AccountingQA Latest Questions

Karan
Karan
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement. It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by theRead more

    Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement.

    It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by the customer or any other manufacturing default.

    Sales allowances arise when any customer accepts the product at a lower price than the original price or, in other words, a reduction in the price charged by a seller, due to any problem related to the sold product like a quality issue, an incorrect price charged or shipment issue.

    Sales allowances are created before the final billing is paid by the buyer.

    Journal entry for sales return and allowances:

    Dr. Sales return and allowances Amt  
    Cr. Accounts receivable   Amt
    • Sales Return Account is debited because it is reverse of Sales Account which is credited at the time of sale.
    • Account Receivable Account is credited to reverse the debtors debited at the time of sale.
    • Hence Sales Return entry is just reverse of the entry recorded at the time of sale.

     

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning A valuation account is a balance sheet account that is paired with another balance sheet account to report the carrying amount of the paired account at a reduced value. The purpose of a valuation account is to reduce the balance of the concerned asset or liability without affecting the mainRead more

    Meaning

    A valuation account is a balance sheet account that is paired with another balance sheet account to report the carrying amount of the paired account at a reduced value.

    The purpose of a valuation account is to reduce the balance of the concerned asset or liability without affecting the main ledger account.  This is a conservative approach to use valuation accounts to present the value of the concerned asset or liability at a reduced value.

    The most common example of a valuation account is the ‘Provision for doubtful debts account’. It appears in the balance sheet as a reduction from the debtors’ accounts. Also when the amount is transferred to this provision, it appears in the statement of profit and loss account. But it doesn’t appear in the debtors’ account ledger.

    Treatment

    A valuation account appears only in the balance sheet. Sometimes, it also appears in the profit and loss account when any amount is transferred to it.

    Valuation accounts are only used in accrual accounting. They cannot be used in cash-based accounting as there is no flow of cash related to valuation accounts.

    They have a balance opposite of their paired accounts i.e. if their paired account is an asset then they will have a credit balance and if it is a liability then they will have a debit balance.

    Other Examples of valuation accounts are as follows:

    1. Provision for doubtful debts (offsets the account receivables or debtors’ account)
    2. Accumulated depreciation (report the assets net of depreciation)
    3. Discount on bonds payable (reduces the reporting balance of bond payable account)
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Aadil
AadilCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Introduction Often cash is withdrawn by the owner or proprietor of a business for his or her personal use. Such withdrawal of cash is an outflow of capital from business and it is known as drawings. The accounting treatment of cash withdrawn for personal use is expressed in the accounting equation aRead more

    Introduction

    Often cash is withdrawn by the owner or proprietor of a business for his or her personal use. Such withdrawal of cash is an outflow of capital from business and it is known as drawings.

    The accounting treatment of cash withdrawn for personal use is expressed in the accounting equation as shown in the example below:

    It is shown as a negative figure under both assets and capital heading. I will be explaining why it is so.

    Accounting Equation

    The accounting equation represents the relationship between assets, liabilities, and capital of an entity whether profit oriented or not, according to which, the total assets of a business equals to the sum of its total capital and total liabilities.

    Assets = Liabilities + Capital

    This equation holds good in every monetary transaction or event like the event given in the question.

    Cash withdrawn for personal use

    We know every transaction affects two accounts. In this case, too, the ‘cash withdrawn for personal use’ affects two accounts. Cash withdrawn for personal use is known as drawings.

    Let’s see the journal entry for drawings of cash from business:


    Here the drawing account is debited because it is a contra-equity account i.e. it is a mirror image of the capital account or opposite of the capital account. Here the cash account is an asset account; hence it is credited as it is reduced.

    As drawings represent the outflow of capital from the business, it is written off from the Capital account in the balance sheet.

    Hence, in the accounting equation, the drawing amount is deducted from the Asset side and from the capital side, indicating a balance.

    It does not appear in the statement of profit or loss despite having a debit balance because it is not an expense account.

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Aadil
AadilCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    GST stand for Goods and Services Tax which is levied on almost all the good and services supplied in India. Generally, a business is required to charge GST on all the goods and services supplied by it if its turnover is over the limit as prescribed by respective GST laws. We can also do accounting fRead more

    GST stand for Goods and Services Tax which is levied on almost all the good and services supplied in India. Generally, a business is required to charge GST on all the goods and services supplied by it if its turnover is over the limit as prescribed by respective GST laws.

    We can also do accounting for GST in Tally by enabling it from the company features.

