By the name, it can be easily deduced that Advance tax means the tax paid in advance. Advance tax is the tax paid by an assessee in the Previous Year itself based on his estimated income. We know that Income tax liability is known in the Assessment Year based on the income of the Previous Year. But,Read more
By the name, it can be easily deduced that Advance tax means the tax paid in advance.
Advance tax is the tax paid by an assessee in the Previous Year itself based on his estimated income.
We know that Income tax liability is known in the Assessment Year based on the income of the Previous Year. But, the government encourages the taxpayers to pay the tax in the Previous Year itself based on the estimated income.
As per section 208 of the Income Tax 1961, if the total income liability on the estimated income comes up more than Rs. 10,000, then advance tax has to be paid.
The advance tax has to be paid according to the following schedule for the individual and corporate assessees [Other than the assessee who computing profits on a presumptive basis under section 44AD(1) and 44ADA(1)]:
Due date of Instalment
Amount Payable
On or before 15th June
No less than 15% advance tax liability.
On or before 15th September
No less than 45% of tax liability, as reduced by any amount if any paid in the earlier instalment.
On or before 15th December
No less than 75% of tax liability, as reduced by any amount or amounts if any paid in the earlier instalments.
On or before 15th March
No less than 100% of tax liability, as reduced by any amount or amounts if any paid in the earlier instalments.
Any amount paid by the way of advance tax on or before 15th March shall be treated as advance tax paid during each financial year on or before 15th March.
Also as per section 219, the tax credit is given for the advance tax paid in the regular assessment of income tax.
In case of non-payment or short payment of the advance tax, interest is payable as per section 234B. Interest is also attracted in case of delayed payment of advance tax as per section 234C.
That’s all, I would conclude my answer hoping that it was helpful in making the concept of advance tax easy to grasp.
The profit and loss appropriation account is an account created in addition to the Trading & Profit and loss account in the case of partnership firms. It is a nominal account. The net profit or loss from the Profit and loss account is transferred to the Capital A/c when we do the accounting of sRead more
The profit and loss appropriation account is an account created in addition to the Trading & Profit and loss account in the case of partnership firms. It is a nominal account.
The net profit or loss from the Profit and loss account is transferred to the Capital A/c when we do the accounting of sole proprietors.
But, while doing the accounting of partnership, there is a need to appropriate this profit or loss as there are two or more partners’ capital accounts. So, for this purpose, the Profit and loss appropriation account is created.
The net profit or loss is appropriated among the partner’s capital after adjustment the items like partner’s salary, commission, interest on capital, interest on drawing etc. It consists of items related to the partner’s claim.
The format of the profit and loss appropriation account is as below:
Let solve a problem to sharpen our concept:
A and B are partners in firm sharing profits and losses in the ratio of 4:1. On 1st January 2019, their capitals were ₹ 20,000 and ₹ 10,000 respectively. The partnership deed specifies the following:
Interest on capital is to be allowed at 5% per annum.
Interest on drawings charged to A and B are ₹ 200 and ₹ 300 respectively.
The net profit of the firm before considering interest on capital and interest on drawings amounted to ₹ 18,000.
A is to be paid an annual salary of ₹2000
Prepare Profit and loss appropriation account for the year ending 31st December 2019.
Secondary books of accounts are most commonly known as subsidiary books of accounts or day books. They are prepared to record the same type of journals in an ordered manner in a special book. They are nothing, but special journals. Recording all the journals entries in a single journal and these posRead more
Secondary books of accounts are most commonly known as subsidiary books of accounts or day books. They are prepared to record the same type of journals in an ordered manner in a special book. They are nothing, but special journals.
Recording all the journals entries in a single journal and these posting them to different ledgers can be very difficult if the number of transactions is huge.
So, recording the same type of transactions in a special journal proves to be useful in efficient book-keeping and also information retrieval.
There are eight subsidiary books:
Cashbook – It is three types. (a) Single column cash book – It records only cash receipts and cash payments. (b) Double column cash book – Apart from cash receipts and cash payments, it also records bank receipts and bank payments. (c) Triple column cash book – It additionally records the discount allowed and discount received.
Purchase book – It records all the credit purchases except the purchase of assets.
Sales book – It records all the credit sales except the sale of assets.
