The correct answer is 2. Credit balance in the bank column of the cash book. The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allowsRead more
The correct answer is 2. Credit balance in the bank column of the cash book.
The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allows the account holder to borrowa specified sum of money over and above the balance in their accounts.
It is a form of short-term borrowing offered by banks and is extremely useful for businesses to resolve short-term cash flow issues.
The account holder can withdraw money even when his/her account does not have enough balance to cover the withdrawal. Since the business is withdrawing money that is not in its account, an overdraft is represented by a negative bank balance. That is why they are shown as a credit balance in the bank column of the Cash Book.
Overdraft is a liability for the business. Hence, it is shown on the Equity and Liability part of the Balance Sheet under the head Current Liabilities and sub-head Short Term Borrowings.
Banks do not offer this facility to all customers. Only those who have a good reputation and credit score are eligible for this facility. Like any other borrowing, interest is charged on the amount utilized by the account holder as an overdraft.
The "Income and Expenditure" account lists all the income and expenses incurred by the entity throughout the year. This account is very identical to the profit and loss account and is generally prepared on an accrual basis irrespective of whether the amount is received or paid. Non-profit organizatiRead more
The “Income and Expenditure” account lists all the income and expenses incurred by the entity throughout the year. This account is very identical to the profit and loss account and is generally prepared on an accrual basis irrespective of whether the amount is received or paid. Non-profit organizations (NPO) prepare this type of account to ascertain surplus earned or deficit incurred by them during the period.
Talking about the format of income and expenditure accounts we generally see that all the expenses are recorded on the debit side while all incomes are recorded on the credit side. One important thing to note is that items so recorded are revenue items while capital nature items are generally ignored because only current period items are recorded in this statement.
Since it is a Nominal account, we follow the golden rules to prepare this, stating “debit all expenses and losses and credit all incomes and gains”. The closing balance at the end shows the surplus or deficit for the year. If the balancing figure appears on the debit side it is surplus and if the balancing figure appears on the credit side it is a deficit for the entity.
Following is the format of income and expenditure account
The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution. Revenue expendituresRead more
The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution.
Revenue expenditures are the short-term expenses and consumed within one accounting year and are also known as operating expenses.
Payment of honorarium to the secretary is treated as revenue expenditure because benefits from the expense are derived in the same accounting period. The honorarium is a type of outside expense and any outside expense is revenue in nature. It is a daily allowance incurred to cover the hotel/stay expense.
Payment of honorarium to the secretary is shown on the Expenditure side of the Income and Expenditure Account.
Capital Expenditure is the expense incurred on acquiring an asset and honorarium cannot be a capital expenditure as benefits derived from it cannot be carried forward to the next year.
It cannot be treated as cash or credit expense although it is paid in cash or credit. In this case, it will be treated as a revenue expense while preparing financial statements.
Payment of honorarium is mainly a topic of not-for-profit organizations.
Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are statedRead more
Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are stated below:
Incorrect items delivered by the seller
The excess amount delivered to the buyer
Return of expired/ spoiled good
In such a case, the return is initiated by the buyer and a credit note is issued to the buyer, and the same is recorded in the books of accounts. Also, this return inward is deducted from the total sales.
Example: M/s Pest ltd sold 4 units of fertilizers spraying tools of Rs 10,000 each to Mr. Zen. On inspection, he found 1 unit worth Rs 10,000 so received to be defective. Therefore the return of Rs 10,000 was initiated and goods were returned to the seller. A credit note of Rs 10,000 will be raised by the seller (M/s Pest ltd) to the buyer (Mr. Zen). The following adjustment will be shown in the trading account.
Return outwards means returning the goods by the buyer to the supplier. In layman language, when you purchase items for your business and you are not happy with the items then you may decide to return them.
In this case, a debit note is issued to the seller and is recorded in the books of accounts, and the same is reduced from the total purchases in the trading account so prepared.