    The steps to enable GST and perform GST accounting in Tally are as given below.

    Enabling GST in Tally

    GST can be enabled in Tally from the ‘Company features’ menu which opens just after the creation of a company. There is an option called ‘Enable Goods and Services Tax (GST)’. You have to enter ‘Yes’.

    If the company is already created and the GST was not enabled earlier, then just press F11 and select the company for which you want to enable GST. The ‘company features’ menu will open again, from there you have to enter ‘Yes’ beside the ‘Enable Goods and Services Tax (GST)’ option.

    In both cases, this menu will open:

     

    Do have look at the details I have filled in. You have to:

    • Select the State in which your business is.
    • Registration type is Regular in most cases.
    • Keep the ‘Assessee of another territory’ option at ‘No’, if your business operated from one state only.
    • Enter your 19-digit GST number.
    • Periodicity can be set to ‘Monthly’ or ‘Quarterly’ as per the turnover of the business. ‘Quarterly’ preferred.
    • Keep the E-way bill option at ‘No’ if the E-way bill is not required.
    • Keep the ‘Set/Alter GST rate details’ option at ‘No’ if you want to charge different goods at different GST rates. If GST rates are set up from here, it will be uniform for all goods and services.
    • Keep the rest of the options as shown in the above image.

    These settings are enough if you are to just practice GST in Tally.

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Simerpreet
SimerpreetHelpful
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  2. SidharthBadlani CA Inter Student

    No, forensic accounting and auditing are not the same thing. Forensic accounting is a much more detailed task that is normally done when fraud or other illegal activity is suspected. The evidence collected by forensic accountants is used in the court of law. Forensic accounting is mostly done when aRead more

    No, forensic accounting and auditing are not the same thing. Forensic accounting is a much more detailed task that is normally done when fraud or other illegal activity is suspected.

    The evidence collected by forensic accountants is used in the court of law. Forensic accounting is mostly done when a suit has already been filed or is likely to be filed.

     

    How Forensic Accounting Differs from Auditing?

    Auditing means an inspection of financial statements done by experts with a view to obtaining reasonable assurance as to whether or not the financial statements correctly state the financial position and financial performance of the entity during the period under audit.

    Forensic accounting is the use of accounting skills to detect any fraud, embezzlement or other illegal activity that may have occurred within the entity.

    This is how forensic accounting differs from auditing:

    • Forensic accounting is different from auditing in that forensic accounting is done with an intention to identify and uncover frauds while auditing is normally done to provide the users of financial statements reasonable assurance that the statements are correct and true.
    • Auditing usually identifies only those misstatements that are material. Materiality is the one of the main concerns of auditors. However, in forensic auditing every type of misstatement is scrutinized as material. The forensic accountants try to identify fraud in every misstatement.
    • Forensic accounting is usually done only when fraud and other illegal activities are suspected and some suit has been filed or is likely to be filed while auditing of annual financial statements is mandatory for firms meeting certain threshold limits of turnover/gross receipt/revenue.

    Importance of Forensic Accounting

    • Forensic accounting is used to detect frauds, forgery, misappropriation of assets and other illegal activities.
    • The evidence collected during forensic accounting can be used in a court of law. Often, those conducting forensic accounting are also called upon to testify as experts in a court.
    • Forensic accounting identifies loopholes in the internal controls of an entity that has been or may be exploited for conducting frauds and other illegal activities.
    • Forensic accountants suggest different measures that an entity can take to make it’s internal controls more effective and prevent illegal activities in the future.

    Conclusion

    Forensic accounting and auditing are very different from each other. While auditing is done to identify only material misstatement, forensic accounting is done with an objective of detecting possible fraud or other illegal activity. Auditing of financial statements is mandatory for firms exceeding certain threshold limits of turnover/gross receipts/revenue while financial accounting is usually done when a suit for fraud, embezzlement etc has been filed or is likely to be filed.

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Jayesh Gupta
Jayesh GuptaCurious
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  2. Saurav
    This answer was edited.

    Credit balance means excess of credit side over debit side. For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at the end there will be a creditRead more

    Credit balance means excess of credit side over debit side.

    For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at the end there will be a credit balance of 6,000 of trade payable at the end

    .A Credit balance signifies all income and gains and all liabilities and capital that is there in business.

