The journal entry for commission received is as presented below: Cash A/c / Bank A/c / A Personal A/c Dr. - ₹ To Commission received A/c - ₹ (Being ₹ commission received) The commission received means an amount received by a person or entity forRead more
The journal entry for commission received is as presented below:
Cash A/c / Bank A/c / A Personal A/c Dr. – ₹
To Commission received A/c – ₹
(Being ₹ commission received)
The commission received means an amount received by a person or entity for the provision of a service. For example, a firm sold goods worth ₹10,000 of a manufacturer and was paid an amount of ₹1000 in cash as commission. So, the entry in the books of accounts of the firm will be as follows:
Cash A/c Dr. ₹1000
To Commission received A/c ₹1000
Now, let’s understand the logic behind the journal entry through the modern rules of accounting.
Cash account, bank account and personal account are asset accounts. Hence, they are debited when assets are increased.
While the commission received account is an income account. Hence, when income increases, it is credited.
As per the traditional rules i.e. the golden rules of accounting, these are the explanations:
Commission can be received in cash or bank. Hence the Cash or Bank account is debited as they are real accounts.
“Debit what comes in, credit what goes out”
Also, when it is not received but accrued, then a personal account is debited (the person or entity who has received the service but has not paid for it yet). The following rule applies to the personal account.
“Debit the receiver, credit the giver”
Commission received is an income, thus it is a nominal account. It will be credited because of the following rule of nominal accounts:-
“Debit all expense and losses, credit all income and gains”
The correct option is C. Either Debit or Credit. Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature. In the case of fluctuating partner’s capital, all the transactions relating to theRead more
The correct option is C. Either Debit or Credit.
Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature.
In the case of fluctuating partner’s capital, all the transactions relating to the appropriation of profit, salary, commission, drawings, the introduction of capital, interest on capital etc. are passed through the partner’s capital account.
The balance of partner’s capital is generally credit but sometimes it may show debit balance indicating that the business owes to partner.
But when the partner’s capital account is of fixed nature, then separate partner’ current accounts are prepared. Through this account, all the transactions of revenue nature are passed like appropriation of profits, salary or commission paid to a partner, interest on capital and drawings. The balance of this account may be debit or credit.
The debit balance means the partner has withdrawn a lot of amount as drawings in anticipation of profits. The credit balance means the partner owes to the business.
The partner’s capital shows a fixed amount as capital and its balance is affected only when additional capital is introduced or capital is withdrawn. The balance of this account is always credit.
The partner current account is prepared when the firm wants to show the revenue transactions and capital transactions related to the partner ‘capital separately.
The term "principal book of accounts'' refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account. So to put it simply, the principal book of accounts mean ledgers. Ledgers are prepared by posting the debits and credits of a joRead more
The term “principal book of accounts” refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account.
So to put it simply, the principal book of accounts mean ledgers.
Ledgers are prepared by posting the debits and credits of a journal entry to the respective accounts.
A ledger groups the transactions concerning the same account. For example, Mr B is a debtor of X Ltd. Hence all the transactions entered into with Mr. will be grouped into the ledger Mr B A/c in the books of X Ltd.
Ledgers are of utmost importance because all the information to any account can be known by its ledger.
Preparation of ledger is very important because all the information to any account can be known by its ledger. Ledgers also display the balance of each and every account which may be debit or credit. This helps in the preparation of the trial balance and subsequently the financial statements of an entity.
Hence, it is the most important book of accounts and calling it the ‘books of final entry’ is also justified.
The correct option is Option C: Journal Entries. Journal entries are the primary entries in the books of accounts and they are passed when any transaction or event takes place. Every journal entry has a dual effect i.e. two or more accounts are affected. For example, When cash is introduced in the bRead more
The correct option is Option C: Journal Entries.
Journal entries are the primary entries in the books of accounts and they are passed when any transaction or event takes place. Every journal entry has a dual effect i.e. two or more accounts are affected.
For example, When cash is introduced in the business, the journal entry passed is:
Cash A/c Dr. ₹10,000
To Capital A/c ₹10,000
The accounts affected here are Cash A/c and Capital A/c.
Cash A/c gets debited by ₹10,000,
and Capital A/c get credited by ₹10,000.
All the processes of accounting are conducted in an ordered manner known as the accounting cycle.
The first step in an accounting cycle is to identify the transactions and events which are monetary in nature.
