AccountingQA Latest Questions

Jayesh Gupta
Jayesh GuptaCurious
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  1. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    20 Journal Entries Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries. Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is creditedRead more

    20 Journal Entries

    Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries.

    Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is credited.

    In the case of compound journal entries, one set of accounts is debited and one set of accounts is credited.

    The amount of debit and credit always remains the same.

    For example, when cash is introduced into a business, it affects two accounts: Cash A/c and Capital A/c. The accounts are debited and. credited as per the golden rules of accounting.

    The journal entries which I have provided are based on the following transactions and events:

    1. The business started with Rs. 1,00,000 
    2. Bought machinery for Rs. 15,000 and furniture for Rs. 10,000
    3. Purchased goods of Rs. 20,000 with cash 
    4. Bought Stationery for Rs. 500 
    5. Cash deposited into bank Rs. 40,000 
    6. Goods sold to Matt for Rs. 15,000 
    7. Purchased goods from Uday of Rs. 30,000 
    8. Being Rs. 5,000 rent paid for premises 
    9. Cheque received from Matt of Rs. 15,000 
    10. Defective goods returned to Uday returned of Rs. 2,000 
    11. Cash sales of Rs. 25,000 
    12. Carriage Inward paid Rs. 700
    13. Cash withdrawn from bank Rs. 15,000 
    14. Full payment made to Uday in cash. Discount received from Uday Rs. 1000.
    15. Refreshments given to customers of Rs. 200
    16. Goods sold to Shyam for Rs. 7,500 
    17. Goods purchased from Ram of Rs. 50,000 
    18. Salaries paid to employees by bank Rs. 5,000 
    19. Good sold to Suri for Rs. 25,000 
    20. Insurance premium paid of Rs. 1,500 by the bank.

    Journal Entries

    The journal entries based on the above are as follows:

     

    Ledgers

    Ledger is known as the book of final entry. It is the book where the transactions related to a specific account are posted. This posting of transactions is done from journal entries.

    The posting of journal entries into the ledger is performed in the following way:

    The journal entry of cash sales is :

    Cash A/c                                                           Dr.            Amt
          To Sales A/c            Amt

    Here, Cash A/c is debited to Sales A/c. So, in the Cash A/c ledger, posting will be made on the debit side as “To Sales A/c”

    In the Sales A/c ledger, the posting will be made on the credit as “By Cash A/c” because Sales A/c is credited to Cash A/c

    For creating ledgers, journal entries are a prerequisite.

    Now, the ledgers to be created as per the journal entries made above are as follows:

    1. Cash A/c
    2. Bank A/c
    3. Capital A/c
    4. Furniture A/c
    5. Machinery A/c
    6. Purchase a/c
    7. Sales A/c
    8. Matt A/c (Debtor)
    9. Uday A/c (Creditor)
    10. Rent A/c
    11. Purchase Return A/c
    12. Stationery A/c
    13. Carriage Inward A/c
    14. Refreshment A/c
    15. Shyam A/c (Debtor)
    16. Ram A/c (Creditor)
    17. Suri A/c (Debtor)
    18. Refreshment A/c
    19. Discount Received A/c

    The account ledgers are as follows:

    Trial Balance

    A trial balance is a statement that is prepared to check the arithmetical accuracy of books of accounts.

    In this statement, the total of all accounts having debit balance and the total of all accounts having credit balance is computed. If the total of debit and credit matches, then it can be said that the books of accounts are arithmetically accurate.

    Here also we have prepared the trial balance by computing the total of accounts  having debit balances and the total of  accounts having credit balances

    The debit column total and credit column total are matching. Hence, we can say that the books of accounts we have prepared are arithmetically accurate.

    Note: Matt A/c and Uday A/c have not appeared in the trial balance because they do not have any carrying balance.

     

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Jasmeet_Sethi
Jasmeet_SethiCurious
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DrawingsTrial Balance
  1. Manvi Pursuing ACCA
    This answer was edited.

