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Aadil
AadilCurious
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  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
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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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SidharthBadlani
SidharthBadlani
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition A ledger may be defined as a book that contains, in a summarized and classified form, a permanent record of all transactions. Or in other words, we can say a group of accounts with different characteristics. It is also called the Principal Book of accounts. For example:- salary account, aRead more

    Definition

    A ledger may be defined as a book that contains, in a summarized and classified form, a permanent record of all transactions.

    Or in other words, we can say a group of accounts with different characteristics.

    It is also called the Principal Book of accounts.

    For example:– salary account, and debtor account.

    Sub- ledger it is defined as a group of accounts with common characteristics. And is a part of ledger accounts.

    For example:- customer account, vendor account, etc.

    The difference between a ledger and a sub-ledger is that ledger accounts control sub-ledger accounts whereas a sub-ledger is a part of the ledger account.

    Features Of Ledger

    • Ledger is prepared from the journal.
    • Ledger is a master record of all the accounts of the business.
    • The Ledger account shows the current balances of all accounts.
    • Ledger accounts summarize the effect of transactions upon assets, liabilities, capital, incomes, and expenditures.

    Features Of Sub-Ledger

    • Sub-ledger in accounting provides up-to-date information about the daily activities of the business.
    • It keeps individual track of all balances.
    • Help locate errors in individual accounts.
    • A sub-ledger is a collection of different ledgers used in an account.

     

    Utilities of ledger

    The main utilities of a ledger are summarized as follows :

    • Provides complete information about a particular account: Complete information relating to a particular account is available in one place in the ledger.

    • Information on income and expenses: In the ledger, a separate account is maintained for each income and expense. The amount of total income and total expenses are known from the ledger accounts.

    • Preparation of trial balance: Ledger helps in preparing trial balances which ensure arithmetical accuracy of the transaction recorded in the books of account.

    • Helps in preparing final accounts: After preparing the trial balance, final accounts are prepared to know the profitability and financial position of the business.

    Utilities of sub-ledger

    The utilities of the sub-ledger are as follows :

    • Track customer information: If a client has an outstanding credit debt or needs money refunded, a company can use a sub-ledger to verify the information quickly.

    • Protect financial information: A sub-ledger allows a financial supervisor to isolate certain records so that employees can view only parts of the company’s financial information. This added level of security is important for large corporations.

    • Create separate databases: Large companies usually process large amounts of financial data that may be too big for one database. Software programs organize this data into isolated files to calculate financial information in the general ledger of a business.

    Conclusion

    So here I conclude that a ledger is compulsory in the recording process whereas a sub-ledger is optional.

    The ledger is used for preparing trial balance but the sub-ledger is not used for the same.
    Sub ledger is controlled by the ledger.

    The sub-ledger supports the transaction of each specific account indicated on the ledger.

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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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SidharthBadlani
SidharthBadlani
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Contingent Asset is an asset the existence, ownership, or value of which may be known or determined only on the occurrence or non-occurrence of one or more uncertain future events. However, the difference between Contingent assets is not disclosed whereas Contingent liabilities are discloRead more

    Definition

    Contingent Asset is an asset the existence, ownership, or value of which may be known or determined only on the occurrence or non-occurrence of one or more uncertain future events.

    However, the difference between Contingent assets is not disclosed whereas Contingent liabilities are disclosed by way of notes they do have different criteria for recognition which are discussed below.

    For example:– a claim that an enterprise is pursuing through the legal process, where the outcome is uncertain, is a contingent asset.

    Contingent liabilities are defined as obligations relating to existing conditions or situations which may arise in the future depending on the occurrence or non-occurrence of one or more uncertain events.

    For example:- Billis discounted but not yet matured, arrears of dividend on cum –preferences-shares, etc.

    Meaning as per AS – 29

    Now let me try to explain to you the meaning according to Accounting Standard 29 of the above contingent assets and liabilities which is as follows:-

    • Contingent asset

    A contingent asset is a possible asset that arises from past events the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events.
    Not wholly within the control of the enterprise.

    It usually arises from unplanned or unexpected events that give rise to the possibility of an inflow of economic benefits to the enterprise.

    • Contingent liability

    A possible obligation that arises from past events the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events.
    Not wholly within the control of the enterprise.

    A present obligation that arises from past events but is not recognized because it is not probable that the outflow of resources embodying economic benefits will be required to settle the obligation or,
    A reliable estimate of the amount of obligation cannot be made.

    Recognition In Financial Statements

    Contingent assets and liabilities are recognized as follows:-

    • Contingent Assets

    As per the prudence concept s well as present accounting standards, an enterprise should not recognize a contingent asset.

    It is possible that the recognition of contingent assets may result in the recognition of income that may never be realized.

    However, when the realization of income is virtually certain, the related asset no longer remains contingent.

    • Contingent liability

    As per the rules, it is not recognized by an enterprise.

    When recognized?

    Contingent assets are assessed continually and if it has become virtuality an outflow of economic benefits will arise.

    The assets and the related income are recognized in the financial statements of the period in which the change occurs.

    Contingent liability is assessed continually to determine whether an outflow of resources embodying economic benefits has become probable.

    And if it becomes probable that an outflow or future economic benefits will require for an item previously dealt with as a contingent liability.

    A provision is recognized in financial statements of the period in which the change probability occurs except in extremely rare circumstances where no reliable estimate can be made.

    Disclosure

    Now we will see how contingent assets and liability are disclosed which is mentioned below:-

    • Contingent asset

    These contingent assets are not disclosed in financial statements.
    A contingent asset is usually disclosed in the report of the approving authority ( ie.e., Board Of Directors in the case of a company, and the corresponding approving authority in case of any enterprise), if ab inflow of economic benefits is probable.

    • Contingent Assets

    A contingent liability is required to be disclosed by way of a note to the balance sheet unless the possibility of an outflow of a resource embodying economic benefit is remote.

     

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A_Team
A_Team
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A. Original B. Duplicate C. Personal D. Nominal

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries. Journal follows the double-entry system oRead more

    The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries.

    Journal follows the double-entry system of accounting. It means a journal entry affects at least two accounts. It is from the journal entries, the ledger accounts are prepared. For example, the transaction, ‘sale of goods for Rs 1000 for cash’ affects two accounts. The journal entry is:

    There are many special journals that record some special set of transactions which are called subsidiary journals or daybooks. Such special journals are not considered the books of original entry.

    Option (B) Duplicate is wrong. It is because the journal is the book where monetary events and transactions are recorded. It cannot be the book of duplicate entries. There is no such thing as ‘book of duplicate entry.’

    Option (C) Personal is wrong. Personal is a type of account under the golden rules of accounting. A personal account is a type of account that represents a person. But, the journal is not an account, it is a book. Also, there is no such thing as book of personal entry.

    Option (D) Nominal is wrong. Nominal is also a type of account under the golden rules of accounting. The nominal account is a type of account that represents an income, expense, gain or loss. Journal is a type of account but a book.

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