AccountingQA Latest Questions

Manvi
Manvi
In: >

  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    Discount received is the reduction in the price of the goods and services which is received by the buyer from the seller. It is an income for the buyer and is credited to the discount received account and credited to the seller/supplier’s account. Journal entry for discount received as per modern ruRead more

    Discount received is the reduction in the price of the goods and services which is received by the buyer from the seller. It is an income for the buyer and is credited to the discount received account and credited to the seller/supplier’s account.

    Journal entry for discount received as per modern rules:

    Creditor’s A/c Debit Decrease in liability
            To Cash A/c Credit Decrease in asset
            To Discount Received A/c Credit Increase in income
    (Being goods purchased and discount received)

    Discount allowed is the reduction in the price of the goods which is granted by the seller to the buyer on prompt payment of their account. It is an expense for the seller and is debited to the discount allowed account and credited to the buyer’s account.

    Journal entry for discount allowed as per modern rules:

    Cash A/c Debit Increase in asset
    Discount Allowed A/c Debit Increase in expense
        To Debtor’s A/c Credit Decrease in asset
    (Being goods sold and discount allowed)

    For example, A Ltd. offers a 10% discount to the customers who settle their debts within two weeks. Mr.B a customer purchased goods worth Rs.20,000.

    According to modern rules, A Ltd will record this sale as:

    Particulars Amt Amt
    Cash A/c                                    Dr. 8,000
    Discount Allowed A/c             Dr. 2,000
                To Mr.B’s A/c 10,000

     

    Mr.B will record this purchase as:

    Particulars Amt Amt
    A Ltd A/c                                    Dr. 10,000
       To Cash A/c 8,000
       To Discount Received A/c 2,000

    For a business, the discount received is an income, and the discount allowed is an expense. In the above example, A Ltd has granted a discount and B is the receiver of the discount. Hence, for A Ltd discount allowed is an expense and for B discount received is an income.

    See less
    • 0
Vijay
VijayCurious
In: >

  2. Radha M.Com, NET
    This answer was edited.

    Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense. Outstanding expenses are treated as a liability as the business is yet tRead more

    Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense.

    Outstanding expenses are treated as a liability as the business is yet to make payment against them. Examples of outstanding expenses include outstanding rent, salary, wages, etc.

    At the end of the accounting year, outstanding expenses have to be accounted for in the book of accounts so that the financial statements reflect the accurate profit/loss of the business.

    Journal entry for recording outstanding expenses:

    Expense A/c Debit
       To Outstanding Expenses A/c Credit
    (Being expenses outstanding at the end of the year)

    The concerned expense A/c is debited as there is an increase in expenses. Outstanding expenses are a liability, hence they are credited.

    Let me give you a simple example,

    Max, a sole proprietor pays 1,00,000 as salary for his employees at the end of every month. Due to the Covid-19 lockdown, he could not pay his employees’ salaries for March month. So the salary for March (1,00,000) will be treated as an outstanding expense. The following entry is made to record outstanding salaries for the year.

    Salary A/c   1,00,000
       To Outstanding Salaries A/c   1,00,000
    (Being salaries outstanding at the end of the year)

    At the end of the year, outstanding salary will be adjusted in the P&L A/c and it will be shown as a Current Liability in the Balance Sheet.

    See less
    • 0
Astha
AsthaLeader
In: >

  2. Simerpreet Helpful CMA Inter qualified

    Outstanding Income is the income that is due and is being earned but not yet received. The person/ firm has the legal rights to receive that part of the income which it has earned. Outstanding Income is an Asset Account for the business/ the person. According to the modern approach, for Asset AccounRead more

    Outstanding Income is the income that is due and is being earned but not yet received. The person/ firm has the legal rights to receive that part of the income which it has earned.

    Outstanding Income is an Asset Account for the business/ the person.

    According to the modern approach, for Asset Account:

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

    So the journal entry  will be-

     

    For Example, Mr. Rashid works as a laborer in a factory and he earns wages @Rs 500/day.

    So by the end of the week, he receives a payment of Rs 3000 of Rs 3500 i.e. he receives payment of 6 days instead of 7 days. So here Rs 500 would be an outstanding income of Mr. Rashid as he has earned that income but has not received it yet.

    Journal Entry –

     

    Another example, Yes Bank gave a loan of Rs 10,00,000 to company Ford @ 10% as interest payable monthly. The interest for one month i.e. Rs 1,00,000 has not been received by Yes Bank which is being due. So it will be outstanding income for Yes Bank since it is due but not yet received.

