AccountingQA Latest Questions

Simerpreet
SimerpreetHelpful
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Introduction   Furniture is treated as a fixed asset of an enterprise unless it deals in the manufacturing or the trade of furniture. As stock in trade, it will be treated as current assets. In both cases, they are real accounts. Hence, the golden rule of accounting will be the same. But, when it coRead more

    Introduction

     

    Furniture is treated as a fixed asset of an enterprise unless it deals in the manufacturing or the trade of furniture. As stock in trade, it will be treated as current assets.

    In both cases, they are real accounts. Hence, the golden rule of accounting will be the same.

    But, when it comes to journal entries, Furniture A/c will appear only when it is treated as a fixed asset.

    No journal entries are passed in the stock-in-trade account except for some balance transferring entries.

    Journal Entries on taking Furniture as a fixed asset

    Taking furniture as a fixed asset, we can pass various entries related to it. Since furniture is an asset, any increase is debited and the decrease is credited.

    Also, furniture is a real account which means the golden rule of accounting  applicable is, “Debit what comes in and credit what goes out”.

    Following are the basic entries related to furniture.

    Purchase of furniture

    The most common entry related to furniture is the purchase of furniture:

    Furniture A/c                                            Dr. Amt
    To Cash / Bank A/c Amt

    Here Furniture A/c is increased, hence debited.
    Cash or Bank being reduced is credited.

    Sale of furniture

     

    Cash / Bank A/c                                       Dr. Amt
    Profit and Loss A/c *                               Dr. Amt
    To Furniture A/c Amt
    To Profit and Loss A/c  ** Amt

     *In case of loss

    **In case of profit

     On the sale of furniture, its balance gets reduced, hence credited.
    Cash or Bank is debited as cash comes in hand or into the bank.

    Also, profit or loss may arise due to the difference in sale value and the carrying amount of the furniture A/c.

    The difference is debited to Profit and Loss A/c in case of loss and credited in case of profit.

     

    Depreciation on Furniture

    Depreciation A/c                                         Dr. Amt
    To Furniture A/c Amt

    Here, furniture is credited as it is decreased by the amount of depreciation.

    Depreciation being a non-cash expense, is debited.

    Journal Entries on taking Furniture as stock in trade

    When furniture is stock of trade of a business, the journal entries will be like normal purchase and sales entries as below:

     

    Purchase A/c                                               Dr. Amt
    To Cash / Bank A/c Amt

     

     

    Cash / Bank A/c                                          Dr. Amt
    To Sales A/c Amt

    There will be no furniture account.

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Anushka Lalwani
Anushka Lalwani
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  2. ShreyaSharma none
    This answer was edited.

    Ledger Folio A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term 'folio' refers to a book, particularly a book with large sheets of paper. In accounting, it's used to maintain ledger accounts. The use of ledger folio is generally seenRead more

    Ledger Folio

    A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term ‘folio’ refers to a book, particularly a book with large sheets of paper. In accounting, it’s used to maintain ledger accounts.

    The use of ledger folio is generally seen in manual accounting, i.e the traditional book and paper accounting as it is a convenient tool used for tracking the relevant ledger account from its journal entry. Whereas, in computer-oriented accounting (or computerized accounting), it’s not really an issue to track your relevant ledger account.

    Ledger folio, abbreviated as ‘L.F.’, is typically seen in journal entries. The ledger folio is written in the journal entries, after the ‘date’ and ‘particulars’ columns. It is really convenient when we’re dealing with and recording a large number of journal entries. As we will be further posting them into ledger accounts, thus, ledger folio comes in as a really useful component of journal entries.

    • The number in the ledger folio may be numeric or alphanumeric.
    • The ledger folio column in the journal has nothing to do with the accounting principles and rules. It’s used by us as per our methods and needs.

     

    Example

    We’ll look at how the ledger folio column is used while recording journal entries.

     

    We can find the relevant ledger accounts on the page numbers of the book as mentioned in the above entries, i.e. the cash and sales account on page – 1 whereas, the purchases and sundry creditors on page – 2 of the relevant ledger book.

     

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

    Definition Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business. Or in other words, we can say that the expected realization period is less than the operating cRead more

    Definition

    Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business.

    Or in other words, we can say that the expected realization period is less than the operating cycle period although it is more than the period of 12 months from the date of the balance sheet.

    For example, goods are purchased with the purpose to resell and earn a profit, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.

     

    List of current assets

    The list of current assets is as follows:-

    • Cash in hand
    • Cash equivalents
    • Bills receivables
    • Sundry debtors
    • Prepaid expenses
    • Accrued income
    • Closing stock
    • Short-term investments ( marketable securities )
    • Other liquid assets

     

    Now here are a few definitions for the above list of current assets which are as follows:-

    • Cash in hand

    Cash comprises cash on hand and demand deposits with banks.

     

    • Cash equivalents

    Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

     

    • Bills receivables

    It means a bill of exchange accepted by the debtor, the amount of which will be received on the specific date.

     

    • Sundry debtors

    A debtor is a person or entity who owes an amount to an enterprise against credit sales of goods and/or services rendered.

