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Nistha
Nistha
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Journal Entry
  2. Radhika
    This answer was edited.

    When a company earns profit, it distributes a proportion of its income to its shareholders, and such distribution is called the dividend. The dividend is allocated as a fixed amount per share and shareholders receive dividends proportional to their shareholdings. However, a company can only pay diviRead more

    When a company earns profit, it distributes a proportion of its income to its shareholders, and such distribution is called the dividend. The dividend is allocated as a fixed amount per share and shareholders receive dividends proportional to their shareholdings.

    However, a company can only pay dividends out of its current year profits or retained earnings (profits of the company that are not distributed as dividend and retained in the business is called retained earnings) of previous years but not out of capital.

    Dividends can be paid to shareholders in the form of

    • Cash
    • dividend re-investing plan of the company
    • future shares
    • share repurchase.

    For companies, payment of regular dividends boosts the morale of the shareholders, investors trust the companies more and it reflects positively on the share price of the company.

    For example, Nestle in India paid an interim dividend of 1100.00% to its shareholders in 2021.

    The journal entry for dividend paid is

    Particulars Debit Credit
    Retained Earnings A/c                                                          Dr. Amt  
    To Cash A/c   Amt

     

    According to the golden rules of accounting-

    • Retained earnings is a credit account by nature and since dividends are paid from retained earnings resulting in a deduction of the account, we debit
    • Cash is credited because the account is debit in nature and since dividends are paid in cash it’s credited to present the deduction in the account.

    According to modern rules of accounting-

    • Since cash is decreasing, we credit
    • Since retained earnings are decreasing and it is a part of capital it should be

    For example-

    A company paid a dividend of 25 crores to its shareholders in cash, the journal entry according to golden rules will be-

    Particulars Debit

    (in crores)

    		 Credit

    (in crores)
    Retained Earnings A/c  (Dr.) 25  
    To Cash A/c   25

     

     

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Nistha
Nistha
In: >

Debit Balance
  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    A Profit and Loss (P&L) statement is a financial statement that records a summary of all expenses and incomes of a business during a period of time. It helps in determining the financial performance of the business. After recording all transactions in an account, if the debit side is greater thaRead more

    A Profit and Loss (P&L) statement is a financial statement that records a summary of all expenses and incomes of a business during a period of time. It helps in determining the financial performance of the business.

    After recording all transactions in an account, if the debit side is greater than the credit side, then the account is said to have a debit balance. Similarly, if the credit side is greater than the debit side, then the account has a credit balance.

    In a P&L account, when the expenses (debit) are greater than the incomes (credit), the business is said to be in a net loss. This loss is what we call the debit balance of a Profit and Loss account. A P&L account with a debit balance can be subtracted from Capital or be shown on the asset side of the Balance Sheet.

    As you can see above, the net loss is shown on the right side of the P&L account. This represents the debit balance of P&L. Once it is transferred to the balance sheet, it is either subtracted from capital or shown on the asset side as shown in the second image. However, they cannot be shown on both sides of the balance sheet at the same time.

    However, if the credit side is greater, that is if income is greater than expenses, then the P&L account shows a credit balance which is also known as net profit. This profit is added with Capital to show the final balance in the Balance Sheet.

    Debit balance of Profit & Loss account is not preferable for a business. Hence they should put in efforts to either reduce costs or increase their income to gain profits.

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A_Team
A_Team
In: >

A. Original B. Duplicate C. Personal D. Nominal

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries. Journal follows the double-entry system oRead more

    The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries.

    Journal follows the double-entry system of accounting. It means a journal entry affects at least two accounts. It is from the journal entries, the ledger accounts are prepared. For example, the transaction, ‘sale of goods for Rs 1000 for cash’ affects two accounts. The journal entry is:

    There are many special journals that record some special set of transactions which are called subsidiary journals or daybooks. Such special journals are not considered the books of original entry.

    Option (B) Duplicate is wrong. It is because the journal is the book where monetary events and transactions are recorded. It cannot be the book of duplicate entries. There is no such thing as ‘book of duplicate entry.’