Purchase return book – It records all the transactions related to the return of purchased goods.
Sale return book – It records all the transactions related to the return of goods from customers.
Bills receivable book – It records the particulars of all the bills drawn in favour of the business.
Bills payable book – It records the particulars of all the bills drawn in the name of the business.
Journal proper – It records those transactions which cannot be recorded in any of the above-mentioned books. For example, entry related to depreciation charged on assets.
Also, there are a few more things to know:-
Subsidiary books may look like ledger accounts but they are not ledgers. Ledgers are books of final entry and subsidiary books can be said to be the book of intermediate entry and are not but special journals.
Once transactions are recorded in the subsidiary books, they are then posted to the ledgers.
The journal entry for commission received is as presented below: Cash A/c / Bank A/c / A Personal A/c Dr. - ₹ To Commission received A/c - ₹ (Being ₹ commission received) The commission received means an amount received by a person or entity forRead more
The journal entry for commission received is as presented below:
Cash A/c / Bank A/c / A Personal A/c Dr. – ₹
To Commission received A/c – ₹
(Being ₹ commission received)
The commission received means an amount received by a person or entity for the provision of a service. For example, a firm sold goods worth ₹10,000 of a manufacturer and was paid an amount of ₹1000 in cash as commission. So, the entry in the books of accounts of the firm will be as follows:
Cash A/c Dr. ₹1000
To Commission received A/c ₹1000
Now, let’s understand the logic behind the journal entry through the modern rules of accounting.
Cash account, bank account and personal account are asset accounts. Hence, they are debited when assets are increased.
While the commission received account is an income account. Hence, when income increases, it is credited.
As per the traditional rules i.e. the golden rules of accounting, these are the explanations:
Commission can be received in cash or bank. Hence the Cash or Bank account is debited as they are real accounts.
“Debit what comes in, credit what goes out”
Also, when it is not received but accrued, then a personal account is debited (the person or entity who has received the service but has not paid for it yet). The following rule applies to the personal account.
“Debit the receiver, credit the giver”
Commission received is an income, thus it is a nominal account. It will be credited because of the following rule of nominal accounts:-
“Debit all expense and losses, credit all income and gains”
The correct option is C. Either Debit or Credit. Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature. In the case of fluctuating partner’s capital, all the transactions relating to theRead more
The correct option is C. Either Debit or Credit.
Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature.
In the case of fluctuating partner’s capital, all the transactions relating to the appropriation of profit, salary, commission, drawings, the introduction of capital, interest on capital etc. are passed through the partner’s capital account.
The balance of partner’s capital is generally credit but sometimes it may show debit balance indicating that the business owes to partner.
But when the partner’s capital account is of fixed nature, then separate partner’ current accounts are prepared. Through this account, all the transactions of revenue nature are passed like appropriation of profits, salary or commission paid to a partner, interest on capital and drawings. The balance of this account may be debit or credit.
The debit balance means the partner has withdrawn a lot of amount as drawings in anticipation of profits. The credit balance means the partner owes to the business.
The partner’s capital shows a fixed amount as capital and its balance is affected only when additional capital is introduced or capital is withdrawn. The balance of this account is always credit.
The partner current account is prepared when the firm wants to show the revenue transactions and capital transactions related to the partner ‘capital separately.
No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two : Let’s take an example. Following is the balance sheet of X Ltd: Hence, as per the following information, Current Ratio = CuRead more
No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two :
Let’s take an example.
Following is the balance sheet of X Ltd:
Hence, as per the following information,
Current Ratio = Current Assets / Current Liabilities
The current ratio represents the relationship between current assets and current liabilities
Current ratio = Current Assets/Current Liabilities
It measures the adequacy of the current assets to current liabilities. The main question this ratio tries to answer is: – “Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets?”
The generally acceptable current ratio is 2:1. But it depends on the characteristics of the assets of a business to judge whether a specific ratio is satisfactory or not.
2. Quick Ratio: Quick ratio is the ratio between quick assets and current liabilities. It is also known as the Acid Test Ratio. By quick assets, we mean cash or the assets that can be quickly converted into cash ( near cash assets)
Quick Assets = Current Assets – Inventories – Prepaid assets
Quick ratio = Quick Assets/Current Liabilities
Inventories are not considered near cash assets.
