AccountingQA Latest Questions

Vijay
VijayCurious
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Companies Act
  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use.  It is also called economic lRead more

    Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use.  It is also called economic life or service life

    It is a useful concept in accounting as it is used to work out depreciation. By knowing this useful life of an asset an entity can easily analyze how to allot the initial cost of an asset across the relevant accounting period rather than doing it unfairly manner.

    How do we calculate the useful life of an asset?

    The useful life of an asset is not an accounting policy, but an accounting estimate. calculating useful life is not an exact phenomenon but an estimate that is done because it directly impacts how much an asset is to expense every year.

    Factors affecting “how long an asset is expected to be useful” depends on some stated points as below:

    1. Usage, the more the assets are used, the more quickly it will deteriorate.
    2. Whether the asset is new at the time of purchase or reused model.
    3. Change in technology.

    As per the companies act 2013, some of the useful life of assets are stated below

    To know more about the different categories of assets you can follow the given link useful life of assets.

    POINT TO BE NOTED:- There lies a huge difference in the useful life v/s the physical life of an asset. It is very important to note that amount of time an asset is used in a business is not always be same as an asset’s entire life span.

     

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Jasmeet_Sethi
Jasmeet_SethiCurious
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  2. GautamSaxena Curious .
    This answer was edited.

    Depreciation on Tools and Equipment Tools and Equipment are the instruments that are used for producing any product, machine, or service. Also, tools and equipment are a part of plants and machinery, making them a major fixed asset. Therefore, a certain percentage of depreciation is charged on ToolsRead more

    Depreciation on Tools and Equipment

    Tools and Equipment are the instruments that are used for producing any product, machine, or service. Also, tools and equipment are a part of plants and machinery, making them a major fixed asset. Therefore, a certain percentage of depreciation is charged on Tools and Equipment.

    As we’re aware, depreciation refers to a process in which assets lose their value over time until it becomes obsolete or zero. It is chargeable on the fixed assets and it ultimately results in depreciation of the value of fixed assets except, land. The land is an exception in fixed assets as where all the fixed assets are depreciated, the land’s value is appreciated over time.

    The rate of depreciation as per the Income Tax Act on tools and equipment (plant and machinery) is 15%.

    Example

    Suppose given below are the details regarding the tools and equipment:

    And, we’re required to calculate the value of the tools and equipment as on 1-Mar-22

    In this, as we can see the business’ accounting period starts in March and ends in April. Therefore, we can easily deduct the depreciation amount and get the desired result.

    Solution: Opening Value = $30,000

    Depreciation = 15% of $30,000 = $4,500

    Value of tools and equipment as on 1-Mar-22 = $30,000 – $4500 = $25,500

     

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Astha
AsthaLeader
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  2. Simerpreet Helpful CMA Inter qualified

    Outstanding Income is the income that is due and is being earned but not yet received. The person/ firm has the legal rights to receive that part of the income which it has earned. Outstanding Income is an Asset Account for the business/ the person. According to the modern approach, for Asset AccounRead more

    Outstanding Income is the income that is due and is being earned but not yet received. The person/ firm has the legal rights to receive that part of the income which it has earned.

    Outstanding Income is an Asset Account for the business/ the person.

    According to the modern approach, for Asset Account:

    • When there is an increase in the Asset, it is Debited.
    • When there is a decrease in Asset, it is Credited.

    So the journal entry  will be-

     

    For Example, Mr. Rashid works as a laborer in a factory and he earns wages @Rs 500/day.

    So by the end of the week, he receives a payment of Rs 3000 of Rs 3500 i.e. he receives payment of 6 days instead of 7 days. So here Rs 500 would be an outstanding income of Mr. Rashid as he has earned that income but has not received it yet.

    Journal Entry –

     

    Another example, Yes Bank gave a loan of Rs 10,00,000 to company Ford @ 10% as interest payable monthly. The interest for one month i.e. Rs 1,00,000 has not been received by Yes Bank which is being due. So it will be outstanding income for Yes Bank since it is due but not yet received.

    Journal entry-

     

    Accounting Treatment for Outstanding Income-

    • Treatment in Income Statement

    The Outstanding Income is shown on the credit side of the income statement as the income is earned for the current year but not yet received.

    • Treatment in Balance Sheet

    Outstanding Income is an Asset for the business and hence shown on the Assets side of the balance sheet.

     

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

    The reserves created for specific purposes in business are called specific reserves. According to the Companies Act, 2013, these reserves cannot be used for any other purposes. However, if the Article of Association of a company allows, these reserves can be used for other purposes as well. Amount tRead more

    The reserves created for specific purposes in business are called specific reserves. According to the Companies Act, 2013, these reserves cannot be used for any other purposes. However, if the Article of Association of a company allows, these reserves can be used for other purposes as well.