     

    • Prepaid expenses

    Expense that has been paid in advance and benefit of which will be available in the following years or year.

     

    • Accrued income

    Income that has been earned in the accounting period but in respect of which no enforceable claim has become due in that period by the enterprise.

     

    • Closing stock

    Stock or inventory at the end of the accounting period which is shown in the balance sheet and which is valued on the basis of the “ cost or net realizable value, whichever is lower “ principle is called closing stock.

     

    • Short term investment

    Investments that are also known as marketable securities and are held for a temporary period of time i.e, for less than 12 months, and can be easily converted into cash are called short-term investments.

     

    Criteria for classification

    Now let us see the classification of assets in the case of companies as per Schedule III of the Companies act 2013.

    An asset is a current asset if it satisfies any one of the following criteria which are as follows:-

    • It is held primarily for the purpose of being traded.

     

    • It is expected to be realized in or is intended for sale or consumption in the company’s normal operating cycle.

     

    • It is expected to be realized within 12 months from the reporting date.

     

    • It is cash and cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.

     

    Here is an extract of the balance sheet showing current assets 

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Simerpreet
SimerpreetHelpful
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  2. Kajal
    This answer was edited.

    Trading A/c is a nominal account which follows the rule "Debit all expenses and losses, Credit all incomes and gains". So, all expenses relating to the purchase or manufacturing of goods are shown on the debit side of the Trading A/c. It includes Opening Stock, Purchases, Wages, Carriage Inward, ManRead more

    Trading A/c is a nominal account which follows the rule “Debit all expenses and losses, Credit all incomes and gains”.

    So, all expenses relating to the purchase or manufacturing of goods are shown on the debit side of the Trading A/c. It includes Opening Stock, Purchases, Wages, Carriage Inward, Manufacturing Expenses, Dock charges, and other direct expenses that are directly related to the manufacturing or purchase.

     

    TRADING ACCOUNT

    Trading A/c is prepared for calculating the Gross Profit or Gross Loss arising from the trading activities of a business.

    Trading activities are mostly related to buying and selling of goods. However, in between buying and selling, a lot of activities are involved like transportation, warehousing, etc. So, all the expenses that are directly related to manufacturing or purchase of goods are also recorded in the Trading A/c.

     

     

    DEBIT SIDE OF TRADING A/C

    The items shown on the Dr. side are,

    OPENING STOCK – Stock is nothing but goods that are either obtained for resale or manufactured for sale and are yet unsold on any particular date.

    The value of stock at the beginning of an accounting year is called Opening stock while the value of the stock at the end of an accounting year is called closing stock.

    The closing stock of the last year becomes the opening stock of the current year.

    Opening stock includes,

    1. Opening Stock of Raw materials
    2. Opening Stock of Semi-finished goods
    3. Opening Stock of Finished goods

    For example – Suppose you are in the business of manufacturing and trading shirts. On 31st March 2023, there was unused raw material worth $10,000 and shirts worth $50,000 remained unsold.

    So, we have Closing Stock of Raw material – $10,000

    Closing Stock of Finished Goods – $50,000

    This closing stock of last year becomes your opening stock during the current year i.e. on 1st April 2023, we have

    Opening Stock of raw material – $10,000

    Opening Stock of Finished Goods – $50,000

    PURCHASES – Goods that have been bought for resale or raw materials purchased for manufacturing the product are terms as Purchases. These goods must be related to the business you are doing.

    It includes cash as well as credit Purchases.

    Continuing with the above example, suppose you bought raw material worth $ 1,00,000 for manufacturing and shirts worth $50,000 for resale (and not for personal consumption) then both these will be termed as purchases for you. So, your purchases will be $1,50,000 ($1,00,000 + $50,000)

    PURCHASES RETURN – When goods bought are returned to the suppliers due to any reason. This is known as Purchase return. Purchase return is deducted from the Purchases.

    In the above example, you bought shirts worth $50,000 for resale. Out of which shirts worth $20,000 were defective. So, you returned them to the supplier. This return of $20,000 is your purchase return or return outwards (as goods are going out)

    WAGES – Wages are paid to the workers who are directly engaged in the loading, unloading and production of goods.

    For example – Paid $10,000 to workers for manufacturing shirts.

    However, it would be included in Trading A/c only if the wages are paid for work which is directly related to the manufacturing or purchase of goods otherwise it will be shown in P&L A/c.

    Suppose you hired a manager to take care of your business and paid him $20,000 as salary. This salary is indeed an expense for the business but is not directly related to the manufacturing of goods. Since it is an indirect expense, it can only be recorded in P&L  A/c and not in the Trading A/c.

    CARRIAGE or CARRIAGE INWARDS or FREIGHT – It refers to the cost of transporting goods from the supplier.

    Suppose, you ordered raw material in bulk which was transported to you by a van and you paid its fare. This fare is nothing but your carriage inwards.

    However, if carriage or freight is paid on bringing an asset, the amount should be added to the asset account and must not be debited to the trading account.

    MANUFACTURING EXPENSES – All expenses incurred in the manufacture of goods such as  Coal, Gas, Fuel, Water, Power, Factory rent, Factory lighting etc.

