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:
Ledger accounts get the ready results i.e. helps in identifying the amount payable or receivable.
It is necessary for the preparation of the Trial Balance.
The financial position of the business is easily available with the help of Assets A/c and Liabilities A/c.
It helps in preparing various types of income statements on the basis of balances shown in ledger accounts.
It can be used as a control tool as it shows balances of various accounts.
It is useful for the management to forecast or plan for the future.
As you know all transactions occurring in a business are recorded in the journal (book of original entry) in chronological order. After recording them in the journal, they are posted to their respective ledger accounts. Here I've explained the steps involved in posting a journal entry to the ledger.Read more
As you know all transactions occurring in a business are recorded in the journal (book of original entry) in chronological order. After recording them in the journal, they are posted to their respective ledger accounts.
Here I’ve explained the steps involved in posting a journal entry to the ledger.
Posting of an account debited in the journal entry:
Step 1: Identify the account which has to be debited in the ledger.
Step 2: Write the date of the transaction under the ‘Date Column’ of the debit side of the ledger account.
Step 3: Write the name of the account which has been credited in the journal entry in the ‘Particulars Column’ on the debit side of the account as “To (name of the account)”.
Step 4: Write the page number of the journal where the entry exists in the ‘Journal Folio (JF) Column’.
Step 5: Enter the amount in the ‘Amount Column’ on the debit side of the ledger account.
Posting of an account credited in the journal entry:
Step 1: Identify the account which has to be credited in the ledger.
Step 2: Write the date of the transaction under the ‘Date Column’ of the credit side of the ledger account.
Step 3: Write the name of the account which has been debited in the journal entry in the ‘Particulars Column’ on the credit side of the account as “By (name of the account)”.
Step 4: Write the page number of the journal where the entry exists in the ‘Journal Folio (JF) Column’.
Step 5: Enter the amount in the ‘Amount Column’ on the credit side of the ledger account.
I’ll explain the process of preparing a ledger A/c with a simple transaction.
On 1st May ABC Ltd. purchased machinery for 5,00,000. In the Journal the following entry will be made.
Machinery A/c
5,00,000
To Bank A/c
5,00,000
(Being machinery purchased for 5,00,000)
Let’s assume that this entry appears on page no. 32 of the journal. Now we will open Machinery A/c and Bank A/c in the Ledger.
On the debit side of the Machinery A/c “To Bank A/c” will be written. In the Bank A/c “By Machinery A/c” will be written on the credit side.
The answer is B. False. Before jumping on the solution to know why goodwill is not fictitious, we need to know what are fictitious assets? Fictitious assets are false assets or not true assets. These are not assets but expenses & losses that are not written off from the profit & loss accountRead more
The answer is B. False. Before jumping on the solution to know why goodwill is not fictitious, we need to know what are fictitious assets?
Fictitious assets are false assets or not true assets. These are not assets but expenses & losses that are not written off from the profit & loss account but shown in the balance sheet as assets under the head miscellaneous expenditure. For example preliminary expenses, loss on issue of debentures, etc.
Goodwill is not a fictitious asset but an intangible asset which means it has no actual physical appearance and cannot be touched and felt like other assets like buildings and machinery. It is nothing but a firm’s reputation which can be sold just like other assets help the business grow and earn revenue. Goodwill is shown in the balance sheet as follows:
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:
Direct Method
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)
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.
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 repaymentof 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)
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-
Main objective of preparing ledger account is to?
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:
- Ledger accounts get the ready results i.e. helps in identifying the amount payable or receivable.
- It is necessary for the preparation of the Trial Balance.
- The financial position of the business is easily available with the help of Assets A/c and Liabilities A/c.
- It helps in preparing various types of income statements on the basis of balances shown in ledger accounts.
- It can be used as a control tool as it shows balances of various accounts.
- It is useful for the management to forecast or plan for the future.
See lessWrite the process of preparing ledger from a journal?
As you know all transactions occurring in a business are recorded in the journal (book of original entry) in chronological order. After recording them in the journal, they are posted to their respective ledger accounts. Here I've explained the steps involved in posting a journal entry to the ledger.Read more
As you know all transactions occurring in a business are recorded in the journal (book of original entry) in chronological order. After recording them in the journal, they are posted to their respective ledger accounts.
Here I’ve explained the steps involved in posting a journal entry to the ledger.
Posting of an account debited in the journal entry:
Step 1: Identify the account which has to be debited in the ledger.
Step 2: Write the date of the transaction under the ‘Date Column’ of the debit side of the ledger account.
Step 3: Write the name of the account which has been credited in the journal entry in the ‘Particulars Column’ on the debit side of the account as “To (name of the account)”.
Step 4: Write the page number of the journal where the entry exists in the ‘Journal Folio (JF) Column’.
Step 5: Enter the amount in the ‘Amount Column’ on the debit side of the ledger account.
Posting of an account credited in the journal entry:
Step 1: Identify the account which has to be credited in the ledger.
Step 2: Write the date of the transaction under the ‘Date Column’ of the credit side of the ledger account.
Step 3: Write the name of the account which has been debited in the journal entry in the ‘Particulars Column’ on the credit side of the account as “By (name of the account)”.
Step 4: Write the page number of the journal where the entry exists in the ‘Journal Folio (JF) Column’.
Step 5: Enter the amount in the ‘Amount Column’ on the credit side of the ledger account.
I’ll explain the process of preparing a ledger A/c with a simple transaction.
On 1st May ABC Ltd. purchased machinery for 5,00,000. In the Journal the following entry will be made.
Let’s assume that this entry appears on page no. 32 of the journal. Now we will open Machinery A/c and Bank A/c in the Ledger.
On the debit side of the Machinery A/c “To Bank A/c” will be written. In the Bank A/c “By Machinery A/c” will be written on the credit side.
An extract of both the accounts are as follows:
Machinery A/c
Bank A/c
Goodwill is a fictitious asset?
The answer is B. False. Before jumping on the solution to know why goodwill is not fictitious, we need to know what are fictitious assets? Fictitious assets are false assets or not true assets. These are not assets but expenses & losses that are not written off from the profit & loss accountRead more
The answer is B. False. Before jumping on the solution to know why goodwill is not fictitious, we need to know what are fictitious assets?
Fictitious assets are false assets or not true assets. These are not assets but expenses & losses that are not written off from the profit & loss account but shown in the balance sheet as assets under the head miscellaneous expenditure. For example preliminary expenses, loss on issue of debentures, etc.
Goodwill is not a fictitious asset but an intangible asset which means it has no actual physical appearance and cannot be touched and felt like other assets like buildings and machinery. It is nothing but a firm’s reputation which can be sold just like other assets help the business grow and earn revenue. Goodwill is shown in the balance sheet as follows:
See lessWhat is the journal entry for bad debts?
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: 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:
Journal entry for transferring bad debts to profit and loss account:
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:
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:
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”.
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.
Can you tell me journal entry for provision for depreciation?
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
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.
See lessCan someone tell me the journal entry for car loan for office use?
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.
See lessWhat is the journal entry for cash sales?
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-
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:
According to the Modern approach for Cash account:
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-
See less