    Amount to any specific reserve is generally transferred from the Profit and Loss Appropriation Account.

    Various specific reserves are:

    • Debenture Redemption Reserve

    Debentures are debt instruments of a company and they have to be redeemed, that is, paid back after the expiry of the specified period. According to Accounting Standards, companies are required to set aside a specific amount in Debenture Redemption Reserve, when they are due for redemption.

    • Securities Premium Reserve

    When shares or debentures are issued at a price higher than its book value/face value, the difference between the market value and book value is called Securities Premium. The amount of Securities Premium is transferred to Securities Premium Account. This amount is utilized to issue fully paid bonus shares, write off preliminary expenses, write off commission discounts, etc., to provide a premium on redemption of debentures.

    • Investment Fluctuation Reserve

    The investments made by a company are subject to fluctuations in its market value. Company Law and Accounting Standards require companies to provide for such fluctuations by creating a reserve called Investment Fluctuation Reserve.

    • Dividend Equalisation Reserve

    Companies are required to pay a dividend to their shareholders. It is often difficult for a company to maintain a consistent rate of dividend as the dividend paid is equivalent to the profit made by a company during the financial year which is not consistent. So, Dividend Equalisation Reserve is created to maintain a consistent rate of dividend on shares over time, in the event of both high and low profits.

     

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Astha
AsthaLeader
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The receipt of cash is recorded by debiting the cash account to the account from which the cash is received. This source account may be the sales account, account receivable account or any other account from which cash is received. The journal entry is: An entity may receive cash in the following evRead more

    The receipt of cash is recorded by debiting the cash account to the account from which the cash is received. This source account may be the sales account, account receivable account or any other account from which cash is received.

    The journal entry is:

    An entity may receive cash in the following events:

    • Sales of goods or provision of services
    • Payment from account receivables
    • Sale of assets.
    • Withdrawal of cash from the bank
    • Introduction of additional capital in the business
    • Subscription or donation received in case of non-profit oriented concerns.
    • Other income in cash

    This list is not exhaustive. There may be many such events. However, the cash account will be always debited.

    Rules of accounting applicable on the cash account

    As per the golden rules of accounting, the cash account is a real account as represents an asset. For real accounts, the rule, “Debit the receiver and credit the giver” applies.

    Hence, when cash is received, cash is debited and the source (giver) is credited.

    As per modern rules of accounting, the cash account is an asset account. Assets accounts are debited when increased and credited when decreased.

    Hence, at receipt of cash, cash is debited as cash is increased.

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A_Team
A_Team
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  2. AishwaryaMunot
    This answer was edited.

    Meaning New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit. Thus, New pRead more

    Meaning

    New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit.

    Thus, New profit-sharing ratio can be stated as ratio in which all the partners, Old and New will share profits and losses of the partnership in future. The new profit-sharing ratio can be calculated as follows.

     

    Formula

    Sacrifice ratio is the ratio in which old/existing partners agrees to give away their share in profits for the new partner.

    For better understanding let’s see how calculation of New profit-sharing ratio can be done:

    Example : There are two partners in a partnership firm, Mr. Anil & Mr. Mukesh. Their profit-sharing ratio is 2:3. They wants to admit Mr. Nikhil as their third partner for 1/3rd share.

    In such case, Calculation of New profit-sharing ratio would be as follows:

    Total profit = 1

    Mr. Nikhil’s Share = 1/3

    Remaining Profit = 1 – 1/3 = 2/3

    So, this remaining share of 2/3 is shared among the old partners in their old ratio of 2:3.

    Mr. Anil’s Share = 2/3 x 2/5 = 4/15

    Mr. Mukesh’s Share = 2/3 x 3/5 = 6/15

    Mr. Nikhil’s Share = 1/3 x 5/5 =5/15

    So, New ratio would be 4/15: 6/15: 5/15 i.e., 6:4:5

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Anushka Lalwani
Anushka Lalwani
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A. Cash Book B. Statement C. Journal D. None of These

  2. Akash Kumar AK
    This answer was edited.

    The correct option is A) Cash book let's understand what is petty cash book: A petty cash book is a cash book maintained to record petty expenses. Petty expenses, mean small or minute expenses for which the payment is made in coins or a few notes or which are smaller denominations like tea or coffeeRead more

    The correct option is A) Cash book

    let’s understand what is petty cash book:

    • A petty cash book is a cash book maintained to record petty expenses.
    • Petty expenses, mean small or minute expenses for which the payment is made in coins or a few notes or which are smaller denominations like tea or coffee expenses, postage, bus or taxi fare, stationery expenses, etc.
    • The person who maintains the petty cash book is known as the petty cashier.
    • It is a simple process that helps organizations by focusing on major transactions as petty cashiers handle all small transactions.