Example: Suppose you are dealing in a business of clothing. You purchased 20 shirts for Rs.10,000 from a wholesale market. When you sold these shirts, you found 10 shirts worth Rs 5,000 to be defective which were returned by your customer. Therefore you will return these shirts to the wholesale market from where you purchased them. The following adjustment will be shown in the trading account.
International Financial Reporting Standards (IFRS) is a not-for-profit, public interest organization. The main objective of the IFRS Foundation is to raise the standard of financial reporting and bring about global harmonization of accounting standards. IFRS was established to develop high-quality,Read more
International Financial Reporting Standards (IFRS) is a not-for-profit, public interest organization. The main objective of the IFRS Foundation is to raise the standard of financial reporting and bring about global harmonization of accounting standards.
IFRS was established to develop high-quality, understandable, enforceable, and generally accepted accounting standards. International Accounting Standards Board (IASB) develops IFRS. There are currently 16 IFRSs in issue.
Benefits of IFRS Standards:
It brings transparency by international comparability and quality of financial information.
It strengthens accountability by reducing the information gap between providers and users of the capital.
It contributes to economic efficiency by improving capital allocation and, helps investors in identifying opportunities and risks across the world.
Following are the uses of IFRS:
As national requirements.
As the basis for all or some national requirements.
As an international benchmark for those countries which develop their own requirements.
By regulatory authorities for domestic and foreign companies.
By companies themselves.
Challenges faced by companies if IFRS is not implemented:
The financial statements will differ for the companies who have offices worldwide and use only national accounting standards.
Increased complexity while preparing financial statements.
Difficulty in comparing and verifying financial statements.
Accounting of transactions will differ from country to country if IFRS is not implemented.
Sales Return is shown on the debit side of the Trial Balance. Sales Return is also called Return Inward. Sales Return refers to those goods which are returned by the customer to the seller of the goods. The goods can be returned due to various reasons. For example, due to defects, quality differenceRead more
Sales Return is shown on the debit side of the Trial Balance.
Sales Return is also called Return Inward.
Sales Return refers to those goods which are returned by the customer to the seller of the goods. The goods can be returned due to various reasons. For example, due to defects, quality differences, damaged products, and so on.
In a business, sales is a form of income as it generates revenue. So, when the customer sends back those goods sold earlier, it reduces the income generated from sales and hence goes on the debit side of the trial balance as per the modern rule of accounting Debit the increases and Credit the decreases.
For Example, Mr. Sam sold goods to Mr. John for Rs 500. Mr. John found the goods damaged and returned those goods to Mr. Sam.
So, here Sam is the seller and John is the customer.
The journal entry for sales return in the books of Mr. Sam will be
Fictitious assets are not actually assets. They are expenses/losses not written off in the year in which they are incurred. They do not have any physical presence. Their expense is spread over more than one accounting period. A part of the expense is amortized/written off every year against the compRead more
Fictitious assets are not actually assets. They are expenses/losses not written off in the year in which they are incurred. They do not have any physical presence. Their expense is spread over more than one accounting period.
A part of the expense is amortized/written off every yearagainst the company’s earnings. The remaining part (which is yet to be written off) is shown as an asset in the balance sheet. They are shown as assets because these expenses are expected to give returns to the company over a period of time.
Here are some examples of fictitious assets:
Preliminary expenses.
Promotional expenses.
Loss incurred on the issue of debentures.
Underwriting commission.
Discount on issue of shares.
To make it simple I’ll explain the accounting treatment of preliminary expenses with an example.
The promoters of KL Ltd. paid 50,000 as consultation fees for incorporating the company. The consultation fee is a preliminary expense as they are incurred for the formation of the company. The company agreed to write off this expense over a period of 5 years.
At the end of every year, the company will write off 10,000 (50,000/5) as an expense in the Profit & Loss A/c.
The remaining portion i.e. 40,000 (50,000 – 10,000) will be shown on the Assets side of the Balance Sheet under the head Non – Current Assets and sub-head Other Non – Current Assets.