    Drawings mean the certain sum of amount or goods withdrawn by owners from the business for personal use. The drawings account is not an asset/liability/expense/income account, it is a contra account to the owner's equity or capital account. Drawings A/c will always have a debit balance. Drawings A/cRead more

    Drawings mean the certain sum of amount or goods withdrawn by owners from the business for personal use. The drawings account is not an asset/liability/expense/income account, it is a contra account to the owner’s equity or capital account. Drawings A/c will always have a debit balance.

    Drawings A/c debit balance is contrary to the Capital A/c credit balance because any withdrawal from the business for personal use will reduce the capital.

    Effect on Trial Balance: Drawings will be shown in the debit column of the trial balance.

    Effect on Financial Statements: The owner’s drawings will affect the company’s balance sheet by decreasing the asset that is withdrawn, and a corresponding decrease in the owner’s equity or capital invested.

    Example:

    Mr.B a sole proprietor withdraws $100 each month for personal use. At the end of the year Drawings A/c had a debit balance of $1,200.

    Mr.B records drawings of $100 each month and debits drawings a/c and credits cash a/c. At the end of the year, he will transfer the balance and will debit capital a/c and credit drawings a/c by $1,200.

    He will show a balance of $1,200 ($100*12) in the trial balance in the debit column. Assuming closing capital of $50,000.

    In the financial statement, the balance of drawings a/c will be deducted from the owner’s capital because it is a contra account and this will reduce the owner’s capital for the year.

     

     

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Bonnie
BonnieCurious
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Compound EntryLedger
  1. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    When in a single transaction two or more accounts are involved, such kinds of transactions are termed as Compound entries. Example 1, Johnson Co. purchased goods worth 5,000, and half of the amount was paid in cash and the other half by cheque. So here three accounts are involved: Purchase account-Read more

    When in a single transaction two or more accounts are involved, such kinds of transactions are termed as Compound entries.

    Example 1, Johnson Co. purchased goods worth 5,000, and half of the amount was paid in cash and the other half by cheque.

    So here three accounts are involved:

    Purchase account- That is to be debited.

    Cash account- That is to be credited.

    Bank account- That is to be credited.

    Journal entry:

    Now posting the above journal entry in a ledger account.

    In the Journal, the Purchase account has been debited. So in the ledger, the purchase account will also be debited. Since the purchase account is debited in the ledger, the corresponding two credit accounts of this entry i.e. the cash and the bank will be written on the debit side in the particulars column. So while posting, the amount to be considered would be the amount individually paid in cash and bank as shown in the journal entry.

    Cash a/c is credited with the purchase account.  In the ledger, purchase a/c will be posted on the credit side. So while posting, the amount to be considered would be the amount individually paid in cash.

    Bank a/c is credited with the purchase account. In the ledger, purchase a/c will be posted on the credit side. So while posting, the amount to be considered would be the amount individually paid in Bank a/c.

    Example 2,  Johnson Co purchased goods and made payment in cash 2,000. Along with it, it also paid commission and interest of 1,000 and 500 respectively.

    So here four accounts are involved:

    Purchase account- That is to be debited.

    The commission allowed account- That is to be debited.

    Interest allowed account- That is to be debited.

    Cash account- That is to be credited.

    Journal Entry:

    Now posting the above journal entry in a ledger account.

    In the journal entry, the cash account has been credited. So in the ledger, the cash account will also be credited. Since the cash account is credited in the ledger, the corresponding three accounts will also be credited in the particulars column. As in the journal entry the three debit accounts viz. Purchase, the commission allowed, and interest allowed, the amounts written against them shall be entered in the respective accounts in the amount column on the credit side of the cash account.

    Purchase a/c is debited with a cash account.  In the ledger, Cash a/c will be posted on the debit side. So while posting, the amount to be considered would be the amount individually paid in the Purchase account.

    The commission allowed a/c is debited with a cash account.  In the ledger, cash a/c will be posted on the debit side. So while posting, the amount to be considered would be the amount individually paid in Commission allowed a/c.

    Interest allowed a/c is debited with a cash account.  In the ledger, cash a/c will be posted on the debit side. So while posting, the amount to be considered would be the amount individually paid in Interest allowed a/c.

