts which is as follows :

    • Balance sheet

     

      • In the balance sheet either it can be shown on the asset side under the head, current assets by reducing from that specific assets.
      • For example, if credit sales are made to a customer who says it’s not recoverable or is partially recoverable then the amount is bad debt. It’s a loss for the business and credited to the personal account of debtors or we can say reduced from debtor those are current assets of the balance sheet.

     

    • Profit and loss account

     

      • Bad debts are treated as expenses and debited to the profit and loss account.
      • For example, as I have explained above, before transferring to the balance sheet, bad debt will be debited to the profit and loss account as an expense.

    Now let me show you the extract of the profit and loss account and balance sheet showing bad debts and bad debts recovered which are as follows:-

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Simerpreet
SimerpreetHelpful
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  2. Saurav
    This answer was edited.

    Debit balance means excess of credit side over debit side. For Example- At the beginning of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end therRead more

    Debit balance means excess of credit side over debit side.

    For Example- At the beginning of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end there will be a debit balance of 6,000 of trade receivables at the end

    A Debit balance basically signifies all expenses and losses and all positive balances of assets. The debit balance increases when any asset increases and decreases when any asset decreases.

    Assets

    All the assets that appear in the balance sheet always have a debit balance. The debit balance under it will increase as it debits. Some of these assets can be illustrated below -:

    •  Cash and Bank Balance: Cash and Bank Balance means the amount that is held by a person in physical form or in a current/savings account.
    • Property, Plant, and Equipment-  Property Plant, and Equipment means assets that are used for the production of goods and services.
    • Account Receivables– Account Receivables means the amount that is due from debtors to whom goods were sold at credit for a specified time period.
    • Inventory – Inventory means goods that are used in the normal course of business.
    • Investments– Investments are the amount invested in other companies from which they were expecting returns in future periods.

     

    Expenses and Losses

    All expenses that appear on the debit side of the P&L account have a debit balance in their accounts.

    For eg-: A rent of 10,000 is given to the landlord under which the work has been done by the entity.

    For eg-: A depreciation of 10% is there on an asset of 12,000 will result in a debit balance under depreciation in the P&L Account.

    Some of the following expenses can be illustrated below

    • Rent- Rent means a property that an entity takes on lease for business purpose and pay a certain amount to the landlord for such lease.
    • Depreciation– Depreciation means a fall in the value of an asset due to its usage every year
    • Loss on Sale of an asset- Loss on the Sale of an Asset means the sale amount of the asset is less than its WDV
    • Printing and stationery– Printing and Stationery means the paperwork or anything related to stationery used for business purposes
    • Audit fees– Audit fees are the amount which is given to an auditor for auditing the financials of an entity
    • Salaries and Wages– Salaries and Wages are the amount given to employees for the work they have done for the entity
    • Insurance– Insurance means a premium given by an entity for insurance done by them
    • Advertising– Advertising means any promotion that a company does of its product to increase its revenue

    So after seeing all the above points we can conclude that the debit balance includes all the expenses that are in the P&L account and all the assets that are there in the Balance sheet. So its balance increases when there is an increase in its account.

     

    CREDIT BALANCE

    Credit balance means excess of credit side over debit side.

    For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at end there will be a credit balance of 6,000 for trade payable at the end

    .A Credit balance signifies all income and gains and all liabilities and capital that is there in business.

    Liabilities

    • Account Payables
    • Bank Overdraft
    • Bonds
    • Income Tax Payables
    • Notes Payable
    • Deferred Tax Liability

     

    Income and Gains

    • Interest Received
    • Dividend Received
    • Rent Received
    • Gains on Sale of Capital Gains

     

     

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Sandy
Sandy
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Fictitious AssetsFinancial Statements
  2. Nistha Pursuing B.COM H (B&F) and CMA
    This answer was edited.

    Fictitious assets can be defined as those fake assets which save revenue for the company. These do not exist physically but also do not qualify as intangible assets. These are merely the expenses or losses that are not fully written off in the accounting period in which they are incurred. These expeRead more

    Fictitious assets can be defined as those fake assets which save revenue for the company. These do not exist physically but also do not qualify as intangible assets. These are merely the expenses or losses that are not fully written off in the accounting period in which they are incurred. These expenses are amortized over a period of time.

    These assets do not have any realizable value except for the cash outflow. These are created to delay the recognition of the expense and defer it to future periods.

    Fictitious assets actually qualify as an expense but are treated as assets only for the fact that they are expected to give returns over a course of more than one year. Examples are Advertisement expenses, preliminary expense, etc.

    Treatment

    Fictitious assets are shown on the assets side of the balance sheet under the head miscellaneous expenditure. A part of these expenses are shown in the profit and loss statement and the remaining amount is carried forward to the following years.

    For example, a company Timber Ltd. incurs expenses relating to advertisement of its products worth 8,000,000 and this advertisement campaign can earn revenue for the company for around 10 years. Hence, such expense of 8,000,000 would be amortized over a period of 10 years.

    For the first year, an amount of 800,000 (8,000,000/10) would appear in the profit and loss statement as expense and the rest 7,200,000 would appear as advertisement expense under the Miscellaneous expenditure on the assets side of the balance sheet.

    For the second year, an amount of 800,000 (8,000,000/10) would appear in the profit and loss statement as expense and the rest 6,400,000 would appear as advertisement expense under the Miscellaneous expenditure on the assets side of the balance sheet. And so on.

    We can say that fictitious assets are deferred revenue expenditures as well as intangible assets. But goodwill, etc are not fictitious assets. Hence, all fictitious assets are intangible assets but all intangible assets are not fictitious assets.

    Common fictitious assets that could generally be seen are:

    • Advertisement expenses
    • Preliminary expenses
    • Discount allowed on the issue of shares
    • Loss incurred on issue of debentures
    • Underwriting Commission
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