AccountingQA Latest Questions

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

    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.

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Simerpreet
SimerpreetHelpful
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  2. Rahul_Jose Aspiring CA currently doing Bcom
    This answer was edited.

    Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you alreadRead more

    Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you already paid on purchase and pay only the balance amount.

    EXAMPLE

    Suppose Ashok purchased goods worth Rs 100 while paying tax at 10%, that is Rs 10. He now sold the goods for Rs 200, with a tax payable of Rs 20. Now, Ashok can avail input tax credit of Rs 10 that he already paid for the purchase and hence the net tax payable is Rs 10 (20-10).

    METHOD OF UTILISATION OF ITC

    The central government collects CGST, SGST, UTGST or IGST based on whether the transactions are done intrastate or interstate.

    The amount of input tax credit on IGST is first used for paying IGST and then utilised for the payment of CGST and SGST or UTGST. Similarly, the amount of ITC relating to CGST is first utilised for payment of CGST and then for the payment of IGST. It is not used for the payment of SGST or UTGST. Meanwhile, the amount of ITC relating to SGST is utilised for payment of SGST or UTGST and then for the payment of IGST. Such amounts are not used for payment of CGST.

    We can see how Input Tax Credit is used from the below example and table:

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Simerpreet
SimerpreetHelpful
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A. Events B. Transactions C. Journals D. None of These

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

    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.

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Jayesh Gupta
Jayesh GuptaCurious
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  2. Spriha Sparsh
    This answer was edited.

    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.

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Ayushi
AyushiCurious
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    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.

     

     

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Samar Sparsh

    The current ratio is a liquidity ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is important because short-term liabilities are due within a period of twelve months. The current ratio is calculated using two standard figures thatRead more

    The current ratio is a liquidity ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is important because short-term liabilities are due within a period of twelve months.

    The current ratio is calculated using two standard figures that are shown in the company’s balance sheet: current assets and current liabilities. The formula for the same goes as:

    Current ratio = Current Assets / Current Liabilities

    A current ratio of 2:1 is considered ideal. Generally, a ratio between 1.5 to 2 is considered beneficial for the business, which means that the company has more financial resources (Current Assets) to cover its short-term debt (Current Liabilities).

    A high current ratio may indicate that the business is having difficulties managing its capital efficiently to generate profits.

    On the other hand, a lower current ratio (especially lower than 1) would signify that the company’s current liabilities exceed its current assets and the business may have difficulty covering its short-term debt. Although the definition of a good current ratio may vary in the different industry groups.

    Example- Where,

    1) CR is 2:1, the company is in a good situation as it has double the Current Assets in order to cover the short-term debt.

    2) CR is 0.5:1, the company is not in a good situation as it has only half the Current Assets in order to cover the short-term debt.

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Ayushi
AyushiCurious
In: >

  2. Samar Sparsh
    This answer was edited.

    Let us assume that we are discussing Input Tax Credit in GST of India. Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can claim credit and use it to reduce its tax liability when it makes a sale. In other words, it means at the time of paying tax on output (Final sRead more

    Let us assume that we are discussing Input Tax Credit in GST of India.

    Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can claim credit and use it to reduce its tax liability when it makes a sale. In other words, it means at the time of paying tax on output (Final sale product), you can reduce the tax you have already paid on inputs (Purchase).

    Example  For a manufacturer, tax payable on output (Final product) is Rs 500 and tax paid on input A is Rs 100, input B is Rs 50 and, input C is Rs50. You can claim INPUT CREDIT of Rs 200(100+50+50) and you only need to deposit Rs 300(500-200) in taxes.

    Conditions- Only a Registered Person would be able to claim the benefit of Input Tax Credit of GST after satisfying the following:

    1. He is in possession of a Tax Invoice or any other specified tax-paid document.
    2. He has received the goods or services. Includes “Bill to ship” scenarios.
    3. Tax is actually paid by the supplier.
    4. The supplier has furnished the GST Return.
    5. To claim ITC, the buyer should pay the supplier for the supplies received (inclusive of tax) within 180 days from the date of issuing the invoice.

    Claiming of ITC – Discussed by taking an example, seller A sold his goods to B. Now B who is a buyer will be eligible to claim the input tax credit on purchases based on the invoices when he makes further sales. Now,

    •  S will upload the details of all the tax invoices in GSTR 1.
    • All the details in accordance with the sales to B will reflect in GSTR 2A, and the same data will be taken by B to file GSTR 2 (i.e. details of inward supply).
    • B will accept the details about the purchase that has been made and uploaded by the seller, the tax on purchases will be credited to ‘Electronic Credit Ledger’ of B and he can adjust it against future output tax liability and get the refund.
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