AccountingQA Latest Questions

Atreya
AtreyaCurious
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  2. Ishika Pandey Curious ca aspirant

    Definition Section 43 of the companies act 2013 prescribes that the share capital of a company broadly can be of two types or classes : Preference shares Equity shares Preference shares Preference shares are the shares that carry the following  two preferential rights : Preferential rights to receivRead more

    Definition

    Section 43 of the companies act 2013 prescribes that the share capital of a company broadly can be of two types or classes :

    1. Preference shares
    2. Equity shares

    Preference shares

    Preference shares are the shares that carry the following  two preferential rights :

    • Preferential rights to receive dividends, to be paid as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income tax before it is paid to equity shareholders, and
    • Return of capital on the winding up of the company before that of equity shares.

     

    Classes of preference shares

    Preference shares are broadly classified as follows :

    • With reference to the dividend
    • Participation in surplus profit
    • Convertibility
    • Redemption

     

    With reference to the dividend

    Cumulative preference shares are those preference shares that carry the right to receive arrears of dividends before the dividend is paid to the equity shareholders.

    Non-cumulative preference shares are those that do not carry the right to receive arrears of dividends.

     

    Participation in surplus profit

    Participating preference shares of the company may provide that after the dividend has been paid to the equity shareholders, the holders of preference shares will also have a right to participate in the remaining profits.

    Non-participating preference shares are those preference shares that do not carry the right to participate in the remaining profits after the equity shareholders have paid the dividend.

     

    Convertibility

    Convertible preference shares are those preference shares that carry the right to be converted into equity shares.

    Non-convertible preference shares are those that do not carry the right to be converted into equity shares.

     

    Redemption

    Redeemable preference shares are those preference shares that are redeemed by the company at the time specified for the repayment or earlier.

    Irredeemable preference shares are preference shares the amount of which can be returned by the company to the holders of such shares when the company is wound up.

     

    Equity shares

    Equity shares are those shares that are not preference shares.

    Equity shares are the most commonly issued class of shares that carry the maximum ‘risk and reward ‘ of the business the risks of losing part or all the value of the shares if the business incurs losses.

    The rewards are the payment of higher dividends and appreciation in the market value.

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Atreya
AtreyaCurious
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  2. Ishika Pandey Curious ca aspirant

    Definition Not-for-profit organizations are also known as non-profit organizations set up to further cultural, educational, religious, professional, or public service objectives. Its  aim is not to earn profit Accounting done by non-profit organizations is fund based.   Type of accounting Non-pRead more

    Definition

    Not-for-profit organizations are also known as non-profit organizations set up to further cultural, educational, religious, professional, or public service objectives. Its  aim is not to earn profit

    Accounting done by non-profit organizations is fund based.

     

    Type of accounting

    Non-profit organizations do Fund Based Accounting.

    Donations received or funds set aside for specific purposes are credited to a separate fund account and are shown on the liabilities side of the balance sheet.

    The income from or donations for these funds are credited to the respective fund account. On the other hand, expenses or payments out of these funds are debited.

    Accounting when done on this basis is known as Fund Based Accounting.

    Let me explain to you with an example :

    The sports fund has a balance of Rs 100000 which is invested as a fixed deposit in a bank earning 8% interest. A further donation of Rs 10000 is received towards it. Expenses incurred towards prizes are Rs 7000; Rs 3000 towards trophies and Rs 4000 distribution of cash prizes. The accounts are shown as follows :

    Categories of funds

    In the case of non-profit organizations, funds may be classified under the following heads :

    Unrestricted fund :

    The unrestricted fund does not carry any restriction with respect to its use. In other words, management can use the amounts in the funds as it deems appropriate, but to carry out the purpose for which the organization exists.

    This is known as the general fund or the capital fund to which the surplus for the year is added and in case of deficit, deducted.

    Restricted fund :

    A restricted fund is a fund, the use of which is restricted either by the management or by the donor for a specific purpose.

    Examples of such funds are endowment funds, annuity funds, loan funds, prize funds, sports funds, etc.

    • Government grant: grant received from the government for a specific purpose is restricted to be used for the purpose it is granted. It is accounted for in the books following fund-based accounting.
      • For example, a grant received from the government for ‘the polio eradication program is credited to the polio eradication fund, and income earned relating to the fund is credited to the fund while expenses are debited.

     

    • Endowment fund: it’s a fund usually a non-profit organization, arising from a bequest or gift, the income of which is devoted to a specific purpose.

     

    • Annuity fund: an annuity fund is established when a non-profit organization receives assets from a donor with a condition to pay

     

    • Loan fund: loan fund is set up to grant loans for specific purposes say loans to pursue higher studies.

     

    • A fixed assets fund is a fund earmarked for investment in fixed assets or already invested in fixed assets.

     

    • Prize funds: it is a fund set up to use for distribution as prizes say for achievements or contributions to the welfare of society.
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Simerpreet
SimerpreetHelpful
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances. A trial balance is prepared on a particular date and not in a specific period. Types of error in theRead more

    Definition

    The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances.

    A trial balance is prepared on a particular date and not in a specific period.

    Types of error in the trial balance

    Now let me explain to you that what are the errors of trail balance which are as follows :
    • Error of principle
    • Compensating error
    • Transactions completely omitted
    • Error of recording
    • Error of posting
    A trial balance is not conclusive proof of the accuracy of the books of accounts since certain types of errors remain even when it tallies. They are explained below :

    Error of principle

    This error arises due to the incorrect application of the principle of accounting is not disclosed by the trial balance.

    Compensating error

    It means the group of errors committed in such a way that one mistake is compensated by another and the trial balance still agrees.