Here are the financial statements of KL Ltd.,
Note: As per AS 26 preliminary expenses are fully written off in the year they are incurred. This is because such expenses do not meet the definition of assets and must be written off in the year of incurring.
Overdraft as per cash book means?
The correct answer is 2. Credit balance in the bank column of the cash book. The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allowsRead more
The correct answer is 2. Credit balance in the bank column of the cash book.
The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allows the account holder to borrow a specified sum of money over and above the balance in their accounts.
It is a form of short-term borrowing offered by banks and is extremely useful for businesses to resolve short-term cash flow issues.
The account holder can withdraw money even when his/her account does not have enough balance to cover the withdrawal. Since the business is withdrawing money that is not in its account, an overdraft is represented by a negative bank balance. That is why they are shown as a credit balance in the bank column of the Cash Book.
Overdraft is a liability for the business. Hence, it is shown on the Equity and Liability part of the Balance Sheet under the head Current Liabilities and sub-head Short Term Borrowings.
Banks do not offer this facility to all customers. Only those who have a good reputation and credit score are eligible for this facility. Like any other borrowing, interest is charged on the amount utilized by the account holder as an overdraft.
See lessCan you please explain income and expenditure account?
The "Income and Expenditure" account lists all the income and expenses incurred by the entity throughout the year. This account is very identical to the profit and loss account and is generally prepared on an accrual basis irrespective of whether the amount is received or paid. Non-profit organizatiRead more
The “Income and Expenditure” account lists all the income and expenses incurred by the entity throughout the year. This account is very identical to the profit and loss account and is generally prepared on an accrual basis irrespective of whether the amount is received or paid. Non-profit organizations (NPO) prepare this type of account to ascertain surplus earned or deficit incurred by them during the period.
Talking about the format of income and expenditure accounts we generally see that all the expenses are recorded on the debit side while all incomes are recorded on the credit side. One important thing to note is that items so recorded are revenue items while capital nature items are generally ignored because only current period items are recorded in this statement.
Since it is a Nominal account, we follow the golden rules to prepare this, stating “debit all expenses and losses and credit all incomes and gains”. The closing balance at the end shows the surplus or deficit for the year. If the balancing figure appears on the debit side it is surplus and if the balancing figure appears on the credit side it is a deficit for the entity.
Following is the format of income and expenditure account
See lessPayment of honorarium to secretary is treated as?
The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution. Revenue expendituresRead more
The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution.
Revenue expenditures are the short-term expenses and consumed within one accounting year and are also known as operating expenses.
Payment of honorarium to the secretary is treated as revenue expenditure because benefits from the expense are derived in the same accounting period. The honorarium is a type of outside expense and any outside expense is revenue in nature. It is a daily allowance incurred to cover the hotel/stay expense.
Payment of honorarium to the secretary is shown on the Expenditure side of the Income and Expenditure Account.
Capital Expenditure is the expense incurred on acquiring an asset and honorarium cannot be a capital expenditure as benefits derived from it cannot be carried forward to the next year.
It cannot be treated as cash or credit expense although it is paid in cash or credit. In this case, it will be treated as a revenue expense while preparing financial statements.
Payment of honorarium is mainly a topic of not-for-profit organizations.
See lessDifference between return inwards and return outwards?
Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are statedRead more
Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are stated below:
In such a case, the return is initiated by the buyer and a credit note is issued to the buyer, and the same is recorded in the books of accounts. Also, this return inward is deducted from the total sales.
Example: M/s Pest ltd sold 4 units of fertilizers spraying tools of Rs 10,000 each to Mr. Zen. On inspection, he found 1 unit worth Rs 10,000 so received to be defective. Therefore the return of Rs 10,000 was initiated and goods were returned to the seller. A credit note of Rs 10,000 will be raised by the seller (M/s Pest ltd) to the buyer (Mr. Zen). The following adjustment will be shown in the trading account.
Return outwards means returning the goods by the buyer to the supplier. In layman language, when you purchase items for your business and you are not happy with the items then you may decide to return them.
In this case, a debit note is issued to the seller and is recorded in the books of accounts, and the same is reduced from the total purchases in the trading account so prepared.