    Journal entry-

     

    Accounting Treatment for Outstanding Income-

    • Treatment in Income Statement

    The Outstanding Income is shown on the credit side of the income statement as the income is earned for the current year but not yet received.

    • Treatment in Balance Sheet

    Outstanding Income is an Asset for the business and hence shown on the Assets side of the balance sheet.

     

    See less
    • 0
Karan
Karan
In: >

  2. Manvi Pursuing ACCA
    This answer was edited.

    The accounting equation represents the relationship between assets, capital, and liabilities of a business. It follows the concept of the double-entry bookkeeping system where every debit has an equal credit. The rules state that at any time a business’ assets should equal liabilities. This is alsoRead more

    The accounting equation represents the relationship between assets, capital, and liabilities of a business. It follows the concept of the double-entry bookkeeping system where every debit has an equal credit. The rules state that at any time a business’ assets should equal liabilities. This is also known as the statement of financial position equation.

    The accounting equation can be shown as follows:

      Assets = Capital + Liabilities

    For example, Liza starts a business by investing $3,000 as cash. In accounting terms, business and owner are separate and so business owes money to Liza as capital.

    In this example,

    Capital invested = $3,000

    Cash (Asset) = $3,000

    If Liza puts this into the accounting equation, it will be shown as:

    Assets = Capital + Liabilities
    $3,000 (Cash) = $3,000 + Liabilities

    Further, Liza purchases a market stall from Ben and the cost of the stall was $1,800. She purchases flowers from the wholesale market at a cost of $700. Now she is left with $500 cash out of the original $3,000.

    The state of her business has now changed and can be shown as follows:

    Assets = Capital + Liabilities
    Stall        $1,800 $3,000 + Liabilities
    Flowers     $700
    Cash         $500
                     $3,000 $3,000
    See less
    • 0
prashant06
prashant06
In: >

  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Prepaid expenses are those expenses that have not been expired yet but their payment has already made in advance. There are many examples of prepaid expenses such as rent paid in advance, interest paid in advance, unexpired insurance You might be wondering what kind of account it is? As the name sugRead more

    Prepaid expenses are those expenses that have not been expired yet but their payment has already made in advance. There are many examples of prepaid expenses such as rent paid in advance, interest paid in advance, unexpired insurance

    You might be wondering what kind of account it is? As the name suggests it should be an expense but actually it’s an asset. When we initially record prepaid expenses we consider them as current assets and show them in the balance sheet. It turns out to be an expense when we use the service/item for what we have paid for in advance.

    The entry for the above explanation is as follows:

    From the modern rule, we know Assets and expenses increased are debits while decrease in assets and expenses are credit.

    As this is asset, increase in asset therefore we debit prepaid expense and on the other hand we pay cash/ bank on behalf of that asset in advance hence there is decrease in assets hence credited. The entry will be as follows:

    Prepaid Expense A/c                                                  …….Dr XXX
               To Cash/ Bank XXX

    when this prepaid expense actually becomes expense we pass the adjusting entry. The entry will be as follows:

    Expense A/c                                                               …….Dr XXX
               To Prepaid expense XXX

    Let me give you simple example of the above entry.

    Suppose you pay advance rent of Rs 9,000 for six months for the space you haven’t used yet. So you need to record this as prepaid expense and show it on the asset side of the balance sheet under current assets. Since you paid for the same the entry would be as follows:

    Prepaid Rent A/c                                                  …….Dr 9,000
               To Cash/ Bank 9,000

    As each month passes we will adjust the rent with prepaid rent account. Since the rent was advanced for 6 months, therefore (9,000/6) Rs 1500 will be adjusted each month with the rent expense account. The adjustment entry will be:

    Rent A/c                                                               …….Dr 1,500
               To Prepaid rent 1,500

    The process is repeated until the rent is used and asset account becomes nil.

     

    See less
    • 0
Aadil
AadilCurious
In: >

A. True B. False

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

    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 less
    • 0
Aadil
AadilCurious
In: >

  2. Vijay Curious M.Com
    This answer was edited.

    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.

    An extract of both the accounts are as follows:

    Machinery A/c

    Date Particulars J.F. Amt. Date Particulars J.F. Amt.
    May-01 To Bank A/c 32   5,00,000

     

    Bank A/c

    Date Particulars J.F. Amt. Date Particulars J.F. Amt.
    May-01 By Machinery A/c 32   5,00,000
    See less
    • 0
Load More Questions

Most Helping Users

Astha

Astha

Leader
Simerpreet

Simerpreet

Helpful
AbhishekBatabyal

AbhishekBatabyal

Helpful