AccountingQA Latest Questions

Manvi
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  1. Ayushi Curious Pursuing CA
    This answer was edited.

    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 foRead 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”

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Manvi
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  1. AbhishekBatabyal Curious Pursuing CA, BCOM (HONS)

    As the name suggests, unrecorded liabilities means the liabilities that a firm fails to record in its book of accounts. Usually, a firm gets to know about its unrecorded liabilities when it is about to get dissolved. What happens is that upon hearing that a firm is going to dissolve in near future,Read more

    As the name suggests, unrecorded liabilities means the liabilities that a firm fails to record in its book of accounts.

    Usually, a firm gets to know about its unrecorded liabilities when it is about to get dissolved. What happens is that upon hearing that a firm is going to dissolve in near future, its creditors and lenders report to the firm about their dues.

    At that time, a firm may get to know that it had failed to record some liabilities in its books and it has settled them now.

    We know that when a partnership firm is dissolved, a realisation account is created to which all the assets and liabilities of the firm are transferred.  Entries are as given below:-

    Realisation A/c     Dr.      ₹ Amt

    To Assets A/c                  ₹ Amt

    ( Asset transferred to realisation account)

    Liabilities A/c    Dr.        ₹ Amt

    To Realisation A/c       ₹ Amt

    (Liabilities transferred to realisation account)

    Hence, for transferring unrecorded liabilities, the procedure is the same for the recorded liabilities:-

    Unrecorded Liabilities A/c        Dr.     ₹ Amt

    To Realisation A/c                               ₹ Amt

    ( Unrecorded liabilities transferred to realisation account)

    Then to pay off the unrecorded liability the entry is:-

    Realisation A/c     Dr.    ₹ Amt

    To Cash / Bank A/c       ₹ Amt

    (Unrecorded liabilities paid off)

    That’s it, I hope I was able to make you understand.

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Karan
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  1. Ayushi Curious Pursuing CA

    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:-

    1. 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.
    2. Purchase book – It records all the credit purchases except the purchase of assets.
    3. Sales book – It records all the credit sales except the sale of assets.
    4. Purchase return book – It records all the transactions related to the return of purchased goods.
    5. Sale return book – It records all the transactions related to the return of goods from customers.
    6. Bills receivable book – It records the particulars of all the bills drawn in favour of the business.
    7. Bills payable book – It records the particulars of all the bills drawn in the name of the business.
    8. 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 few more things to know:-

    1. 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.
    2. Once transactions are recorded in the subsidiary books, they are then posted to the ledgers.
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Karan
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A. Debit balance B. Credit balance C. Either Debit or Credit D. None of these

  1. Ayushi Curious Pursuing CA

    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.

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Karan
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  1. AbhishekBatabyal Curious Pursuing CA, BCOM (HONS)
    This answer was edited.

    The term "principal book of accounts'' refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account. So to put it simply, the principal book of accounts mean ledgers. Ledgers are prepared by posting the debits and credits of a joRead more

    The term “principal book of accounts” refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account.

    So to put it simply, the principal book of accounts mean ledgers.

    Ledgers are prepared by posting the debits and credits of a journal entry to the respective accounts.

    A ledger groups the transactions concerning the same account. For example, Mr B is a debtor of X Ltd. Hence all the transactions entered into with Mr. will be grouped into the ledger Mr B A/c in the books of X Ltd.

    Ledgers are of utmost importance because all the information to any account can be known by its ledger.

    Preparation of ledger is very important because all the information to any account can be known by its ledger. Ledgers also display the balance of each and every account which may be debit or credit. This helps in the preparation of the trial balance and subsequently the financial statements of an entity.

    Hence, it is the most important book of accounts and calling it the ‘books of final entry’ is also justified.

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Simerpreet
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A. Events B. Transactions C. Journals D. None of These

  1. AbhishekBatabyal Curious Pursuing CA, BCOM (HONS)
    This answer was edited.

    The correct option is Option C: Journal Entries. Journal entries are the primary entries in the books of accounts and they are passed when any transaction or event takes place. Every journal entry has a dual effect i.e. two or more accounts are affected. For example, When cash is introduced in the bRead more

    The correct option is Option C: Journal Entries.

    Journal entries are the primary entries in the books of accounts and they are passed when any transaction or event takes place. Every journal entry has a dual effect i.e. two or more accounts are affected.

    For example, When cash is introduced in the business, the journal entry passed is:-

    Cash A/c    Dr.      ₹10,000

    To Capital A/c  ₹10,000

    The accounts affected here are Cash A/c and Capital A/c.

    Cash A/c gets debited by ₹10,000,

    and Capital A/c get credited by ₹10,000.

    All the processes of accounting are conducted in an ordered manner known as the accounting cycle.

    The first step in an accounting cycle is to identify the transactions and events which are monetary in nature.

    The second step is to record the identified transactions in form of journal entries.

    And the third step is to make postings in the general ledger accounts as per the journal entries.

    Hence, the preparation of the ledger is the third step in the accounting cycle and is prepared from the journal entries.

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Jayesh Gupta
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  1. Spriha Sparsh
    This answer was edited.

    Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital. Total Outside Liabilities  in relation to the Borrower can be all secured and unsecured loans, including current liabilRead more

    Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital.

    Total Outside Liabilities  in relation to the Borrower can be all secured and unsecured loans, including current liabilities of the Borrower.

    External Liability or outside liability is an obligation which a business has to pay back to external parties i.e. lenders, vendors, government, etc. Payable to Sundry creditors for the supply of any goods for the business or payable to any contractors for receiving any services or payable to the Govt. or other departments for any statutory payments like taxes or other levies. All these liabilities are known as an external liability to the business and are shown on the liability side of the Balance sheet after charging into the profit & loss account of that period.

    Where, Internal Liability – All obligations which a business has to pay back to internal parties such as promoters, employees, etc. are termed as internal liabilities. Example – Capital, Salaries, Accumulated profits, etc.

    Example – Borrowings, Creditors, Taxes, etc.

    Where, 1) Person A takes a loan from person B (person not associated with the company), person B is an external liability to person A.
    2) Person A has a tax liability of Rs.1000, here the government is an external liability to whom A has to pay the liability amount.

    3) Person A got goods on credit from person C for 60 days, C is an external liability to A, which A has to pay within the time period.

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Ayushi
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  1. Ayushi Curious Pursuing CA

    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 =Read 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.

     

    1. 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.

     

     

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