AccountingQA Latest Questions

Jayesh Gupta
Jayesh GuptaCurious
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  2. Ayushi Curious Pursuing CA

    External liabilities are the amounts which a business is obliged to pay to the outsiders (who are not owners of the business). Here is the list of external liabilities:- Accounts payable ( trade creditors and bills payables) Loan taken from outsiders Loan from bank Debentures Public deposits accepteRead more

    External liabilities are the amounts which a business is obliged to pay to the outsiders (who are not owners of the business).

    Here is the list of external liabilities:-

    1. Accounts payable ( trade creditors and bills payables)
    2. Loan taken from outsiders
    • Loan from bank
    • Debentures
    • Public deposits accepted
    1. Outstanding expenses
    • Outstanding salary
    • Outstanding rent
    • Outstanding tax
    1. Interest due on loans taken from outsiders

    The list is not exhaustive.

    Just for more understanding, internal liabilities are those liabilities which a business is supposed to pay back to its owners.  Such as capital balance, profit surplus etc.

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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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Astha
AsthaLeader
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    The value of inventory at the end of the financial year or balance sheet date is called closing stock. Closing stock includes: Raw Material Work-in-Progress Finished Goods Example: If the value of raw material is Rs 10,000, value of WIP is Rs 5,000 and value of Finished Goods is Rs 15,000 then valueRead more

    The value of inventory at the end of the financial year or balance sheet date is called closing stock. Closing stock includes:

    • Raw Material
    • Work-in-Progress
    • Finished Goods

    Example:

    If the value of raw material is Rs 10,000, value of WIP is Rs 5,000 and value of Finished Goods is Rs 15,000 then value of Closing Stock will be Rs (10,000 + 5,000 + 15,000) = Rs 30,000

    Adjustment entries are done on the accrual basis of accounting, that is, income is recorded when earned and not received and expenses are recorded when incurred and not paid. Adjustment entries are usually made before or after the preparation of the trial balance at the end of the accounting period.

    If the entries are made after the preparation of the trial balance, then two adjustment entries are recorded while preparing Trading and Profit & Loss A/c.

    Since closing stock is an item outside the trial balance, the double-entry would be:

    The journal entry

    Closing Stock A/c  (Dr.) Amt
    To Trading and Profit & Loss A/c Amt
    • Trading and Profit & Loss A/c is credited because it is of profit to the company and hence will be shown on the credit side.
    • Closing Stock is debited as an asset for the company and it will be recorded for the first time in accounting books, hence, will be debited.

    The second adjustment would be to show closing stock on the balance sheet and since the closing stock is an asset it is shown under the head Current Assets.  

    In case where adjustment for Closing Stock is to be done before preparation of Trial Balance, then it will be shown on the credit side of the Trial Balance, since it is an asset for the company and will have a credit brought down balance as shown in the image.

    Later, while preparing Balance Sheet, Closing Stock will be shown on the Asset side of the Balance Sheet.

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

    Definition Net profit is defined as the excess of revenues over expenses during a particular period. For a business i.e. company/firm, it is a liability towards shareholders/promoters/partners/proprietors, etc. as it is their capital that has earned these profits. When the result of this computationRead more

    Definition

    Net profit is defined as the excess of revenues over expenses during a particular period.
    For a business i.e. company/firm, it is a liability towards shareholders/promoters/partners/proprietors, etc. as it is their capital that has earned these profits.

    When the result of this computation is negative it is called a net loss.

    Net profit may be shown before or after tax.

    Formula :
    Total Revenues – Expenses
    Or
    Total Revenues – Total Cost ( Implicit And Explicit Cost )

    Liabilities

    It means the amount owed (payable) by the business. liability towards the owners ( proprietor or partners ) of the business is termed an internal liability.

    On the other hand, liability towards outsiders, i.e., other than owners ( proprietors or partners ) is termed as an external liability. For example – taxes owned, trade payables, etc.
    For example creditors, bank overdrafts, etc.

    Assets

    An asset is a resource owned or controlled by a company and will benefit the business in current and future periods.
    In other words, it’s something that a company owns or controls and can use to generate profits today and in the future.

    For example – cash, building, etc.

    Why debtors are treated as a liability?

    Now let me explain to you why net profits are treated as a liability and not as an asset because of the following characteristics :

    • Net Profit shows the credit balance of the Profit And Loss Account.

    • It is treated directly in the balance sheet by adding or subtracting from the capital.

    • Net Profit is a measure of the profitability of the company after taking into consideration all costs incurred during the accounting period.

    • Net profit is the last line in an income statement and is the figure that concerns most people who use such a statement.

    • Net income is reported on the income statement (profit and loss account) and forms a key indicator of a company’s performance.

    Importance Of Net Profit

    Now I will let you know the importance of net profit which is as follows :

    Owners
    Net profit allows owners to calculate the tax to be paid and how much earnings need to be distributed to the business owners.

    Investors
    Investors need to see net profit as they need to access the risk before investing they basically judge the revenue-generating capacity of a firm based on net profit.

    Competitors
    For making the comparison competitors tend to look at the net profit of the company to know how are they performing in the industry so that they can build themselves strong.