    Transaction completely omitted

    When the transaction is entirely omitted from recording in the books of account cannot be detected.

    Error of recording

    When both aspects of recording a transaction twice in the books of account take place.

    Error of posting

    Posting the correct amount on the correct side but in the wrong account is not reflected in the trial balance.

    Steps to locate errors

    Differences in the trial balance, howsoever minor they may be, must be located and rectified. The following steps are useful in locating errors are :
    • Two columns of the trial balance should be totaled again.

    • The list of sundry debtors and creditors should be checked to find out whether all balances of debtors and creditors have been correctly written in the trial balance or not.

    • It should be checked that the balances of every account including cash and bank balances ( from the cash book ) have been written in the correct column of the trial balance.

    • If the errors remain undetected, try to locate the errors by trial and error techniques such as finding an account showing a balance difference from the trial balance.

    • Ledger balances should be balanced again.

    • Check the totals of subsidiary books.

    • Check the posting of nominal accounts.

    • And at last if not possible to locate the difference in the trial balance is temporarily transferred to a suspense account.

    Importance

    As the trial balance is prepared at the end of the year so it is important for the preparation of financial statements like balance sheets or profit and loss.

    Purpose of trial balance

    • To verify the arithmetical accuracy of the ledger accounts
    This means trial balance indicates that equal debits and credits have been recorded in the ledger accounts.
    It enables one to establish whether the posting and other accounting processes have been carried out without any arithmetical errors.

    • To help in locating errors
    There can be some errors if the trial balance is untallied therefore to get error-free financial statements trial balance is prepared.

    • To facilitate the preparation of financial statements
    A trial balance helps us to directly prepare the financial statements and then which gives us the right to not look or no need to refer to the ledger accounts.

    Rules of trial balance

    When we prepare a trial balance from the given list of ledger balances, the following rules to be kept in mind that are as follows :

    • The balance of all
    • Assets accounts
    • Expenses accounts
    • Losses
    • Drawings
    • Cash and bank balances
    Are placed in the debit column of the trial balance.

    • The balances of
    • liabilities accounts
    • income accounts
    • profits
    • capital
    Are placed in the credit column of the trial balance.

     

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Simerpreet
SimerpreetHelpful
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances. A trial balance is prepared on a particular date and not on a particular period. What does trial balRead more

    Definition

    The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances.

    A trial balance is prepared on a particular date and not on a particular period.

    What does trial balance include?

    As in each double-entry system, each account has two aspects debit and credit.

    Hence the following trial balance includes:
    • Debit or credit of the reporting period.
    • The amount which is to be debited or credited to each account.
    • The account numbers.
    • The dates of the reporting period.
    • The totaled sums of debits and credits entered during that time.

    When we prepare a trial balance from the given list of ledger balances, these need to be included which are as follows :

    The balance of all
    • Assets accounts
    • Expenses accounts
    • Losses
    • Drawings
    • Cash and bank balances
    Are placed in the debit column of the trial balance.

    • The balances of
    • liabilities accounts
    • income accounts
    • profits
    • capital
    Are placed in the credit column of the trial balance.

    Importance

    As the trial balance is prepared at the end of the year so it is important for the preparation of financial statements like balance sheets or profit and loss.

    The purpose of the trial balance is as follows:

    • To verify the arithmetical accuracy of the ledger accounts
    This means trial balance indicates that equal debits and credits have been recorded in the ledger accounts.
    It enables one to establish whether the posting and other accounting processes have been carried out without any arithmetical errors.

    • To help in locating errors
    There can be some errors if the trial balance is untallied therefore to get error-free financial statements trial balance is prepared.

    • To facilitate the preparation of financial statements
    A trial balance helps us to directly prepare the financial statements and then which gives us the right to not look or no need to refer to the ledger accounts.

    Structure of trial balance

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Simerpreet
SimerpreetHelpful
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A. Furniture B. Capital C. Sales D. Commission earned

  2. Ishika Pandey Curious ca aspirant

    Definition Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “ A furniture account that is an asset has a debit balance. Debit balance may arise due to timing differences in which case income wilRead more

    Definition

    Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “

    A furniture account that is an asset has a debit balance.

    Debit balance may arise due to timing differences in which case income will be accrued at the year’s end to offset the debit.

    The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits.

    The account which has debit balances are as follows:

    • Assets accounts

    Land, furniture, building machinery, etc

    • Expenses accounts

    Salary, rent, insurance, etc

    • Losses

    Bad debts, loss by fire, etc

    • Drawings

    Personal drawings of cash or assets

    • Cash and bank balances

    Balances of these accounts

    The account has credit balances as follows:

    • Liabilities accounts

    Creditors, bills payable, etc

    • Income accounts

    Salary received, interest received, etc

    • Profits

    Dividends, interest, etc

    • Capital

    Partners Capital

     

    Here are some examples showing the debit balances and credit balances of the accounts :

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Simerpreet
SimerpreetHelpful
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Debit balance may arise due to timing differences in which case income will be accrued at the year's end to offset the debit. The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits. The account which has debit balances are aRead more

    Definition

    Debit balance may arise due to timing differences in which case income will be accrued at the year’s end to offset the debit.

    The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits.

    The account which has debit balances are as follows:

    • Assets accounts
    Land, furniture, building machinery, etc

    • Expenses accounts
    Salary, rent, insurance, etc

    • Losses
    Bad debts, loss by fire, etc

    • Drawings
    Personal drawings of cash or assets

    • Cash and bank balances
    Balances of these accounts

    In class 11th, we learned about all these accounts that have debit balances.
    Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “

    Here are some examples showing the debit balances of the accounts :

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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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