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Radha
Radha
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Interest on investmentTrial Balance
  1. Rahul_Jose Aspiring CA currently doing Bcom
    This answer was edited.

    Interest on Investment is to be shown on the Credit side of a Trial Balance. Interest on investment refers to the income received on investment in securities. These securities can be shares, debentures etc. of another company. When one invests in securities, they are expected to receive a return onRead more

    Interest on Investment is to be shown on the Credit side of a Trial Balance.

    Interest on investment refers to the income received on investment in securities. These securities can be shares, debentures etc. of another company. When one invests in securities, they are expected to receive a return on investment (ROI).

    Since interest on investment is an income, it is shown on the credit side of the Trial Balance. This is based on the accounting rule that all increase in incomes are credited and all increase in expenses are debited. A Trial Balance is a worksheet where the balances of all assets, expenses and drawings are shown on the debit side while the balances of all liabilities, incomes and capital are shown on the credit side.

    For example, if Jack bought Corporate Bonds of Amazon, worth $50,000 with a 10% interest on investment, then the accounting treatment for interest on investment would be

    Cash/Bank A/C Dr     5,000
    To Interest on Investment in Corporate Bonds (Amazon) 5,000

    As per the above entry, since interest on investment is credited, it will show a credit balance and hence be shown on the credit side of the Trial Balance. Interest on investment account is not to be confused with an Investment account. Investment is an asset whereas interest on investment is an income.

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A_Team
A_TeamCurious
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  1. Ayushi Curious Pursuing CA

    In trial balance, the treatment of the general reserve is that it is presented on the credit side. A trial balance is a statement prepared to check the arithmetical accuracy of the books of accounts. It features the closing balances of all the assets, liabilities and equity of a business. General reRead more

    In trial balance, the treatment of the general reserve is that it is presented on the credit side.

    A trial balance is a statement prepared to check the arithmetical accuracy of the books of accounts. It features the closing balances of all the assets, liabilities and equity of a business.

    General reserve is a free reserve created out of revenue profits of a business to meet future needs and uncertainties. By free reserve, we mean dividends can be freely declared and distributed out of it.

    Since the general reserve is an internal liability i.e. liability to the owner or owners or the business, it has a credit balance and is hence shown on the credit side of the trial balance.

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

    Sundry Debtors in Trial Balance The debtor is a company's asset, and assets are always debited in the trial balance. The trial balance is a statement maintained at the end of an accounting period, listing the ending balances in each general ledger account. There are two sides to this account, debit,Read more

    Sundry Debtors in Trial Balance

    The debtor is a company’s asset, and assets are always debited in the trial balance.

    • The trial balance is a statement maintained at the end of an accounting period, listing the ending balances in each general ledger account.
    • There are two sides to this account, debit, and credit and they include all the transactions done in the business over a particular accounting period.

     

    As we know, assets, expenses, and drawings are always debited. That applies not only in journals but here as well, hence, all of your assets are to be debited.

    Trial Balance Statement

     

    As we can see here, the sundry debtors (on the 4th) are debited like all the other assets, expenses, and losses. In the end, if the basic accounting equation i.e. assets=capital+liability is violated, a mismatch arises which in the balancing figure is shown under the name of suspense account. Such errors must not be found and corrected to avoid any mismatch in the balance sheet of the company.

    Total Assets = Capital + Other Liabilities.

    Therefore, this is how the sundry debtors are treated in the Trial Balance.

     

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Jasmeet_Sethi
Jasmeet_SethiCurious
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To ascertain the debtors and creditors of the business To ascertain the financial position of the business To ascertain the profit or loss of the business To ascertain the collective effect of all ...

  1. Manvi Pursuing ACCA
    This answer was edited.

    The correct answer is 4. To ascertain the collective effect of all transactions pertaining to a particular account. The reason being is that in the ledger account all the effects are recorded for example,  how much money is spent on a particular type of expense or how much money is receivable from aRead more

    The correct answer is 4. To ascertain the collective effect of all transactions pertaining to a particular account. The reason being is that in the ledger account all the effects are recorded for example,  how much money is spent on a particular type of expense or how much money is receivable from a debtor. In ledger accounts, information can be obtained about a particular account.