    Option (C) Personal is wrong. Personal is a type of account under the golden rules of accounting. A personal account is a type of account that represents a person. But, the journal is not an account, it is a book. Also, there is no such thing as book of personal entry.

    Option (D) Nominal is wrong. Nominal is also a type of account under the golden rules of accounting. The nominal account is a type of account that represents an income, expense, gain or loss. Journal is a type of account but a book.

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Simerpreet
SimerpreetHelpful
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A) No entries made at all in the general ledger for items paid by petty cash B) The same number of entries in the general ledger. C) Fewer entries made in the ...

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

    The correct option is D) Fewer entries in the general ledger To understand why option D is correct, we need to understand the concept. Petty cashbook is a special cashbook prepared for recording petty or small cash expenses. The benefit is that the chief cashier can focus on large cash and bank tranRead more

    The correct option is D) Fewer entries in the general ledger

    To understand why option D is correct, we need to understand the concept.

    • Petty cashbook is a special cashbook prepared for recording petty or small cash expenses.
    • The benefit is that the chief cashier can focus on large cash and bank transactions and there are fewer transactions in the main cashbook.
    • The petty cashier is provided with a fixed amount for a month or week and is reimbursed the amount spent at the end of the period after he sends the details of expenses to the chief cashier.
    • There are entries for the transfer of cash to the petty cashier in the main cashbook only.

    Option A ‘No entries made at all in the general ledger for items paid by petty cash ‘ is wrong. It is not possible to omit entries of petty expense just because there is a petty cashbook. There will be entries related to:

    • The cash is given to the petty cashier in a fixed amount or the amount spent as petty expenses during the month or week.

    Petty cash A/c  Dr.        Amt

        To Cash A/c                   Amt

     Option (B) ‘The same number of entries in the general ledger is wrong because there can never be the same number of entries as all the petty expenses are recorded in the petty cashbook and only the entries for transfer of cash to the petty cashier is recorded in the main cash book.

    Option D ‘More entries made in the general ledger​’ is wrong because the number of entries actually reduce as only petty cash transfer entries are recorded in the main cashbook instead of numerous entries of petty cash transactions.

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Karan
Karan
In: >

  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Let’s understand what a cashbook is: A petty cash book is a cash book maintained to record petty expenses. By petty expenses, we mean small or minute expenses for which the payment is made in coins or a few notes like tea or coffee expense, bus or taxi fare, stationery expense etc. Such expenses areRead more

    Let’s understand what a cashbook is:

    • A petty cash book is a cash book maintained to record petty expenses.
    • By petty expenses, we mean small or minute expenses for which the payment is made in coins or a few notes like tea or coffee expense, bus or taxi fare, stationery expense etc.
    • Such expenses are numerous in a day for a business and to account for such small expenses along with major bank and cash transactions may create an extra hassle for the chief cashier of a business.
    • So, the cash is allocated for petty expenses and a petty cashier is appointed and the task of recording the petty expenses in the petty cashbook is delegated to him.

    The manner in which entries are made

    When cash is given to the petty cashier, entry is made on the debit side and in the petty cashbook and credit entry in the general cashbook.

    Entries for all the expenses are made on the credit side.

    Generally, the petty cashbook is prepared as per the Imprest system. As per the Imprest system, the petty expenses for a period (month or week) are estimated and a fixed amount is given to the petty cashier to spend for that period.

    At the end of the period, the petty cashier sends the details to the chief cashier and he is reimbursed the amount spent. In this way, the debit balance of the petty cashbook always remains the same.

    Format and items which appear in the petty cashbook

    The format of the petty cashbook depends upon the type of petty cash book is prepared and the items appearing in it are nothing but petty expenses. Let’s see an example:-

    A business incurred the following petty expenses for the month of April:-

    1. Stamp – Rs. 10
    2. Postage – Rs. 50
    3. Cartage- Rs. 100
    4. Telephone expense – Rs. 500
    5. Refreshments – Rs. 250

    Now we will prepare two types of cashbooks:

    • Ordinary Petty Cashbook:

    Here, the Petty cash book is of the same format as the general cash book.