The second step is to record the identified transactions in form of journal entries.
And the third step is to make postings in the general ledger accounts as per the journal entries.
Hence, the preparation of the ledger is the third step in the accounting cycle and is prepared from the journal entries.
Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital. Total Outside Liabilities in relation to the Borrower can be all secured and unsecured loans, including current liabilRead more
Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital.
Total Outside Liabilities in relation to the Borrower can be all secured and unsecured loans, including current liabilities of the Borrower.
External Liability or outside liability is an obligation which a business has to pay back to external parties i.e. lenders, vendors, government, etc. Payable to Sundry creditors for the supply of any goods for the business or payable to any contractors for receiving any services or payable to the Govt. or other departments for any statutory payments like taxes or other levies. All these liabilities are known as an external liability to the business and are shown on the liability side of the Balance sheet after charging into the profit & loss account of that period.
Where, Internal Liability – All obligations which a business has to pay back to internal parties such as promoters, employees, etc. are termed as internal liabilities. Example – Capital, Salaries, Accumulated profits, etc.
Example – Borrowings, Creditors, Taxes, etc.
Where, 1) Person A takes a loan from person B (person not associated with the company), person B is an external liability to person A.
2) Person A has a tax liability of Rs.1000, here the government is an external liability to whom A has to pay the liability amount.
3) Person A got goods on credit from person C for 60 days, C is an external liability to A, which A has to pay within the time period.
No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two : Let’s take an example. Following is the balance sheet of X Ltd: Hence, as per the following information, Current Ratio = CuRead more
No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two :
Let’s take an example.
Following is the balance sheet of X Ltd:
Hence, as per the following information,
Current Ratio = Current Assets / Current Liabilities
The current ratio represents the relationship between current assets and current liabilities
Current ratio = Current Assets/Current Liabilities
It measures the adequacy of the current assets to current liabilities. The main question this ratio tries to answer is: – “Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets?”
The generally acceptable current ratio is 2:1. But it depends on the characteristics of the assets of a business to judge whether a specific ratio is satisfactory or not.
2. Quick Ratio: Quick ratio is the ratio between quick assets and current liabilities. It is also known as the Acid Test Ratio. By quick assets, we mean cash or the assets that can be quickly converted into cash ( near cash assets)
Quick Assets = Current Assets – Inventories – Prepaid assets
Quick ratio = Quick Assets/Current Liabilities
Inventories are not considered near cash assets.
The quick ratio is a more conservative approach than the current ratio to measure the short term liquidity of a firm.
It answers the question, “If sales revenues disappear, could my business meet its current obligations with the readily convertible quick funds on hands?”
1:1 is considered satisfactory unless the majority of the quick asset are accounts receivable and the receivables turnover ratio is low.
The correct answer is Option C. The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period ofRead more
The correct answer is Option C.
The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period of time.
Option A Trading Account reports only the operating revenues and operating expenses.
Option B Trial Balance shows the balances of all the ledgers of a business and is prepared to check the arithmetical accuracy of the books of accounts.
Option D Balance sheet reports the balances of assets and liabilities of a business as at a particular date.
People often confuse the trading and the profit and loss statement to be the same. But they are different.
Trading Account is prepared with aim of arriving at operating profit or gross profit whereas the profit and loss statement is prepared to arrive at the net profit of a business and reports every revenue and expense whether operating or non operating in nature.
Operating revenue and operating expense are earned or incurred respectively are related to the chief business activities of a business.
Features of profit and loss statement:
It is prepared to measure the net profit of a business hence its profitability.
It is usually prepared for a period of one year but many companies do prepare quarterly statements to better judge their performance.
It helps the management in decision making and the other stakeholders like shareholders, creditors to make informed decisions.
What is the journal entry for commission received?
The journal entry for commission received is as presented below: Cash A/c / Bank A/c / A Personal A/c Dr. - ₹ To Commission received A/c - ₹ (Being ₹ commission received) The commission received means an amount received by a person or entity forRead more
The journal entry for commission received is as presented below:
Cash A/c / Bank A/c / A Personal A/c Dr. – ₹
To Commission received A/c – ₹
(Being ₹ commission received)
The commission received means an amount received by a person or entity for the provision of a service. For example, a firm sold goods worth ₹10,000 of a manufacturer and was paid an amount of ₹1000 in cash as commission. So, the entry in the books of accounts of the firm will be as follows:
Cash A/c Dr. ₹1000
To Commission received A/c ₹1000
Now, let’s understand the logic behind the journal entry through the modern rules of accounting.