     

    Liabilities and Capital

    • Account Payables– Account Payables means the amount that is due to the customer by the entity. Its credit balance will always increase when there is an increase in account payables and will decrease when there is a decrease in account payables. For eg-: The stock that has been purchased in credit from creditors of 10,000 will result in an increase in credit balance.
    • Bank Overdraft-Bank Overdraft means when the amount withdrawn from the bank is more than the balance left in the bank. For example, there is a bank balance of 2,000 in the bank but an amount of 4,000 has been withdrawn from the bank. So in such a case, there will be a credit balance of 2,000 which is in Bank Overdraft
    • Bonds– Bonds are the amount that is withdrawn from people for a specific time period which gets redeemed at a coupon rate after such a specific period. For example- A 10% bond of 10,000 is given to a group of people which will be redeemed after 5 years.
    • Income Tax Payables-Income Tax Payable means the amount the company left to pay to the government in earlier periods. For example- There is a tax liability of 10,000 in FY20-21 from which 8,000 was paid in the current year and 2,000 paid in FY21-22.
    • Notes Payable– Notes Payable is a type of promissory note in which a person pays some amount to an entity that the entity will write in a specific period. For example Notes payable of 1,000 given by a person to an entity which will be returned in 3 months with interest
    • Capital– Capital means the amount that is introduced by the company at the beginning of the business for the operations and survival of the business. For example- A capital of 10,000 has been introduced by the company.

     

    Income and Gains

    • Interest Received-Interest Received means the amount which is invested by the company in some other entity and interest received on it
    • Dividend Received– Dividend means the amount received from the entity in which amount invested by the company
    • Rent Received– Rent is the amount that the company receives by letting out their land to another person or entity for use
    • Gains on Sale of Furniture– Gain on Sale of Furniture means that the amount received from the sale of furniture is more than the amount of furniture. So the difference between the amount received from the sale and the cost of furniture is called a gain on the sale of furniture.

    So after seeing all the above points we can conclude that the credit balance includes all the income in the P&L account and all the liabilities in the Balance sheet. So its balance increases when there is an increase in its account.

     

    Debit Balance

    Debit balance means excess of credit side over debit side.

    For Example- At begining of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end there will be a debit balance of 6,000 of trade receivables at the end

    A Debit balance basically signifies all expenses and losses and all positive balances of assets. The debit balance increases when any asset increases and decreases when any asset decreases.

     

    Asset

    • Cash and Bank Balance
    • Account Receivables
    • Property, Plant, and Equipment
    • Inventory
    • Investments
    • Bill Receivables
    • Intangible Assets

     

    Expenses and Loses

    • Rent
    • Depreciation
    • General Expenses
    • Loss on Sale of asset
    • Printing and stationery
    • Audit fees
    • Outstanding fees
    • Salaries and Wages
    • Insurance
    • Advertising
    • Promotional expenses
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Nistha
Nistha
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Accounting PoliciesAccounting PrinciplesDifference Between
  2. Sandy CMA Final
    This answer was edited.

    To begin with, let me give you a brief explanation of both the terms i.e. Accounting policies and accounting principles- In order to maintain the financial statements, the company’s management adopts various Accounting Policies of its own. This generally includes the rules, the directions as to howRead more

    To begin with, let me give you a brief explanation of both the terms i.e. Accounting policies and accounting principles-

    In order to maintain the financial statements, the company’s management adopts various Accounting Policies of its own. This generally includes the rules, the directions as to how the financial statements will be prepared or how the valuation of depreciation would be done, and so on. These are flexible in nature and vary from company to company.

    For Example 1, Johnson Co. uses FIFO (first in first out) method to value the inventory. That is to say that, while selling its product, it sells those goods or products which it has acquired or produced first.

    It does not consider the LIFO or weighted average cost. The other company may adopt the other method as per its wish.

    Example 2, Johnson Co. uses the straight-line method of depreciating an asset, whereas the other company can opt for a written down value method depending upon the need of the company.

    So what I am trying to explain from this is that the accounting policies are flexible and can be adopted as per the needs of the company.

    Accounting Principles are the rules which the accountants adopt universally for recording and reporting the financial data. It brings uniformity in accounting throughout the practice of accounting. These are generally less flexible in nature.

    For Example, “Cost” is a principle. According to this accounting principle, an asset is recorded in the books at the price paid to acquire it and this cost will be the basis for all the subsequent accounting for the asset.  However, asset market value may change over time, but for the accounting purpose, it continues to be shown at its book value i.e. at which it is acquired.

    Some more examples would be of Matching principle, Consistency principle, Money measurement principle, etc.

    Differences

    Conclusion

    The point is Accounting Principles are the broad direction to reach a goal and to reach that goal helps the accounting policies.

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