AccountingQA Latest Questions

Jasmeet_Sethi
Jasmeet_SethiCurious
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To ascertain the debtors and creditors of the business To ascertain the financial position of the business To ascertain the profit or loss of the business To ascertain the collective effect of all ...

  2. Manvi Pursuing ACCA
    This answer was edited.

    The correct answer is 4. To ascertain the collective effect of all transactions pertaining to a particular account. The reason being is that in the ledger account all the effects are recorded for example,  how much money is spent on a particular type of expense or how much money is receivable from aRead more

    The correct answer is 4. To ascertain the collective effect of all transactions pertaining to a particular account. The reason being is that in the ledger account all the effects are recorded for example,  how much money is spent on a particular type of expense or how much money is receivable from a debtor. In ledger accounts, information can be obtained about a particular account.

    Ledger is the Principal book of accounts and also called the book of final entry. It summarises all types of accounts whether it is an Asset A/c, Liability A/c, Income A/c, or Expense A/c. The transactions recorded in the Journal/Subsidiary books are transferred to the respective ledger accounts opened.

     

    Importance of preparing ledger accounts:

    1. Ledger accounts get the ready results i.e. helps in identifying the amount payable or receivable.
    2. It is necessary for the preparation of the Trial Balance.
    3. The financial position of the business is easily available with the help of Assets A/c and Liabilities A/c.
    4. It helps in preparing various types of income statements on the basis of balances shown in ledger accounts.
    5. It can be used as a control tool as it shows balances of various accounts.
    6. It is useful for the management to forecast or plan for the future.
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Manvi
Manvi
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  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    Bad Debt is the amount that is irrecoverable from the debtors. It is the portion of the receivables. It includes two accounts “Bad Debts A/c” and “Debtors A/c or Accounts Receivable A/c”. The amount cannot be recovered by the debtor for reasons like the debtor is no longer in the position to pay offRead more

    Bad Debt is the amount that is irrecoverable from the debtors. It is the portion of the receivables. It includes two accounts “Bad Debts A/c” and “Debtors A/c or Accounts Receivable A/c”.

    The amount cannot be recovered by the debtor for reasons like the debtor is no longer in the position to pay off the debt or has become insolvent.

    There are two methods to write off bad debts:

    1. Direct Method
    2. Allowance for Doubtful Debts

     

    1. Direct Method: In this method, the amount of bad debts is directly deducted from the total receivables and the second effect is transferred to the debit side of Profit and Loss A/c as an expense.

    The journal entry for bad debts as per modern rules of accounting is as follows:

    Bad Debts A/c Debit Increase in expenses
          To Accounts Receivable A/c Credit Decrease in assets
    (Being bad debts written off )

     

    Journal entry for transferring bad debts to profit and loss account:

    Profit and Loss A/c Debit
          To Bad Debts A/c Credit
    (Being bad debts transferred to profit and loss a/c )

     

    For example, A Ltd had a total receivable of Rs.2,50,000 and bad debts for the period amounted to Rs.10,000.

    Here, the journal entries will be:

    Bad Debts A/c Debit 10,000
          To Accounts Receivable A/c Credit 10,000
    (Being bad debts written off )

     

    Profit and Loss A/c Debit 10,000
          To Bad Debts A/c Credit 10,000
    (Being bad debts transferred to profit and loss a/c )

     

     2. Allowance for Doubtful Debts:  In this method allowance is the estimation of the debts which is doubtful to be paid. The company creates a reserve for such debts which are uncollectible.

    Firstly, the company will create a reserve which will be based on the accounts receivable. The journal entry will be:

    Bad Debts A/c Debit
          To Allowance for Doubtful Debts A/c Credit
    (Being allowance for doubtful debts created)

     

    When a specific receivable is uncollectible it will be charged as an expense, and Allowance for Doubtful Debts will be “Debited” and Accounts Receivable will be “Credited”.

    Allowance for Doubtful Debts A/c Debit
                  To Accounts Receivable A/c Credit
    (Being bad debts written off)

    For example, Mr.B sold goods worth Rs.15,000 to Mr.D. He creates an allowance of Rs.15,000 in case Mr.D fails to pay the amount. At the end of the period, Mr.D defaults and does not pay the debt.

    In this case, Mr.B will first record the journal entry for allowance and then will write off Mr.D’s account.

