AccountingQA Latest Questions

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

    As per AS-10 ( Revised ): Property, Plant and Equipment, depreciation on an asset should begin when the asset is in the location and condition necessary for it to be capable of operating in the manner as intended by the management. This means a firm should start charging depreciation when the assetRead more

    As per AS-10 ( Revised ): Property, Plant and Equipment, depreciation on an asset should begin when the asset is in the location and condition necessary for it to be capable of operating in the manner as intended by the management.

    This means a firm should start charging depreciation when the asset is ready to be used as per the management’s desire.

    Let’s take an example to understand this clearly:

    A business bought a drinking water cooler for its office use on 1st April 2021. Now, this water cooler needs to be installed and wiped with Isopropyl Alcohol before it can be put to use.

    The business completed all the required procedures by 1st May 2021, but it opened the machine for office use from 1st August 2021.

    So the question arises, from when to start charging depreciation?

    • 1st April 2021 – The date of Purchase
    • 1st May 2021- The date when the machine was ready to use.
    • 1st August 2021 –The date from which the machine was put to use.

    The answer is 1st May 2021– The date when the machine was ready to use.

    It doesn’t matter whether the company started the use of an asset or not. Once an asset is in

    • the location and condition
    • necessary for it to be capable of operating
    • as intended by the management,

    the depreciation should begin.

     

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

    Let’s understand what a cashbook is: A petty cash book is a cash book maintained to record petty expenses. By petty expenses, we mean small or minute expenses for which the payment is made in coins or a few notes like tea or coffee expense, bus or taxi fare, stationery expense etc. Such expenses areRead more

    Let’s understand what a cashbook is:

    • A petty cash book is a cash book maintained to record petty expenses.
    • By petty expenses, we mean small or minute expenses for which the payment is made in coins or a few notes like tea or coffee expense, bus or taxi fare, stationery expense etc.
    • Such expenses are numerous in a day for a business and to account for such small expenses along with major bank and cash transactions may create an extra hassle for the chief cashier of a business.
    • So, the cash is allocated for petty expenses and a petty cashier is appointed and the task of recording the petty expenses in the petty cashbook is delegated to him.

    The manner in which entries are made

    When cash is given to the petty cashier, entry is made on the debit side and in the petty cashbook and credit entry in the general cashbook.

    Entries for all the expenses are made on the credit side.

    Generally, the petty cashbook is prepared as per the Imprest system. As per the Imprest system, the petty expenses for a period (month or week) are estimated and a fixed amount is given to the petty cashier to spend for that period.

    At the end of the period, the petty cashier sends the details to the chief cashier and he is reimbursed the amount spent. In this way, the debit balance of the petty cashbook always remains the same.

    Format and items which appear in the petty cashbook

    The format of the petty cashbook depends upon the type of petty cash book is prepared and the items appearing in it are nothing but petty expenses. Let’s see an example:-

    A business incurred the following petty expenses for the month of April:-

    1. Stamp – Rs. 10
    2. Postage – Rs. 50
    3. Cartage- Rs. 100
    4. Telephone expense – Rs. 500
    5. Refreshments – Rs. 250

    Now we will prepare two types of cashbooks:

    • Ordinary Petty Cashbook:

    Here, the Petty cash book is of the same format as the general cash book.

    The cash allocated for petty expenses is recorded on the debit side of the petty cash book and on the credit side of the general cash book.

    • Analytical Petty Cashbook

    Here, there are separate amount columns for each type of expense. As the name suggests, this type of petty cashbook helps to analyse the petty cash spending on basis of the type of expense.

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Ayushi
AyushiCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    Under Activity-Based Costing, overheads are accurately assigned to different activities and their costs are determined through costing methods. Activities are those events that incur costs whereas overheads are expenditures that cannot be traced to any particular cost unit. A Cost driver refers to tRead more

    Under Activity-Based Costing, overheads are accurately assigned to different activities and their costs are determined through costing methods. Activities are those events that incur costs whereas overheads are expenditures that cannot be traced to any particular cost unit.

    A Cost driver refers to the factor that causes a change in the cost of an activity. Activity-Based Costing is done to establish a link between the activities and the product. The cost drivers are those links between the activities and the product.