The quick ratio is a more conservative approach than the current ratio to measure the short term liquidity of a firm.
It answers the question, “If sales revenues disappear, could my business meet its current obligations with the readily convertible quick funds on hands?”
1:1 is considered satisfactory unless the majority of the quick asset are accounts receivable and the receivables turnover ratio is low.
The correct answer is Option C. The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period ofRead more
The correct answer is Option C.
The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period of time.
Option A Trading Account reports only the operating revenues and operating expenses.
Option B Trial Balance shows the balances of all the ledgers of a business and is prepared to check the arithmetical accuracy of the books of accounts.
Option D Balance sheet reports the balances of assets and liabilities of a business as at a particular date.
People often confuse the trading and the profit and loss statement to be the same. But they are different.
Trading Account is prepared with aim of arriving at operating profit or gross profit whereas the profit and loss statement is prepared to arrive at the net profit of a business and reports every revenue and expense whether operating or non operating in nature.
Operating revenue and operating expense are earned or incurred respectively are related to the chief business activities of a business.
Features of profit and loss statement:
It is prepared to measure the net profit of a business hence its profitability.
It is usually prepared for a period of one year but many companies do prepare quarterly statements to better judge their performance.
It helps the management in decision making and the other stakeholders like shareholders, creditors to make informed decisions.
No, capital account is not a real account. Capital account represents the amount of money invested by the owner/owners of the business along with the retained earnings net of drawings or dividends. Capital account has a natural credit balance because it is an internal liability of the business. CapiRead more
No, capital account is not a real account.
Capital account represents the amount of money invested by the owner/owners of the business along with the retained earnings net of drawings or dividends. Capital account has a natural credit balance because it is an internal liability of the business.
Capital account is a personal account because, as discussed above, it represents the investment of the owner or owners. Personal account represents person or persons.
Whereas a real account represents the material assets of a business. Example:- Cash A/c, Fixed assets A/c etc. That’s why the capital account is not a real account.
Being a personal account, the following golden rule of accounting applies to capital account:-
“Debit the receiver and credit the giver”
Here, as the owner gives an amount as an investment into the business (owner and the business are separate entities), the capital account has a credit balance.
The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income. In accrual accounting, income is recognised only when it is accrued or earned. DeferredRead more
The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income.
In accrual accounting, income is recognised only when it is accrued or earned. Deferred revenue is the income received before the performance of the economic activity to earn it.
Example: A shoe shop owner gives an order to a shoe manufacturer of 1000 pair of shoes which is to be delivered after 4 months. He also gives him a cheque of ₹15,000 in advance, the rest ₹5000 is to be given at the time of delivery.
So, in this case, the ₹15,000 is actually is unearned revenue i.e. deferred revenue. It will be recognised as revenue when the shoe manufacture completes the order and deliver it.
Till then, the deferred revenue is reported as a liability in the balance sheet. Like this:
After recognition as revenue, it will be reported in the statement of profit or loss:
Hence, to summarise, deferred revenue is:
Unearned revenue
Recognised as income till it is earned
Till then it is recognised and reported as a liability in the balance sheet.
Some examples of deferred revenue are as follows:
Advance rent received
Advance payment for goods to be delivered.
Advanced payment for services to be provided.
Now the question arises why deferred revenue is recognised as a liability. It is due to the fact that the business may not be able to perform the economic activity successfully to earn that revenue.
Taking the above example, suppose the shoe manufacturer is not able to honour its commitment and the shoe shop owner can wait no more, then the advanced money of ₹ 15,000 is to be refunded. That’s why deferred revenue is recognised as a liability because it is a liability if we consider the principle of conservatism (GAAP).
The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method. It is a general practice for non-corporates to charge depreciation at rates slRead more
The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method.
It is a general practice for non-corporates to charge depreciation at rates slightly lower than the rate provided by the Income Tax Act, 1961. But one cannot charge depreciation more than it.
In the case of corporate, the rates for charging depreciation are provided by the Companies Act 2013, which is
20.58% WDV and 7.31% SLM for cameras to be used for the production of cinematography and motion pictures.
25.89% WDV and 9.50% SLM for cameras which is part of electrical installations and equipment (CCTV cameras).
