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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. ShreyaSharma none
    This answer was edited.

    Land in the balance sheet The land is an asset and hence it is shown on the asset side of the balance sheet. On the asset side of the balance sheet, the land is stated under the heading long-term assets. Balance Sheet (for the year…) Explanation The land is a fixed asset and is supposed not to be caRead more

    Land in the balance sheet

    The land is an asset and hence it is shown on the asset side of the balance sheet.

    On the asset side of the balance sheet, the land is stated under the heading long-term assets.

    Balance Sheet (for the year…)

    Explanation

    The land is a fixed asset and is supposed not to be cashed, consumed, last, sold, or written off within one accounting year and is purchased for long-term use. The fixed assets are also called non-current assets and the reason behind it is that current assets are easily converted into cash within one year and they are not.

    • The sole purpose of buying fixed assets like the land is that they are planned to be used for the long term in order to generate income.
    • Examples of fixed assets – Land, buildings, furniture, plants & equipment, etc.
    • Also called non-current assets and capital assets.

     

    Why is it shown on the asset side?

    The land is an asset, although it is not depreciable it is still considered to be an asset because just like other assets the business spends its own money to acquire it, and it gives them a long-term benefit while reselling it.

    Therefore, the land is shown on the asset side under the fixed asset heading.

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Aadil
AadilCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant

    A contra account is a general ledger account that is used to reduce the value of the account related to it. Basically, a contra account is the opposite of its associated account. If the associated account has a debit balance, then the contra account would have a credit balance. They are used to mainRead more

    A contra account is a general ledger account that is used to reduce the value of the account related to it. Basically, a contra account is the opposite of its associated account. If the associated account has a debit balance, then the contra account would have a credit balance. They are used to maintain the historical value of the main account while all the deductions are recorded in the contra account, which when clubbed together show the net book value.

    For example

    if the cost of machinery was Rs. 50,000 and the company wants to preserve its original cost, then the accumulated depreciation of such machinery is recorded separately. Let’s say Rs 10,000 was the accumulated depreciation. Then such amount is recorded in the contra account named accumulated depreciation account. This makes the net value of the machinery Rs 40,000.

    Types

    There are various types of contra accounts such as contra asset, contra equity, contra revenue, and contra liability.

    • Contra asset: these accounts have credit balances and are used to reduce the balance of an asset. Eg, Accumulated depreciation.
    • Contra Liability: These accounts have debit balances and are used to reduce the balance of liabilities. Eg, discount on notes.
    • Contra equity: These accounts have a credit balance and are used to reduce the number of shares outstanding which in turn reduces equity. Eg treasury stock.
    • Contra revenue: These accounts have a debit balance. They reduce gross revenue which results in net revenue. Eg sales return.

    Accountants make use of contra accounts instead of reducing the value of the actual account to keep the financial statements clean.

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

    The difference between a ledger & a trial balance is as follows: Basis Ledger Trial Balance Meaning Ledger is a book/register in which all the accounts are put together. A Trial Balance is a statement showing the debit and credit balance of all the accounts to ascertain the arithmetical accuracyRead more

    The difference between a ledger & a trial balance is as follows:

    Basis Ledger Trial Balance
    Meaning Ledger is a book/register in which all the accounts are put together. A Trial Balance is a statement showing the debit and credit balance of all the accounts to ascertain the arithmetical accuracy of the books of accounts.
    Basis of preparation Journal is the basis for recording transactions in the ledger. The closing balances of different accounts in the ledger are the basis for preparing the trial balance.
    Objective It is prepared to see the net effect of various transactions affecting a particular account. It is prepared to check the arithmetical accuracy of the books of accounts.
    Format A ledger has four identical columns on the debit and credit sides: 1. Date, 2. Particulars, 3. Journal Folio, 4. Amount. A Trial Balance has five columns: 1. S.No, 2. Name of Accounts, 3. Ledger Folio, 4. Debit Balance, 5. Credit Balance.
    Stage of Recording A ledger is prepared after recording the transactions in the journal. A trial balance is prepared after posting the transactions in the ledger.
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Jayesh Gupta
Jayesh GuptaCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    A cash flow statement presents the changes in the cash and cash equivalents of a business. It classifies the cash flow items into either operating, investing, or financing activities. Unlike a balance sheet that provides information about the company on a particular date, a cash flow statement proviRead more

    A cash flow statement presents the changes in the cash and cash equivalents of a business. It classifies the cash flow items into either operating, investing, or financing activities. Unlike a balance sheet that provides information about the company on a particular date, a cash flow statement provides information about the flow of cash over a period of time.

    OBJECTIVE

    Information obtained through cash flow statements is aimed to assess the ability of a business to generate cash and at the same time, maintain liquidity. Therefore, important economic decisions can be made by evaluating these cash flow statements.

    Cash Flow statements are categorized into

    • Operating Activities: These activities refer to the main activities of the business during an accounting period. They involve revenue-generating activities. As per the indirect method, profit before tax is taken as the starting point and all non-cash expenses are added while non-cash incomes are deducted. Whereas in direct method, cash receipts and cash expenses are added and subtracted respectively. Eg: sale of goods.
    • Investing Activities: These activities involve the sale and purchase of non-current assets and investments. Eg: cash payment for machinery.
    • Financing Activities: These activities result in a change in capital or borrowings. Eg: cash proceeds from the issue of equity shares.