    Bad Debts A/c 15,000
          To Allowance for Doubtful Debts A/c 15,000
    (Being allowance of Rs.10,000 created for doubtful debts)

     

    Allowance for Doubtful Debts A/c 15,000
                  To Mr.D’s A/c 15,000
    (Being Mr.D’s account written off)
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Vijay
VijayCurious
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  2. Radha M.Com, NET
    This answer was edited.

    The entry for a loan (taken for any purpose) and a car loan are quite different. When you take a bank loan, you'll receive the money from the bank and subsequently, you'll start paying interest on it. In the case of a car loan, you don't receive the money from the bank. Once the car has been purchasRead more

    The entry for a loan (taken for any purpose) and a car loan are quite different. When you take a bank loan, you’ll receive the money from the bank and subsequently, you’ll start paying interest on it.

    In the case of a car loan, you don’t receive the money from the bank. Once the car has been purchased you’ll make the down payment and the remaining amount will be paid by the bank on your behalf. This car loan should then be paid to the bank in installments.

    The following journal entry is posted to record the car loan taken for office use:

    Car A/c is debited as there is an increase in the asset. Bank A/c is credited as the down payment for the car is made which reduces the assets. Car Loan A/c is credited as it increases liability.

    The following entry is recorded for the repayment of the loan (first installment) to the bank.

    Let me explain this with an example,

    Kumar purchased a car for 25,00,000 for his office use. He made a down payment of 2,00,000 and took a car loan from HDFC Bank for 23,00,000. The following entry will be made to record this transaction.

    Car A/c  25,00,000
       To Bank A/c    2,00,000
       To Car Loan A/c  23,00,000
    (Being car purchased through a loan from HDFC bank)

     

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Naina@123
Naina@123
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    First, let us understand the meaning of a provision of depreciation. It is nothing but the total collection of all the depreciation over the years. This account is not like a normal account but a contra asset account. It is also called accumulated depreciation. Annual depreciation charged is an expeRead more

    First, let us understand the meaning of a provision of depreciation. It is nothing but the total collection of all the depreciation over the years. This account is not like a normal account but a contra asset account. It is also called accumulated depreciation.

    Annual depreciation charged is an expense for the business and hence has a debit balance. Whereas provision for depreciation as a contra asset account has a credit balance.

    The journal entry for provision for depreciation is

    Depreciation A/c                                                      ……….Dr XXX
               To Provision for depreciation XXX

    Explaining the credit nature of this account. As we know that the depreciation is an expense for the business hence as per modern rules “Debit all the expenses and losses and credit all incomes and gains” therefore it is debited whereas the provision of depreciation is contra account it has a credit balance as it reduces the value of assets. So according to modern rule, we know a decrease in assets has a credit balance, hence shown in a negative balance on the balance sheet under long-term assets.

    With the preparation of this account, we do not credit depreciation in the asset account but transfer every year to the accumulated depreciation account, and when assets are disposed of or sold we credit the ‘total’ of the provision on depreciation to the credit of the asset account just to calculate the actual profit or loss on a sale of the asset.

     

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

    The journal entry for Cash Sales is- Particulars Amount Amount Cash A/c                                                      Dr $$$      To Sales A/c $$$ Sales Account is a Revenue Account and Cash Account is an Asset Account for the business. So, According to the modern approach for Sales account:Read more

    The journal entry for Cash Sales is-

    Particulars Amount Amount
    Cash A/c                                                      Dr $$$
         To Sales A/c $$$

    Sales Account is a Revenue Account and Cash Account is an Asset Account for the business.

    So, According to the modern approach for Sales account:

    • When there is an increase in the Revenue, it is ‘Credited’.
    • When there is a decrease in the Revenue, it is ‘Debited’.

     

    According to the Modern approach for Cash  account:

    • When there is an increase in the Asset, it is ‘Debited’.
    • When there is a decrease in the Asset, it is ‘Credited’.

     

    So, the journal entry here is about cash sales and since there is an increase in Revenue on account of goods being sold, the sales account will be credited as per the modern rule and due to the increase in cash on account of sales, cash account will be debited.

    For Example, Polard sold goods for cash worth Rs 2,000 for his business.

    I will try to explain it with the help of steps.

    Step 1: To identify the account heads.