    Creditors
    Creditors look at the net profit for the purpose of obtaining business loans or we can say that determines a prospective debtor’s capacity to pay future debts.

    Conclusion

    Now after the above explanation, we can say that,
    Net Profit is shown on the liability side as it belongs to shareholders so the company has to give it to shareholders so we are showing it under the liability side.

    Net Profit with respect to the company is a liability as it has to pay it to shareholders.

    Net Profit with respect to shareholders is an asset.

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA

    Introduction Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged. Excise duty is charged when any specified good is manRead more

    Introduction

    Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged.

    Excise duty is charged when any specified good is manufactured, GST is charged when any good or service is supplied.

    Definition of Supply

    The concept of supply is of great significance to the GST architecture. It can be called the ‘bones to the body of GST’.

    Section 7 of the CGST defines ‘supply’.

    At first, I have provided the whole Section 7 which consists of four sub-sections:

    • 7(1)
    • 7(1A)
    • 7(2)
    • 7(3).

    Thereafter will be the explanation of each sub-section in simple language.

    Section 7

    Section 7(1) of the CGST Act, 2017 defines ‘supply’. As per section 7(1) of the CGST Act, 2017, the supply includes:

    • All forms of supply of goods and services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made for a consideration by a person in the course or furtherance of business
    • Importation of service, for a consideration whether or not in the course or furtherance of business and
    • The activities specified in Schedule I, made or agreed to be made with or without consideration.

    Section 7(1A) states, ‘where certain activities or transaction constitute as supply in accordance of with the provisions of sub-section (1), they shall be treated either as a supply of good or supply of services as referred to Schedule II.

    Section 7(2) states, ‘notwithstanding with anything contained in sub-section (1).

    • Activities and transactions stated specified in Schedule III or
    • Such activities and transactions undertaken by the Central government, state government or local authority in which they are engaged as public authorities, as may be notified by the government on the recommendation of the Council

    shall not be treated neither as a supply of goods nor a supply of services.

    Section 7(3) states ‘subject to sub-section (1), (1A) and (2), the government may, on the recommendation of the council specify, by the notification, the transaction that is treated as :

    • a supply of goods and not as a supply of services
    • a supply of services and not as a supply of goods.

    Explanation of Section 7 in simple terms.

    Section 7(1) (a) sets three parameters of an activity or transaction to be a supply.

    • Supply should be only of goods and services. Supply of anything other than goods or services like money, securities do not attract GST.
    • Supply should be made for a consideration
    • Supply should be made in the course or furtherance of business

    Any activity or transaction will be treated as a supply if the above parameters are fulfilled as per sub-section (1) clause (a).

    Section 7(1)(b) is actually an exception to the 3rd parameter of supply. Import of service for a consideration will be considered a supply even if it is not made in furtherance of business,

    Section 7(1)(c) states that item in the schedule I will be treated as supply whether there is consideration or not. This is an exception to the 2nd parameter.

    Section 7(1A) states any activity which is a supply as per sub-section (1), shall be classified either as a supply of goods or as a supply of service as per schedule II. There are many activities and transactions which have the characteristics of both goods and services.

    For example, dining in a restaurant.  Schedule II helps to eliminate this confusion and helps to classify such activities or transactions as either supply of goods or supply of services. As per Schedule II, dining or take-away from a restaurant is a supply of service.

    Section 7(2) states the activities which are neither supply of goods nor neither of services even if they fulfilled the condition of the sub-section (1).

    Section 7(3) says that the central government have the power to notify transactions that are to be treated as supply of goods nor as a supply of service or supply of services not as a supply of services

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Ayushi
AyushiCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Introduction In GST, a supply is a taxable event. This means whenever there is a supply of goods or services or both, GST is charged. Supply includes the exchange of goods or services between supplier and recipient by way of sale, barter, lease etc for consideration and in the course or furtheranceRead more

    Introduction

    In GST, a supply is a taxable event. This means whenever there is a supply of goods or services or both, GST is charged. Supply includes the exchange of goods or services between supplier and recipient by way of sale, barter, lease etc for consideration and in the course or furtherance of business. The rate of GST on any supply depends on the type of good or service supplied.

    Composite supply and mixed supply are two special types of supplies, in which two or more goods or services or both are offered together in a bundle. As two or more goods are supplied together, the question arises at which rate the GST is to be charged on such supplies as such goods or services may have different rates of GST applicable to them. Sections 8 of the CGST act, 2017 deals with the tax liability of such supplies.

    Composite supply

    A composite supply is a type of supply in which two or more goods or services or both are supplied together in the ordinary course of business. Such goods or services are natural bundles. By natural bundle, we mean the goods or services are complementary to each, they are naturally provided together and are to be used along with each other.

    For example, mobile phones and chargers are supplied as a bundle. This concept of the natural bundle is the main determiner of a composite supply.

    In such supplies, there is one main product which is called the principal supply. Like in the above example, the mobile phone is the principal supply. Other goods or services are dependent on the principal supply.

    A composite supply will be taxable as the rate of GST applicable on the principal supply.