Let’s take an example:
Mr X is a jewellery shop owner and has installed CCTV cameras on 1st April 2021, costing ₹ 40,000 at various points in his shop to ensure safety and security. Keeping in mind the Income-tax rates, his accountant decided to charge depreciation @ 30% p.a. on the CCTV cameras.
What is advance tax?
By the name, it can be easily deduced that Advance tax means the tax paid in advance. Advance tax is the tax paid by an assessee in the Previous Year itself based on his estimated income. We know that Income tax liability is known in the Assessment Year based on the income of the Previous Year. But,Read more
By the name, it can be easily deduced that Advance tax means the tax paid in advance.
Advance tax is the tax paid by an assessee in the Previous Year itself based on his estimated income.
We know that Income tax liability is known in the Assessment Year based on the income of the Previous Year. But, the government encourages the taxpayers to pay the tax in the Previous Year itself based on the estimated income.
As per section 208 of the Income Tax 1961, if the total income liability on the estimated income comes up more than Rs. 10,000, then advance tax has to be paid.
The advance tax has to be paid according to the following schedule for the individual and corporate assessees [Other than the assessee who computing profits on a presumptive basis under section 44AD(1) and 44ADA(1)]:
Any amount paid by the way of advance tax on or before 15th March shall be treated as advance tax paid during each financial year on or before 15th March.
Also as per section 219, the tax credit is given for the advance tax paid in the regular assessment of income tax.
In case of non-payment or short payment of the advance tax, interest is payable as per section 234B. Interest is also attracted in case of delayed payment of advance tax as per section 234C.
That’s all, I would conclude my answer hoping that it was helpful in making the concept of advance tax easy to grasp.
See lessCan someone show profit and loss appropriation account example?
The profit and loss appropriation account is an account created in addition to the Trading & Profit and loss account in the case of partnership firms. It is a nominal account. The net profit or loss from the Profit and loss account is transferred to the Capital A/c when we do the accounting of sRead more
The profit and loss appropriation account is an account created in addition to the Trading & Profit and loss account in the case of partnership firms. It is a nominal account.
The net profit or loss from the Profit and loss account is transferred to the Capital A/c when we do the accounting of sole proprietors.
But, while doing the accounting of partnership, there is a need to appropriate this profit or loss as there are two or more partners’ capital accounts. So, for this purpose, the Profit and loss appropriation account is created.
The net profit or loss is appropriated among the partner’s capital after adjustment the items like partner’s salary, commission, interest on capital, interest on drawing etc. It consists of items related to the partner’s claim.
The format of the profit and loss appropriation account is as below:
Let solve a problem to sharpen our concept:
A and B are partners in firm sharing profits and losses in the ratio of 4:1. On 1st January 2019, their capitals were ₹ 20,000 and ₹ 10,000 respectively. The partnership deed specifies the following:
Prepare Profit and loss appropriation account for the year ending 31st December 2019.
Solution:
See lessWhat are secondary books of accounts?
Secondary books of accounts are most commonly known as subsidiary books of accounts or day books. They are prepared to record the same type of journals in an ordered manner in a special book. They are nothing, but special journals. Recording all the journals entries in a single journal and these posRead more
Secondary books of accounts are most commonly known as subsidiary books of accounts or day books. They are prepared to record the same type of journals in an ordered manner in a special book. They are nothing, but special journals.
Recording all the journals entries in a single journal and these posting them to different ledgers can be very difficult if the number of transactions is huge.
So, recording the same type of transactions in a special journal proves to be useful in efficient book-keeping and also information retrieval.
There are eight subsidiary books:
Also, there are a few more things to know:-
- Subsidiary books may look like ledger accounts but they are not ledgers. Ledgers are books of final entry and subsidiary books can be said to be the book of intermediate entry and are not but special journals.
- Once transactions are recorded in the subsidiary books, they are then posted to the ledgers.
See lessWhat is the journal entry for commission received?