Cash account, bank account and personal account are asset accounts. Hence, they are debited when assets are increased.
While the commission received account is an income account. Hence, when income increases, it is credited.
As per the traditional rules i.e. the golden rules of accounting, these are the explanations:
Commission can be received in cash or bank. Hence the Cash or Bank account is debited as they are real accounts.
“Debit what comes in, credit what goes out”
Also, when it is not received but accrued, then a personal account is debited (the person or entity who has received the service but has not paid for it yet). The following rule applies to the personal account.
“Debit the receiver, credit the giver”
Commission received is an income, thus it is a nominal account. It will be credited because of the following rule of nominal accounts:-
“Debit all expense and losses, credit all income and gains”
See lessWhat balance does a partner’s current account has?
The correct option is C. Either Debit or Credit. Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature. In the case of fluctuating partner’s capital, all the transactions relating to theRead more
The correct option is C. Either Debit or Credit.
Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature.
In the case of fluctuating partner’s capital, all the transactions relating to the appropriation of profit, salary, commission, drawings, the introduction of capital, interest on capital etc. are passed through the partner’s capital account.
The balance of partner’s capital is generally credit but sometimes it may show debit balance indicating that the business owes to partner.
But when the partner’s capital account is of fixed nature, then separate partner’ current accounts are prepared. Through this account, all the transactions of revenue nature are passed like appropriation of profits, salary or commission paid to a partner, interest on capital and drawings. The balance of this account may be debit or credit.
The debit balance means the partner has withdrawn a lot of amount as drawings in anticipation of profits. The credit balance means the partner owes to the business.
The partner’s capital shows a fixed amount as capital and its balance is affected only when additional capital is introduced or capital is withdrawn. The balance of this account is always credit.
The partner current account is prepared when the firm wants to show the revenue transactions and capital transactions related to the partner ‘capital separately.
See lessWhat is the principal book of accounts?
The term "principal book of accounts'' refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account. So to put it simply, the principal book of accounts mean ledgers. Ledgers are prepared by posting the debits and credits of a joRead more
The term “principal book of accounts” refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account.
So to put it simply, the principal book of accounts mean ledgers.
Ledgers are prepared by posting the debits and credits of a journal entry to the respective accounts.
A ledger groups the transactions concerning the same account. For example, Mr B is a debtor of X Ltd. Hence all the transactions entered into with Mr. will be grouped into the ledger Mr B A/c in the books of X Ltd.
Ledgers are of utmost importance because all the information to any account can be known by its ledger.
Preparation of ledger is very important because all the information to any account can be known by its ledger. Ledgers also display the balance of each and every account which may be debit or credit. This helps in the preparation of the trial balance and subsequently the financial statements of an entity.
Hence, it is the most important book of accounts and calling it the ‘books of final entry’ is also justified.
See lessA ledger account is prepared from?
The correct option is Option C: Journal Entries. Journal entries are the primary entries in the books of accounts and they are passed when any transaction or event takes place. Every journal entry has a dual effect i.e. two or more accounts are affected. For example, When cash is introduced in the bRead more
The correct option is Option C: Journal Entries.
Journal entries are the primary entries in the books of accounts and they are passed when any transaction or event takes place. Every journal entry has a dual effect i.e. two or more accounts are affected.
For example, When cash is introduced in the business, the journal entry passed is:
Cash A/c Dr. ₹10,000
To Capital A/c ₹10,000
The accounts affected here are Cash A/c and Capital A/c.
Cash A/c gets debited by ₹10,000,
and Capital A/c get credited by ₹10,000.
All the processes of accounting are conducted in an ordered manner known as the accounting cycle.
The first step in an accounting cycle is to identify the transactions and events which are monetary in nature.
The second step is to record the identified transactions in form of journal entries.
And the third step is to make postings in the general ledger accounts as per the journal entries.
Hence, the preparation of the ledger is the third step in the accounting cycle and is prepared from the journal entries.
See lessWhat are outside liabilities?
Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital. Total Outside Liabilities in relation to the Borrower can be all secured and unsecured loans, including current liabilRead more
Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital.