    In this transaction, two accounts are involved, i.e. Cash A/c and Sales A/c.

    Step 2: To Classify the account heads.

    According to the modern approach: Sales A/c is a Revenue account and Cash A/c is an Asset account.

    Step 3: Application of Rules for Debit and Credit:

    According to the modern approach: As Sales increases, because goods have been sold, ‘Sales A/c’ will be credited. (Rule – increase in Revenue is credited).

    Cash account is an Asset account. As cash has been received on account of goods sold, there is an increase in assets and hence Cash account will be debited (Rule – increase in Asset is debited).

    So from the above explanation, the Journal Entry will be-

    Particulars Amount Amount
    Cash A/c                                                      Dr 2,000
         To Sales A/c 2,000

     

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Astha
AsthaLeader
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  2. Manvi Pursuing ACCA
    This answer was edited.

    An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads: Non-Current Assets Current Assets   The asset may be sold for several reasons such as: An asset is fully depreciated. It should be sold becaRead more

    An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads:

    1. Non-Current Assets
    2. Current Assets

     

    The asset may be sold for several reasons such as:

    1. An asset is fully depreciated.
    2. It should be sold because it is no longer needed.
    3. It is removed from the books due to unforeseen circumstances.

     

    The journal entry for profit on the sale of assets will be:

    Cash / Bank A/c Debit
             To Asset A/c Credit
             To Profit on Sale of Asset A/c Credit
    (Being sale of an asset made with a gain)

    According to the golden rules of accounting, in the above entry “Cash/Bank A/c” it is a Real Account and the rule says “Debit what comes in” and so is debited.

    “Asset A/c” is a real account and the rule says “Credit what goes out” and so is credited. Any Gain on sale of an asset goes to the Nominal account and according to the rule “Credit, all incomes and gains” and so is credited.

     

    The journal entry for loss on sale of the asset will be:

    Cash / Bank A/c Debit
    Loss on Sale of Asset A/c Debit
             To Asset A/c Credit
    (Being sale of an asset made and loss incurred)

    In the above entry, “Loss on Sale of Asset” is debited because according to Nominal account rules “Debit all losses and expenses” and so is debited.

    According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenue, and decreases assets and expenses.

    Cash / Bank A/c Debit Increases Asset
    Loss on Sale of Asset A/c Debit Increases Expenses
             To Asset A/c Credit Decreases Asset
             To Profit on Sale of Asset A/c Credit Increases Expenses

     

    For example, Mr. A sold furniture for $2,500 and incurred a loss on the sale which amounted to $2,500.

    According to modern rules, the journal entry will be:

    Particulars Amt Amt  
    Cash / Bank A/c 2,500 Increase in asset
    Loss on Sale of Asset A/c 2,500 Increase in expenses
             To Asset A/c 5,000 Decrease in asset
    (Being sale of an asset made and loss incurred)
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Astha
AsthaLeader
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  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are statedRead more

    Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are stated below:

    • Incorrect items delivered by the seller
    • The excess amount delivered to the buyer
    • Return of expired/ spoiled good

     

    In such a case, the return is initiated by the buyer and a credit note is issued to the buyer, and the same is recorded in the books of accounts. Also, this return inward is deducted from the total sales.

    Example: M/s Pest ltd sold 4 units of fertilizers spraying tools of Rs 10,000 each to Mr. Zen. On inspection, he found 1 unit worth Rs 10,000 so received to be defective. Therefore the return of Rs 10,000 was initiated and goods were returned to the seller. A credit note of Rs 10,000 will be raised by the seller (M/s Pest ltd) to the buyer (Mr. Zen). The following adjustment will be shown in the trading account.

     

    Return outwards means returning the goods by the buyer to the supplier. In layman language, when you purchase items for your business and you are not happy with the items then you may decide to return them.

    In this case, a debit note is issued to the seller and is recorded in the books of accounts, and the same is reduced from the total purchases in the trading account so prepared.

    Example: Suppose you are dealing in a business of clothing. You purchased 20 shirts for Rs.10,000 from a wholesale market. When you sold these shirts, you found 10 shirts worth Rs 5,000 to be defective which were returned by your customer. Therefore you will return these shirts to the wholesale market from where you purchased them. The following adjustment will be shown in the trading account.

     

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