The journal entry for commission received is as presented below: Cash A/c / Bank A/c / A Personal A/c Dr. - ₹ To Commission received A/c - ₹ (Being ₹ commission received) The commission received means an amount received by a person or entity forRead more
The journal entry for commission received is as presented below:
Cash A/c / Bank A/c / A Personal A/c Dr. – ₹
To Commission received A/c – ₹
(Being ₹ commission received)
The commission received means an amount received by a person or entity for the provision of a service. For example, a firm sold goods worth ₹10,000 of a manufacturer and was paid an amount of ₹1000 in cash as commission. So, the entry in the books of accounts of the firm will be as follows:
Cash A/c Dr. ₹1000
To Commission received A/c ₹1000
Now, let’s understand the logic behind the journal entry through the modern rules of accounting.
Cash account, bank account and personal account are asset accounts. Hence, they are debited when assets are increased.
While the commission received account is an income account. Hence, when income increases, it is credited.
As per the traditional rules i.e. the golden rules of accounting, these are the explanations:
Commission can be received in cash or bank. Hence the Cash or Bank account is debited as they are real accounts.
“Debit what comes in, credit what goes out”
Also, when it is not received but accrued, then a personal account is debited (the person or entity who has received the service but has not paid for it yet). The following rule applies to the personal account.
“Debit the receiver, credit the giver”
Commission received is an income, thus it is a nominal account. It will be credited because of the following rule of nominal accounts:-
“Debit all expense and losses, credit all income and gains”
See lessWhat balance does a partner’s current account has?
The correct option is C. Either Debit or Credit. Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature. In the case of fluctuating partner’s capital, all the transactions relating to theRead more
The correct option is C. Either Debit or Credit.
Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature.
In the case of fluctuating partner’s capital, all the transactions relating to the appropriation of profit, salary, commission, drawings, the introduction of capital, interest on capital etc. are passed through the partner’s capital account.
The balance of partner’s capital is generally credit but sometimes it may show debit balance indicating that the business owes to partner.
But when the partner’s capital account is of fixed nature, then separate partner’ current accounts are prepared. Through this account, all the transactions of revenue nature are passed like appropriation of profits, salary or commission paid to a partner, interest on capital and drawings. The balance of this account may be debit or credit.
The debit balance means the partner has withdrawn a lot of amount as drawings in anticipation of profits. The credit balance means the partner owes to the business.
The partner’s capital shows a fixed amount as capital and its balance is affected only when additional capital is introduced or capital is withdrawn. The balance of this account is always credit.
The partner current account is prepared when the firm wants to show the revenue transactions and capital transactions related to the partner ‘capital separately.
See lessAre current ratio and quick ratio the same?
No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two : Let’s take an example. Following is the balance sheet of X Ltd: Hence, as per the following information, Current Ratio = CuRead more
No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two :
Let’s take an example.
Following is the balance sheet of X Ltd:
Hence, as per the following information,
Current Ratio = Current Assets / Current Liabilities
= Inventories + Trade debtors + Bills receivables + Cash and bank + Prepaid Expenses / Trade Creditors + Bills Payables + Outstanding Salaries
= ₹85,000 + ₹2,50,000+ ₹95,000 + ₹1,50,000 + ₹10,000/ ₹2,00,000 + ₹75,000 + ₹25,000
= ₹6,00,000 / ₹3,00,000
= 2/1 or 2:1
Quick Ratio = Quick Assets / Current Liabilities
= Trade debtors + Bills receivables + Cash and bank / Trade Creditors + Bills Payables + Outstanding Salaries
= ₹2,50,000+ ₹95,000 + ₹1,50,000 / ₹2,00,000 + ₹75,000 + ₹25,000
= ₹5,05,000/ ₹3,00,000
= 41 / 25 or 1.68 : 1
Let’s discuss both ratios in detail.
1. Current ratio:
The current ratio represents the relationship between current assets and current liabilities
Current ratio = Current Assets/Current Liabilities
It measures the adequacy of the current assets to current liabilities. The main question this ratio tries to answer is: – “Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets?”
The generally acceptable current ratio is 2:1. But it depends on the characteristics of the assets of a business to judge whether a specific ratio is satisfactory or not.
2. Quick Ratio: Quick ratio is the ratio between quick assets and current liabilities. It is also known as the Acid Test Ratio. By quick assets, we mean cash or the assets that can be quickly converted into cash ( near cash assets)
Quick Assets = Current Assets – Inventories – Prepaid assets
Quick ratio = Quick Assets/Current Liabilities
Inventories are not considered near cash assets.
The quick ratio is a more conservative approach than the current ratio to measure the short term liquidity of a firm.