    Cost drivers are divided into four categories:

    • Resource Cost Driver – It is a measure of the number of resources used by an activity. It assigns the cost of a resource to an activity.
    • Activity Cost Driver – It is a measure of the frequency and intensity of demand, placed on activities by cost objects. It assigns activity costs to cost objects.
    • Structural Cost Driver – It results from the economic and technological structure of the industry.
    • Executional Cost Driver – It reflects the firm’s ability to plan and operate its production operations effectively.

    A Cost Centre refers to a department in a business where costs can be allocated. These departments run various processes and incur costs. They can be related to the production of goods or the provision of services. Different centres are allocated different budgets and hence it enables the business to run efficiently by tracking its incomes and expenses easily.

    Proper management of cost centres can help the company cut additional costs from each department. It also helps in more accurate forecasts depending on future changes.

    Cost centres and Cost Drivers are both important factors while following Activity-Based Costing. Some examples of cost drivers and cost centres are as follows :

     

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Astha
AsthaLeader
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The receipt of cash is recorded by debiting the cash account to the account from which the cash is received. This source account may be the sales account, account receivable account or any other account from which cash is received. The journal entry is: An entity may receive cash in the following evRead more

    The receipt of cash is recorded by debiting the cash account to the account from which the cash is received. This source account may be the sales account, account receivable account or any other account from which cash is received.

    The journal entry is:

    An entity may receive cash in the following events:

    • Sales of goods or provision of services
    • Payment from account receivables
    • Sale of assets.
    • Withdrawal of cash from the bank
    • Introduction of additional capital in the business
    • Subscription or donation received in case of non-profit oriented concerns.
    • Other income in cash

    This list is not exhaustive. There may be many such events. However, the cash account will be always debited.

    Rules of accounting applicable on the cash account

    As per the golden rules of accounting, the cash account is a real account as represents an asset. For real accounts, the rule, “Debit the receiver and credit the giver” applies.

    Hence, when cash is received, cash is debited and the source (giver) is credited.

    As per modern rules of accounting, the cash account is an asset account. Assets accounts are debited when increased and credited when decreased.

    Hence, at receipt of cash, cash is debited as cash is increased.

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Ayushi
AyushiCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Introduction As per SA 530, audit sampling refers to the application of auditing procedures to less than 100% of items within a population relevant under audit such that all the sampling units have an equal chance of selection. In simple words, sampling in auditing refers to the practice deriving aRead more

    Introduction

    As per SA 530, audit sampling refers to the application of auditing procedures to less than 100% of items within a population relevant under audit such that all the sampling units have an equal chance of selection.

    In simple words, sampling in auditing refers to the practice deriving a conclusion by the auditor about a population of data by evaluation of only a part or sample of the whole data. Population means a set of data.

    Concept of sampling

    We know, an audit involves inspection of financial information of an entity by an auditor to form an opinion on its financial statements. Now the financial information of a firm usually contains large volumes of data. For example, a firm may have entered into 50,000 purchase transactions in a year.

    Now, checking each and every purchase transaction will cost both time and money. Also, nowadays, almost every enterprise have internal controls and automated accounting systems that are established to ensure accuracy and prevention of errors. Hence, a  full-fledged inspection of each and every transaction is not worth the time and effort.

    Instead, a wise thing to do is to take a sample from the whole volume of transactions or accounts and apply the auditing procedures to the sample. The results derived from the sample are then projected upon the whole volume of data. Samples are often taken using statistical methods to ensure that sample is taken randomly and represents the whole population of data in a true and unbiased manner.

    Consideration regarding the population before audit sampling:

    1. The population is appropriate for the specific audit objective of the auditor
    2. It is from a reliable source to ensure sample reliability
    3. It is complete in terms of coverage of all relevant items throughout the period.

    Irrespective of the method of sampling, the sample must represent the whole population closely.

    Approaches to sampling

    There are two approaches to sampling:

    1. Statistical Approach: It is a scientific way of ensuring that the sample is chosen randomly from data and represents the data in a true and unbiased way. It employs mathematical and statistical tools like the theory of probability and also considers sampling risk characteristics.
    2. Non-Statistical Approach: Under this approach, the auditor employs his personal experience to collect sample from the population. No mathematical tools are used but the personal judgement of the auditor regarding sampling. Sometimes, this approach may give satisfactory results depending upon the capability of the auditor. But in most cases, reliability is less compared to the statistical approach.
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A_Team
A_Team
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  2. GautamSaxena Curious .
    This answer was edited.