    For example, suppose the rate of GST on mobile phones is 18% and that on the charger is 12%, then the whole supply will be taxable at the rate of 18%.

    Mixed supply

    A mixed supply is a type of supply in which two or more goods or services or both are supplied together but they do not complement each other and are not a natural bundle. They are not supplied in the ordinary course of business, For example, a combo of bottled honey and face cream.

    In mixed supply, the good or service which attracts the highest rate of GST is considered the rate of supply for the whole supply.

    For example, suppose bottled honey attracts 5% GST and face cream 18% GST, then the whole supply will be charged 18% GST.

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ShreyaSharma
ShreyaSharma
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  2. GautamSaxena Curious .
    This answer was edited.

    Subsidiary Books Introduction & Definition In large business organizations, it is practically impossible to keep a record of every single business affair, while neglecting them and not recording them wouldn't be an ideal choice, this is where subsidiary books come into the role. As we were introRead more

    Subsidiary Books

    Introduction & Definition

    In large business organizations, it is practically impossible to keep a record of every single business affair, while neglecting them and not recording them wouldn’t be an ideal choice, this is where subsidiary books come into the role. As we were introduced to the basics of accounting in the 11th standard, we learned about different elements like journals, ledgers, trial balances, etc. It is practically impossible for a business to keep track of every single affair just through only those elements. Thus, the Subsidiary book is the next step here.

    Subsidiary books are the books of original entry. They are a dedicated form of books that maintains an analysis of a specific account. It records financial transactions of a similar nature. They are sub-division of a journal.

    In big business organizations, it’s very hard for a bookkeeper or accountant to record all the transactions in one journal and post them into various accounts.  This is where special purpose books or subsidiary books may be required for more efficient bookkeeping. They are a subdivision of journals and for every type of transaction, there is a separate book.

     

    Types of Subsidiary Books

    There are eight types of subsidiary books that are required for recording transactions. The list of various subsidiary books is as follows:

    1. Cash Book
    2. Purchase Book
    3. Sales Book
    4. Purchase Return Book
    5. Sales Return Book
    6. Journal Proper
    7. Bills Receivable Book
    8. Bills Payable Book

     

    Types of Subsidiary Books

    Now, we’ll be taking a closer look at each and every subsidiary book.

     

    Cash Book

     The cash book is the most important subsidiary book, it’s a book of a prime entry recording all the cash spent or received by the business, either in cash form or from the bank. In simple words, recording all the transactions made by the business.

    It is of three types i.e single-column cash book, double-column cash book, and triple-column cash book. As the name indicates, the column of cash, bank, and discount increases/decreases as per the column of the cash book stated.

    Format 

     

    Note: this is a triple-column cash book format, for the double-column cash book format, we remove the discount column from both sides, and for the single column, we may remove the bank column as well.

    Purchase Book

    A purchase book is a subsidiary book that records all the transactions related to the credit purchase in a business. Thereby, the normal purchasing of assets is never recorded in the purchase book.

    The credit purchases are directly recorded in the purchase book from the journals or the source documents. The source document indicates bills payable, invoices, etc.

    Format

     

    Sales Book

    A sales book, similar to a purchase book, is a special book where all the credit sales are recorded. The sales book doesn’t record the transactions related to the normal sale of assets and hence, is a special type of book, just like the purchase book.

    Format

     

    Purchase Return Book

    The purchase return book, also known as the return outwards book, is that book that records the goods that were returned by us to the supplier. Thereby, called purchase return book.

    When the goods are returned, a debit note is issued against every return and hence, recorded in the purchase return book.

    Format

     

     

    Sales Return Book

    The sales return book, also known as the return inwards book, refers to that subsidiary book that records the goods which were returned to us by the customer.

    For every good returned to us, a credit note is issued to the customer. And thus, it is recorded in the sales return book.

    Format

     

     

    Journal Proper

    Just like we recently learned in class 11th about what a journal entry is and how it is made, it’s a little different from the journal proper. Journal proper is a subsidiary book that records all the transactions which are not recorded in other subsidiary books.

    A journal is an original book of entries that records all the business transactions, while a journal proper is a subsidiary book in which all types of miscellaneous credit business transactions are recorded that do not fit anywhere in the other subsidiary books. Its format is the same as the journal entries’ format. Therefore, it’s also known as a miscellaneous journal.

    Format

     

     

     Bills Receivable Book

    The bills receivable book is the book that draws the bills favorable to the business i.e when the goods or services are provided to any customer on credit, they become a debtor, and bills receivable is a written note received from the customer indicating that they formally agree to pay the sum of money owed.

    Therefore, it helps in recording these types of transactions. The sum total of the bills receivable book is posted to the bills receivable account.

    Format

     

     

    Bills Payable Book

    The bills payable book is the subsidiary book that records all the bills that are drawn on the company. The bills payable is drawn on the company when we buy a good/service on credit and agrees to pay the amount to the supplier by signing a written note with the date we agree to pay.

    It’s a liability of the business and the total of the bills payable book is posted on the credit side of the bills payable account.

    Format

     

     

     

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