It answers the question, “If sales revenues disappear, could my business meet its current obligations with the readily convertible quick funds on hands?”
1:1 is considered satisfactory unless the majority of the quick asset are accounts receivable and the receivables turnover ratio is low.
See lessThe following is a statement of revenues and expenses for a specific period of time?
The correct answer is Option C. The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period ofRead more
The correct answer is Option C.
The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period of time.
Option A Trading Account reports only the operating revenues and operating expenses.
Option B Trial Balance shows the balances of all the ledgers of a business and is prepared to check the arithmetical accuracy of the books of accounts.
Option D Balance sheet reports the balances of assets and liabilities of a business as at a particular date.
People often confuse the trading and the profit and loss statement to be the same. But they are different.
Trading Account is prepared with aim of arriving at operating profit or gross profit whereas the profit and loss statement is prepared to arrive at the net profit of a business and reports every revenue and expense whether operating or non operating in nature.
Operating revenue and operating expense are earned or incurred respectively are related to the chief business activities of a business.
Features of profit and loss statement:
- It is prepared to measure the net profit of a business hence its profitability.
- It is usually prepared for a period of one year but many companies do prepare quarterly statements to better judge their performance.
- It helps the management in decision making and the other stakeholders like shareholders, creditors to make informed decisions.
See lessIs capital a real account?
No, capital account is not a real account. Capital account represents the amount of money invested by the owner/owners of the business along with the retained earnings net of drawings or dividends. Capital account has a natural credit balance because it is an internal liability of the business. CapiRead more
No, capital account is not a real account.
Capital account represents the amount of money invested by the owner/owners of the business along with the retained earnings net of drawings or dividends. Capital account has a natural credit balance because it is an internal liability of the business.
Capital account is a personal account because, as discussed above, it represents the investment of the owner or owners. Personal account represents person or persons.
Whereas a real account represents the material assets of a business. Example:- Cash A/c, Fixed assets A/c etc. That’s why the capital account is not a real account.
Being a personal account, the following golden rule of accounting applies to capital account:-
“Debit the receiver and credit the giver”
Here, as the owner gives an amount as an investment into the business (owner and the business are separate entities), the capital account has a credit balance.
See lessWhat is deferred revenue?
The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income. In accrual accounting, income is recognised only when it is accrued or earned. DeferredRead more
The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income.
In accrual accounting, income is recognised only when it is accrued or earned. Deferred revenue is the income received before the performance of the economic activity to earn it.
Example: A shoe shop owner gives an order to a shoe manufacturer of 1000 pair of shoes which is to be delivered after 4 months. He also gives him a cheque of ₹15,000 in advance, the rest ₹5000 is to be given at the time of delivery.
So, in this case, the ₹15,000 is actually is unearned revenue i.e. deferred revenue. It will be recognised as revenue when the shoe manufacture completes the order and deliver it.
Till then, the deferred revenue is reported as a liability in the balance sheet. Like this:
After recognition as revenue, it will be reported in the statement of profit or loss:
Hence, to summarise, deferred revenue is:
Some examples of deferred revenue are as follows:
Now the question arises why deferred revenue is recognised as a liability. It is due to the fact that the business may not be able to perform the economic activity successfully to earn that revenue.
Taking the above example, suppose the shoe manufacturer is not able to honour its commitment and the shoe shop owner can wait no more, then the advanced money of ₹ 15,000 is to be refunded. That’s why deferred revenue is recognised as a liability because it is a liability if we consider the principle of conservatism (GAAP).
See lessHow much is depreciation on camera?
The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method. It is a general practice for non-corporates to charge depreciation at rates slRead more
The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method.
It is a general practice for non-corporates to charge depreciation at rates slightly lower than the rate provided by the Income Tax Act, 1961. But one cannot charge depreciation more than it.
In the case of corporate, the rates for charging depreciation are provided by the Companies Act 2013, which is
Let’s take an example:
Mr X is a jewellery shop owner and has installed CCTV cameras on 1st April 2021, costing ₹ 40,000 at various points in his shop to ensure safety and security. Keeping in mind the Income-tax rates, his accountant decided to charge depreciation @ 30% p.a. on the CCTV cameras.
Following is the journal entry:
The balance sheet will look like this:
See less