    DOCK CHARGES – These are charged by port authorities when unloading goods at a dock or wharf. Such charges paid in connection with goods purchased are considered direct expenses and are debited to Trading a/c.

    IMPORT DUTY or CUSTOM DUTY – It is a tax collected on imports and specific exports by a country’s customs authorities. If import duty is paid on the import of goods, then they are shown on the Dr. side of the Trading A/c.

    For example –  Paid $15,000 as import duty for importing shirts for resale.

    ROYALTY – Royalty refers to the amount paid for the use of assets belonging to another person. It includes royalty for the use of intangible assets, such as copyrights, trademarks, or franchisee agreements. It is also paid for the use of natural resources, such as mining leases.

    Royalty is charged to the Trading A/c as it increases the cost of production.

    GROSS PROFIT – When sales exceed the amount of purchases and the expenses directly connected with such purchases i.e. when Credit side> Debit side.

     

    CREDIT SIDE OF TRADING A/C

    SALES – When goods are sold to earn a profit, it is called sales. It can be cash sales or credit sales.

    SALES RETURN – When the goods sold are returned by the customer, it is known as a sales return. Sales return is deducted from the sales.

    CLOSING STOCK – The goods remaining unsold at the end of the year are termed as closing stock. It is valued at cost price or market price whichever is less.

    GROSS LOSS – If purchases and direct expenses exceed sales, then it is a Gross loss. In other words, when Debit side > Credit side.

     

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Nistha
Nistha
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Journal EntrySubscriptionSubscription Received in Advance
  2. Sandy CMA Final
    This answer was edited.

    To start with let me give you a brief explanation of what a subscription is After joining a not-for-profit organization, a member is required to pay a certain amount of money every year at periodical intervals in order to keep his membership activated, such an amount of money is the subscription. FoRead more

    To start with let me give you a brief explanation of what a subscription is

    After joining a not-for-profit organization, a member is required to pay a certain amount of money every year at periodical intervals in order to keep his membership activated, such an amount of money is the subscription.

    For accounting purposes, subscription is always taken on an accrual basis which means the amount which is received during the current year is only taken into consideration.

    Now, Subscription received in advance means the amount of money that has been received during the current year but which relates to the year that is yet to come. In other words, we can say it is the unearned income by the organization.

    It is recurring in nature and liability for the organization as it does not relate to the current year.

    Journal Entry for Subscription received in advance

    Here, the Subscription received in advance is credited to the Subscription account for the current year.

    This is the adjustment entry made during the current year.

    Treatment of Subscription in Financial Statements

    • Receipts and payment account.
    • Income and expenditure account.
    • Balance sheet.

    Receipts and Payment account: In the receipts and payment account, the entire amount of subscription is written on the receipts side. That is to say, subscription amount relating to the previous year, current year, and the year to come (outstanding subscription, current year subscription, advance subscription).

    Income and Expenditure account: In the Income and Expenditure Account, the subscription comes on the Income side. It is shown as

    Here, a subscription received in advance in the current year is deducted to find the actual amount because although the money is received in advance the benefits related to it are yet to be provided by the organization.

    Balance sheet: In the balance sheet, a subscription received in advance comes in the liability side under current liabilities as the benefits related to it are yet to be derived.

    For Example, Lionel club received subscription from its members for the year 2020 as follows-

    • Subscription of 2020 was received in 2019 – 2,000
    • Subscription of 2021 was received in 2020 – 3,000

    The total subscription was received during the year – 10,000

    Here,

    Subscription of 2020 was received in 2019- It is an Outstanding Subscription.

    Subscription of 2021 was received in 2020- It is an advance Subscription.

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

    The installation expenses for a new machinery will be debited to the "Machinery A/c". Installation expenses are the expense incurred to bring an asset to a working condition where it can be used. For example, installation charges are incurred on machinery to make it operational. Installation chargesRead more

    The installation expenses for a new machinery will be debited to the “Machinery A/c“. Installation expenses are the expense incurred to bring an asset to a working condition where it can be used. For example, installation charges are incurred on machinery to make it operational.

    Installation charges will be capitalized along with the cost of machinery. It is so because this expense is concerning the machinery and any expense directly related to an asset should be capitalized, as an asset will be with the business for a longer period of time.

    This charge will be incurred only once as a part of bringing the machinery to its working condition, and hence it should be capitalized and should be added to the cost of the machine. The whole amount will be shown in the balance sheet on the asset side as a Fixed Asset.

    This charge will not be shown in Profit and Loss A/c as it reflects all the revenue expenditure incurred in the period.

    Example:

    Starbucks purchased a coffee blending machine for the business purpose for $1,00,000. The installation expense incurred on it to make it operational was $20,000. How will Starbucks record this in the Balance Sheet on 31 December?

    In the Balance Sheet, Starbucks will add the installation expense incurred on the machine to the cost of the machine as it is the cost incurred to make the machine operational for further business use. Hence, the cost of $20,000 will be shown along with the cost of the coffee blending machine ($1,00,000+$20,000=$1,20,000)

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