    The cash allocated for petty expenses is recorded on the debit side of the petty cash book and on the credit side of the general cash book.

    • Analytical Petty Cashbook

    Here, there are separate amount columns for each type of expense. As the name suggests, this type of petty cashbook helps to analyse the petty cash spending on basis of the type of expense.

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Manvi
Manvi
In: >

  2. Ayushi Curious Pursuing CA

    Let the business in our example be X Trading. The 15 transactions are as follows: 1st April - X Trading started its business with Rs. 10,000 cash and furniture of Rs. 5,000. 5th April - Purchased 1,000 units of goods for Rs. 1,000 in cash from Ram. 10th April – Bought stationery for Rs. 100 in cash.Read more

    Let the business in our example be X Trading. The 15 transactions are as follows:

    1. 1st April – X Trading started its business with Rs. 10,000 cash and furniture of Rs. 5,000.
    2. 5th April – Purchased 1,000 units of goods for Rs. 1,000 in cash from Ram.
    3. 10th April – Bought stationery for Rs. 100 in cash.
    4. 25Th April – Sold 500 goods for Rs. 750 in cash.
    5. 1st May – Paid a rent of Rs. 1200 ( 1st April to 31st March)
    6. 1st June – Took a loan of Rs. 15,000 from the bank at interest@10%.
    7. 15Th June – Sold 400 goods for Rs. 600 to Shyam in credit.
    8. 1st August – Bought a computer for Rs. 10,000 in from ABC Computers in credit.
    9. 15th October – Received Rs. 300 from Shyam in cash.
    10. 1st November – Purchased 2,000 units of goods for 2,000 from Ram in credit.
    11. 15th November – Paid Rs. 5,000 to ABC Computers through cheque.
    12. 1st December – Sold 1,000 units of goods for Rs. 1,500. Received cheque as payment.
    13. 1st January – Obtained Trade license (valid for 5 years) by paying fees of Rs. 1000 through online bank transfer.
    14. 15Th February – Paid Rs. 1,500 to Ram. Through cheque.
    15. 15Th March – Drawings made of Rs. 2000 in cash.

    We will prepare the journal, ledgers and the trial balance from the above transactions.

    Journal

    Journal is known as the book of primary entry or book of original entry. It is because every transaction is recorded in form of journal entries in the journal. Every journal entry affects at least two accounts (dual effect). A transaction has to be a monetary transaction otherwise it cannot be recorded as a journal entry.

    The procedure of recording transactions as journal entries is simple if we follow the modern rules of accounting.

    So first we have to identify which and what type of account does a transaction affect. The types of accounts are:

    1. Asset – Debit in case of increase Credit in case of decrease.
    2. Liabilities – Debit in case of decrease Credit in case of increase.
    3. Capital – Debit in case of decrease Credit in case of increase.
    4. Expense – Debit in case of increase Credit in case of decrease.
    5. Income – Debit in case of decrease Credit in case of increase.

    Ledger

    Ledgers are known as the books of principal entry or book of final entry. All the journal entries recorded in the journal are posted to the ledgers. A Ledger is where the entries related to a particular account are recorded. For example, all the transactions related to salary will be recorded in the salary account ledger.

    It is very important to prepare the ledger to arrive at the balance of each account in the books of concern so that it can prepare its trial balance.

    The procedure of posting journal entries in the ledger account is done is as follows:

    The ledgers are as follows:

     

     

    Trial Balance

    The trial balance is not a part of the books of accounts. It is just a statement prepared to check the arithmetical accuracy of the books of the accounts. It also helps to know about the omission and posting mistakes. It is prepared after the ledger accounts have been drawn and their balances have been ascertained.

    The balance of all the ledger accounts is posted on either side of the trial balance. Debit balance of the account on the debit side and credit balance of the account on the credit side.

    Also, the closing stock from the financial statements of the previous year is posted on the debit side of the trial balance as opening stock to account for the stock with the business at the beginning of the financial year.

    Following is the trial balance of X trading:

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