    Importance of Cash Flow

    A cash flow statement gives us knowledge about the liquidity and solvency of the company. These are necessary for the survival and expansion of the company. It also helps in predicting future cash flows by using information from previous cash flows. It also helps in comparison between companies which shows the actual cash profits.

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Aadil
AadilCurious
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The term ‘contra’ means  'opposite'. Therefore, a contra revenue account is an account that is opposite of the revenue accounts of a business i.e. sales account. It has the opposite balance of the revenue account i.e. debit balance. The purpose of the contra revenue account is to ascertain the actuaRead more

    The term ‘contra’ means  ‘opposite’. Therefore, a contra revenue account is an account that is opposite of the revenue accounts of a business i.e. sales account. It has the opposite balance of the revenue account i.e. debit balance.

    The purpose of the contra revenue account is to ascertain the actual amount of sales and record the items which have reduced the sales.

    These are the contra revenue accounts commonly seen in businesses:

    • Sales return account: This account records the amount of goods sold returned by customers. The journal entry for recording sale return is as follow:

    The total sales return is deducted from the sales in the balance sheet. Though being opposite of the sales account, the sale return account is not an expense account. It is considered an indirect loss as it reduces sales.

    • Sale Discount account: This account records the amount of discount allowed to customers. The journal entry for recording sale discounts is as follows:

    Sales discount is an expense hence it is debited to the profit and loss account.

    Sales returns and sales discounts are shown in the trading and profit and loss account in the following manner:

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Astha
AsthaLeader
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  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Journal Entry for Interest on Drawings is- Particulars Amount Amount Drawings A/c                                                      Dr $$$      To Interest on Drawings A/c $$$ So as per the modern approach: From the point of view of business, Interest on Drawings is an Income. When there is an inRead more

    Journal Entry for Interest on Drawings is-

    Particulars Amount Amount
    Drawings A/c                                                      Dr $$$
         To Interest on Drawings A/c $$$

    So as per the modern approach: From the point of view of business, Interest on Drawings is an Income.

    • When there is an increase in the Income, it is credited.
    • When there is a decrease in the Income, it is debited.

     

    From the point of view of the proprietor, Interest on Drawings is a Liability.

    So as per the modern approach:

    • When there is an increase in the Liability, it is credited.
    • When there is a decrease in the Liability, it is debited.

     

    So as per the modern approach,  Interest on Drawings is credited because with Interest the income increases for the business. Whereas,  the amount of such interest is a loss from the point of view of the owner/ Proprietor, as such the amount of drawings is increased by the amount of interest and hence the Drawings account is debited.

    For Example, Harry charged interest on drawings on Rs 10,000 @ 12% for one year.

    Explanation:

    Step 1: To identify the account heads.

    In this transaction, two accounts are involved, i.e. Drawings A/c and Interest on Drawings A/c.

    Step 2: To Classify the account heads.

    According to the modern approach: From the point of view of business,  Interest on Drawings is a Revenue A/c and Drawings A/c is an Expense A/c.

    Step 3: Application of Rules for Debit and Credit:

    According to the modern approach: As Revenue increases because of interest on drawings received by the business, Interest on Drawings A/c will be Credited. (Rule – increase in Revenue is credited).

    Drawings A/c is an expense account for the business and as expense increases, Drawings A/c will be debited. (Rule – increase in the expenses is debited).

    So from the above explanation, the Journal Entry will be-

    Particulars Amount Amount
    Drawings A/c                                                      Dr 1,200
         To Interest on Drawings A/c 1,200

     

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Rahul_Jose
Rahul_Jose
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  2. Pooja_Parikh Aspiring Chartered Accountant

    Any person, company, or organization that owes us money is a debtor. The amount that is owed to us is called debt. When you are unsure if a debtor is going to pay back the amount owed to you, then a provision for doubtful debts is created. Here, the debtor may or may not pay back the amount owed. WhRead more

    Any person, company, or organization that owes us money is a debtor. The amount that is owed to us is called debt. When you are unsure if a debtor is going to pay back the amount owed to you, then a provision for doubtful debts is created. Here, the debtor may or may not pay back the amount owed. When the debts owed to us is irrecoverable, it is termed as bad debts.

    Provision for doubtful debts may become a bad debt at some point. Usually, companies keep a small portion of their debtors as a provision for doubtful debts in accordance with the prudence concept that tells us to account for all possible losses. Provision for doubtful debts is a liability whereas bad debts are recorded as an expense.

    Journal entries for Doubtful debts and bad debts are as follows:

    EXAMPLE

    If the balance in the debtors’ account shows an amount of Rs 20,000 and 5% of debtors are treated as doubtful, then Rs 1,000 is recorded as a provision for doubtful debts. This amount is deducted from debtors in the balance sheet.

    Now if Rs 400 was recorded as actual bad debts, then it is deducted from the provision for doubtful debts instead of debtors. Further another 400 is added back to provision for doubtful debts to maintain the percentage.

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