     

    Generally, the petty cashbook is prepared as per the Imprest system. As per the Imprest system, the petty expenses for a period (month or week) are estimated and a fixed amount is given to the petty cashier to spend for that period.

    At the end of the period, the petty cashier sends the details to the chief cashier and he is reimbursed the amount spent. In this way, the debit balance of the petty cashbook always remains the same.

     

    The petty cash book has two columns in which

    • Cash received is recorded in the Left column i.e, “Receipts” or “Debit” column.
    • Cash payments are recorded in the Right column i.e, “Payment” or “Credit” column.

     

    Balance of Petty cash book

    The balance of petty cash book is never closed and their balances are carried forward to the next accounting period which is considered one of the most significant qualities of an asset whereas Income doesn’t have any opening balance and their balances get closed at the end of every accounting year.

    A petty cash book is placed under the head current asset in the balance sheet. The Closing Balance of the petty cash book is computed by deducting Total expenditure from the Total cash receipt (as received from the head cashier).

     

    Format for petty cash book

    Only small denominations are recorded in the petty cash book. It varies with the type, quantity, and need of a business. It involves cash and checks.

     

    • Ordinary Petty cash book:

     

    • Analytical Petty cash book:

     

    Conclusion

    A simple petty cash book is a type of cash book because it records the small expenses which involve small transactions in the ordinary daily business.

    A petty cash book is not as important as an income statement, balance sheet, or trail balance it doesn’t measure the accuracy of accounts so it is not treated as a statement.

    No journal entries are made in the books of accounts while spending or purchasing using a petty cash book so, it is not treated as a journal.

     

     

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Bonnie
BonnieCurious
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Net credit sales can be defined as the total sales made by a business on credit over a given period of time less the sales returns and allowances and discounts such as trade discounts. Net Credit Sales = Gross Credit Sales – Returns – Discounts – Allowances. Credit sales can be calculated from the ARead more

    Net credit sales can be defined as the total sales made by a business on credit over a given period of time less the sales returns and allowances and discounts such as trade discounts.

    Net Credit Sales = Gross Credit Sales – Returns – Discounts – Allowances.

    Credit sales can be calculated from the Accounts receivable/ Bills Receivable/ Debtors figure in the Balance Sheet. It will be normally shown under the Current Assets head in the Balance Sheet.

    Credit sales = Closing debtors + Receipts – Opening debtors.

    Alternatively, you may observe the bills receivable ledger account to locate the figure of credit sales.

     

    Net Credit Sales and related terms

    Before we try to understand the concept of net credit sales with an example, let us discuss the term sales return. Sales return means the goods returned by the customer to the seller. It may be due to defects or any other reasons.

    Now let us take an example. John is a retail businessman. He sells smartphones. He buys 100 smartphones from Vivo on credit. The smartphones are worth ₹1.5 lahks. He then returns smartphones worth 20,000 rupees to Vivo. He also gets an allowance of rupees 5,000 from Vivo.

    In the above example, the credit sales of Vivo are of rupees 1.5 lakh. The net credit sales is of

    1.5 lakh – 20,000 – 5, 000 = 1.25 lakh rupees.

    Importance of Net Credit Sales

    • Net Credit Sales figure together with the accounts receivable figure acts as an indicator of the credit policy of the company.
    • It offers insights into the ability of the company to meet short-term cash obligations.
    • The credit policy also affects the total current assets that the company has in the manifestation of Accounts Receivable

    Advantages and Disadvantages of Credit Sales.

    Advantages 

    • Increased Sales – The credit Policy facilitates increased sales for the company. The company can attract more customers with a liberal credit policy. For example, Apple got more customers when it started to sell its products on an EMI basis.
    • Customer Loyalty / Retention- Regular customers can be retained and made to feel honored by offering them more liberal credit terms.

    Disadvantages 

    • Delay in Cash Collection – Credit Sales imply that the company would get cash on a delayed basis. This money could have otherwise been put to use for some other profitable venture or could have borne interest for the company
    • Collection Expenses– The company had to incur additional expenditures for collecting money from debtors.
    • Risk of Bad Debts – With credit sales, there is always the risk that the buyer may become bankrupt and may not be able to pay the money due to the seller.
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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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