Total Outside Liabilities in relation to the Borrower can be all secured and unsecured loans, including current liabilities of the Borrower.
External Liability or outside liability is an obligation which a business has to pay back to external parties i.e. lenders, vendors, government, etc. Payable to Sundry creditors for the supply of any goods for the business or payable to any contractors for receiving any services or payable to the Govt. or other departments for any statutory payments like taxes or other levies. All these liabilities are known as an external liability to the business and are shown on the liability side of the Balance sheet after charging into the profit & loss account of that period.
Where, Internal Liability – All obligations which a business has to pay back to internal parties such as promoters, employees, etc. are termed as internal liabilities. Example – Capital, Salaries, Accumulated profits, etc.
Example – Borrowings, Creditors, Taxes, etc.
Where, 1) Person A takes a loan from person B (person not associated with the company), person B is an external liability to person A.
2) Person A has a tax liability of Rs.1000, here the government is an external liability to whom A has to pay the liability amount.
3) Person A got goods on credit from person C for 60 days, C is an external liability to A, which A has to pay within the time period.
See lessAre current ratio and quick ratio the same?
No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two : Let’s take an example. Following is the balance sheet of X Ltd: Hence, as per the following information, Current Ratio = CuRead more
No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two :
Let’s take an example.
Following is the balance sheet of X Ltd:
Hence, as per the following information,
Current Ratio = Current Assets / Current Liabilities
= Inventories + Trade debtors + Bills receivables + Cash and bank + Prepaid Expenses / Trade Creditors + Bills Payables + Outstanding Salaries
= ₹85,000 + ₹2,50,000+ ₹95,000 + ₹1,50,000 + ₹10,000/ ₹2,00,000 + ₹75,000 + ₹25,000
= ₹6,00,000 / ₹3,00,000
= 2/1 or 2:1
Quick Ratio = Quick Assets / Current Liabilities
= Trade debtors + Bills receivables + Cash and bank / Trade Creditors + Bills Payables + Outstanding Salaries
= ₹2,50,000+ ₹95,000 + ₹1,50,000 / ₹2,00,000 + ₹75,000 + ₹25,000
= ₹5,05,000/ ₹3,00,000
= 41 / 25 or 1.68 : 1
Let’s discuss both ratios in detail.
1. Current ratio:
The current ratio represents the relationship between current assets and current liabilities
Current ratio = Current Assets/Current Liabilities
It measures the adequacy of the current assets to current liabilities. The main question this ratio tries to answer is: – “Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets?”
The generally acceptable current ratio is 2:1. But it depends on the characteristics of the assets of a business to judge whether a specific ratio is satisfactory or not.
2. Quick Ratio: Quick ratio is the ratio between quick assets and current liabilities. It is also known as the Acid Test Ratio. By quick assets, we mean cash or the assets that can be quickly converted into cash ( near cash assets)
Quick Assets = Current Assets – Inventories – Prepaid assets
Quick ratio = Quick Assets/Current Liabilities
Inventories are not considered near cash assets.
The quick ratio is a more conservative approach than the current ratio to measure the short term liquidity of a firm.
It answers the question, “If sales revenues disappear, could my business meet its current obligations with the readily convertible quick funds on hands?”
1:1 is considered satisfactory unless the majority of the quick asset are accounts receivable and the receivables turnover ratio is low.
See lessThe following is a statement of revenues and expenses for a specific period of time?
The correct answer is Option C. The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period ofRead more
The correct answer is Option C.
The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period of time.
Option A Trading Account reports only the operating revenues and operating expenses.
Option B Trial Balance shows the balances of all the ledgers of a business and is prepared to check the arithmetical accuracy of the books of accounts.
Option D Balance sheet reports the balances of assets and liabilities of a business as at a particular date.
People often confuse the trading and the profit and loss statement to be the same. But they are different.
Trading Account is prepared with aim of arriving at operating profit or gross profit whereas the profit and loss statement is prepared to arrive at the net profit of a business and reports every revenue and expense whether operating or non operating in nature.
Operating revenue and operating expense are earned or incurred respectively are related to the chief business activities of a business.
Features of profit and loss statement:
- It is prepared to measure the net profit of a business hence its profitability.
- It is usually prepared for a period of one year but many companies do prepare quarterly statements to better judge their performance.
- It helps the management in decision making and the other stakeholders like shareholders, creditors to make informed decisions.
See less