    Ledger is the Principal book of accounts and also called the book of final entry. It summarises all types of accounts whether it is an Asset A/c, Liability A/c, Income A/c, or Expense A/c. The transactions recorded in the Journal/Subsidiary books are transferred to the respective ledger accounts opened.

     

    Importance of preparing ledger accounts:

    1. Ledger accounts get the ready results i.e. helps in identifying the amount payable or receivable.
    2. It is necessary for the preparation of the Trial Balance.
    3. The financial position of the business is easily available with the help of Assets A/c and Liabilities A/c.
    4. It helps in preparing various types of income statements on the basis of balances shown in ledger accounts.
    5. It can be used as a control tool as it shows balances of various accounts.
    6. It is useful for the management to forecast or plan for the future.
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Astha
AsthaLeader
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CreditDebitOpening Balance
  1. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Let us begin with a short explanation of what opening balance is: The opening balance is the amount of funds that are bought forward from the end of one accounting period to the beginning of a new accounting period. In a firm’s account, the first entry done is of the opening balance. It can either hRead more

    Let us begin with a short explanation of what opening balance is:

    The opening balance is the amount of funds that are bought forward from the end of one accounting period to the beginning of a new accounting period.

    In a firm’s account, the first entry done is of the opening balance. It can either have a debit balance or a credit balance depending upon whether the firm has a negative or positive balance.

    Opening balance of a ledger

    Opening balance is the first entry of the ledger account at the beginning of an accounting period.

    In the case of a newly started business, there will be no closing balances and as such there will be no balances to be carried forward. In such a case, the investment and capital of the business will be entered as an opening balance for the current accounting period.

    So the first and foremost part is to identify on which side of the ledger i.e. the debit side or the credit side the opening balance is to be entered.

    For Example, A trial balance is given which represents the debit and credit balances, accordingly, I will prepare different ledger accounts to make it simpler.

    The trial balance shows the opening balance of various accounts. Now posting them in ledger accounts.

    As the Furniture is an Asset account, the opening balance will be on the debit side of the ledger account.

    As Sundry creditor is a credit account,  we put the opening balance on the credit side.

    As the Capital is a credit account,  we put the opening balance on the credit side.

    As Wages is a debit account,  we put the opening balance on the debit side.

    As the Discount received is a credit account,  we put the opening balance on the credit side.

    Exception

    Drawing Account.

    Drawing account is an exception to this topic. It is considered a contra account to the owner’s capital account because it reduces the value of the owner’s equity. Drawings, therefore, have no opening balance.

    Contra Entry.

    Contra entry involves transactions of cash and bank. Any entry which involves both the cash and bank is contra entry.

    For example, we deposit cash 5000 into the bank.

    Accounting entry for this transaction would be

    In this case, the ledger entry would be

    As the bank account has a debit balance, the opening balance would come on the debit side.

    As the cash account has a credit balance, the opening balance would come on the credit side.

    Alternatively, If we withdraw cash 5000 from the bank.

    Accounting entry would be

    In this case, the ledger entry would be

    As the Cash account has a debit balance, the opening balance would come on the debit side.

    As the Bank account has a credit balance, the opening balance would come on the credit side.

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Jayesh Gupta
Jayesh GuptaCurious
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  1. GautamSaxena Curious .
    This answer was edited.

    Errors revealed by Trial Balance Trial balance, as we know, is a statement prepared after the ledger, followed by a journal. It has a list of all the general ledger accounts contained in the ledger of a business. Each nominal ledger account either holds a debit balance or credit. It is primarily useRead more

    Errors revealed by Trial Balance

    Trial balance, as we know, is a statement prepared after the ledger, followed by a journal. It has a list of all the general ledger accounts contained in the ledger of a business. Each nominal ledger account either holds a debit balance or credit.

    It is primarily used to identify the balance of debits and credits entries from the transactions recorded in the general ledger in a certain accounting period. The debit and credit sides total are equal in a trial balance.