Example: Suppose you are dealing in a business of clothing. You purchased 20 shirts for Rs.10,000 from a wholesale market. When you sold these shirts, you found 10 shirts worth Rs 5,000 to be defective which were returned by your customer. Therefore you will return these shirts to the wholesale market from where you purchased them. The following adjustment will be shown in the trading account.
See lessWhat is the need for IFRS?
International Financial Reporting Standards (IFRS) is a not-for-profit, public interest organization. The main objective of the IFRS Foundation is to raise the standard of financial reporting and bring about global harmonization of accounting standards. IFRS was established to develop high-quality,Read more
International Financial Reporting Standards (IFRS) is a not-for-profit, public interest organization. The main objective of the IFRS Foundation is to raise the standard of financial reporting and bring about global harmonization of accounting standards.
IFRS was established to develop high-quality, understandable, enforceable, and generally accepted accounting standards. International Accounting Standards Board (IASB) develops IFRS. There are currently 16 IFRSs in issue.
Benefits of IFRS Standards:
Following are the uses of IFRS:
Challenges faced by companies if IFRS is not implemented:
- The financial statements will differ for the companies who have offices worldwide and use only national accounting standards.
- Increased complexity while preparing financial statements.
- Difficulty in comparing and verifying financial statements.
- Accounting of transactions will differ from country to country if IFRS is not implemented.
See lessHow to show sales return in trial balance?
Sales Return is shown on the debit side of the Trial Balance. Sales Return is also called Return Inward. Sales Return refers to those goods which are returned by the customer to the seller of the goods. The goods can be returned due to various reasons. For example, due to defects, quality differenceRead more
Sales Return is shown on the debit side of the Trial Balance.
Sales Return is also called Return Inward.
Sales Return refers to those goods which are returned by the customer to the seller of the goods. The goods can be returned due to various reasons. For example, due to defects, quality differences, damaged products, and so on.
In a business, sales is a form of income as it generates revenue. So, when the customer sends back those goods sold earlier, it reduces the income generated from sales and hence goes on the debit side of the trial balance as per the modern rule of accounting Debit the increases and Credit the decreases.
For Example, Mr. Sam sold goods to Mr. John for Rs 500. Mr. John found the goods damaged and returned those goods to Mr. Sam.
So, here Sam is the seller and John is the customer.
The journal entry for sales return in the books of Mr. Sam will be
Treatment in Trial Balance
See lessWhat are some examples of fictitious asset?
Fictitious assets are not actually assets. They are expenses/losses not written off in the year in which they are incurred. They do not have any physical presence. Their expense is spread over more than one accounting period. A part of the expense is amortized/written off every year against the compRead more
Fictitious assets are not actually assets. They are expenses/losses not written off in the year in which they are incurred. They do not have any physical presence. Their expense is spread over more than one accounting period.
A part of the expense is amortized/written off every year against the company’s earnings. The remaining part (which is yet to be written off) is shown as an asset in the balance sheet. They are shown as assets because these expenses are expected to give returns to the company over a period of time.
Here are some examples of fictitious assets:
To make it simple I’ll explain the accounting treatment of preliminary expenses with an example.
The promoters of KL Ltd. paid 50,000 as consultation fees for incorporating the company. The consultation fee is a preliminary expense as they are incurred for the formation of the company. The company agreed to write off this expense over a period of 5 years.
At the end of every year, the company will write off 10,000 (50,000/5) as an expense in the Profit & Loss A/c.
The remaining portion i.e. 40,000 (50,000 – 10,000) will be shown on the Assets side of the Balance Sheet under the head Non – Current Assets and sub-head Other Non – Current Assets.
Here are the financial statements of KL Ltd.,
Note: As per AS 26 preliminary expenses are fully written off in the year they are incurred. This is because such expenses do not meet the definition of assets and must be written off in the year of incurring.
Source: Some fictitious assets examples are from Accountingcapital.com & others from Wikipedia.
See less