    Starting of the business The starting of the business, in accounting terms, is called the commencement of the business. There are three types of businesses that can be commenced, they are, sole proprietorship, partnership, and joint-stock company. In order to start the business, in companies, commenRead more

    Starting of the business

    The starting of the business, in accounting terms, is called the commencement of the business. There are three types of businesses that can be commenced, they are, sole proprietorship, partnership, and joint-stock company.

    In order to start the business, in companies, commencement is a declaration issued by the company’s directors with the registrar stating that the subscribers of the company have paid the amount agreed. In a sole proprietorship, the business can be commenced with the introduction of any asset such as cash, stock, furniture, etc.

    Journal entry

    In this entry, “Started business with cash $60,000”

    As per the golden rules of accounting, the cash a/c is debited because we bring in cash to the business, and as the rule says “debit what comes in, credit what goes out.” Whereas the capital a/c is credited because “debit all expenses and losses, credit all incomes and gains”

    As per modern rules of accounting, cash a/c is debited as cash is a current asset, and assets are debited when they increase. Whereas, on the increment on liabilities, they are credited, therefore, capital a/c is credited.

     

     

     

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Bonnie
BonnieCurious
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  2. Akash Kumar AK
    This answer was edited.

    Debts are of two types one is Good Debt, and another one is Bad debt. Bad Debts The amount which is not recoverable from the debtors is called Bad debt.  It is an uncollectable amount from the organization's customers due to the customer's inability to pay the amount of money taken on credit.  Read more

    Debts are of two types one is Good Debt, and another one is Bad debt.

    Bad Debts

    The amount which is not recoverable from the debtors is called Bad debt.  It is an uncollectable amount from the organization’s customers due to the customer’s inability to pay the amount of money taken on credit.

     

    Example 1

    Mr A borrowed $100 from Mr B for his college fee and agrees to pay in 2 months. After the time period is complete Mr A failed to repay the borrowed amount. This is a  Bad Debt for Mr B.

    Example 2

    XYZ Co. had made a credit sale of $50,000. A debtor who has to pay $1000 has been bankrupted. XYZ co. cannot recover the amount from the Debtor, so it records the irrecoverable amount as a bad debt.

     

    Journal Entry

    In this entry, “Bad debts are written off of Rs. 2000.”

    Bad debt is the amount not recoverable from debtors, which is a loss for the organization.

    Modern Rule

    The Modern rules of accounting for Expenses are “Debit the increase in expenses and Credit the decrease in expenses.”

     

    Golden Rule

    The Golden rules of accounting for expenses and losses are “Debit all expenses and losses, Credit all incomes and gains.”

    Bad Debts A/c Dr. 2,000

    To Debtor’s A/c 2000

     

    Bad debt is treated as a loss for the organization. As per the rule, this should be debited to the profit and loss account.

    Profit and Loss A/c Dr. – 2000

    To Bad Debts A/c – 2000

     

    Instead of passing two separate entries for writing off, we can combine the entries and pass one entry.

    Profit and Loss A/c Dr. 2000

    To Debtor’s A/c 2000

     

    Recovery of Bad debts

    Recovery of Bad debt is the amount received for a debt that was written off in the past. It was considered uncollectable.

    When we write off bad debt, it is recorded as a loss, but the recovery of bad debts is treated as an income for the business.

    It is treated as an income and the recovery of bad debt is shown on the credit side of the Income statement.

     

     

     

    Journal Entry for Recovery of Bad debts

    Bank/Cash A/c Dr. – Amount

    To Bad Debts Recovered A/c – Amount

    Rules applied in the Journal entry are as per the Golden rules of accounting,

    “Cash/Bank A/C” is a real account therefore debit what comes in and credit what goes out.

    “Bad Debts Recovered A/C” is a nominal account therefore debit all expenses and losses, and credit all incomes and gains.

     

    Treatment of “Bad Debt written off of Rs.2ooo.”

    In Trial Balance: No effect

    In Income Statement: It is shown on the debit side as Rs.2000 (loss)

    In Balance Sheet: Rs.2000 shall be deducted from the sundry debtor account.

     

     

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