    Classification of errors in the trial balance

    • Errors of Commission: Errors arising due to wrong posting of a journal entry, a ledger account, wrong totaling of a subsidiary book, or even wrong recording of accounts. Therefore, resulting in trial balance error. E.g business receives an amount on goods sold on credit but it is instead posted to additional capital a/c.
    • Errors of Omission: This occurs when some transactions are fully or partially omitted from books of accounts. A complete omission is a case when the transaction is completely omitted but a partial omission is seen when the transaction is entered in the journal but not posted to the ledger. E.g a cheque worth $4,100 was received from ABC Ltd. but completely omitted. Then the rectification entry shall be passed later on.
    • Compensating Errors: It occurs when the errors are equal in amount and opposite to each other so and so that they cancel each other which further creates no difference in the Trial Balance. E.g Harry’s account is debited to $300 wrongly instead of $400. On the other hand, Liam’s account is credited by $700 instead of $800.
    • Errors of Principles: These are the errors occurring when the entries that are posted are incorrect, violating the accounting policy. E.g when receiving money from debtor then debiting debtor and crediting the amount of money received.

    Some of the common errors

    Some more (commonly seen) errors while preparation of the trial balance:

    Errors of Commission

    1. Addition or totaling mistakes in the trial balance, debit, and credit side.
    2. Wrong totaling of subsidiary books.
    3. Error in the sum total of subsidiary book.
    4. Posting in the wrong account.
    5. Recording a transaction incorrectly in a journal.
    6. Balance wrote on the wrong side of the trial balance.
    7. Error in posting a journal to a ledger.
    8. Posting on the wrong side of the account.

    Errors of Omission

    1. Goods purchased and returned to the supplier may be entered in the purchase returns book but not posted in the debit of the supplier account.
    2. Cash paid to creditors was completely omitted from the recording.

    Compensating Errors

    • Wrong posting of the same amount in another account, which may not be affecting the equalizing of trial balance.

    Errors of Principles

    1. Posting twice to a ledger account.
    2. Balance c/d or balance b/d is written on the wrong side of the ledger account.
    3. Reversal of a journal entry by mistake like, crediting cash and debiting debtor’s a/c.

     

     

     

     

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Bonnie
BonnieCurious
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  1. Astha Leader Pursuing CA, BCom (Hons.)
    This answer was edited.

    There are two types of ledger accounts in the accounting system – temporary and permanent. Temporary accounts are those whose balances zero out and we do not carry forward balances to the next year. Examples are revenue and expenses accounts or nominal accounts. The balances of such accounts are traRead more

    There are two types of ledger accounts in the accounting system – temporary and permanent.

    Temporary accounts are those whose balances zero out and we do not carry forward balances to the next year. Examples are revenue and expenses accounts or nominal accounts. The balances of such accounts are transferred to the profit and loss account and therefore are not balanced.

    Permanent accounts are those whose balances are carried forward to the next accounting year in form of opening balances. These accounts are balanced and such balances are transferred to the balance sheet. Examples are assets, liability and capital accounts or personal and real accounts.

    Balancing an account means equaling both the debit and the credit side of the account. Generally, there is a difference between the accounts recorded as a carry down balance in the case of permanent accounts and as a transfer balance in the case of temporary accounts.

    Balancing serves as a check to the double-entry rule of accounting.

    Balanced accounts

    As discussed above, the balanced accounts are shown in the balance sheet and the balancing figure for such accounts are carried forward to the next accounting period.

    Unbalanced accounts

    As per the above discussion, the balancing figures of unbalanced accounts are transferred to the profit and loss account and no balances are carried forward to the next accounting period.

    Suppose a company Shine Ltd. has machinery costing 5,00,000 at the beginning of the accounting period and charges depreciation of 10% on the asset. The company also has creditors amounting to 50,000 at the beginning of the period and purchases goods amounting to 30,000 on credit. It has a cash balance of 95,000 at the beginning of the period and earns interest amounting to 10,000.

    Following ledgers would be prepared to record the above entries:

    The above ledgers can be shown as follows:

    The balance of the machinery account will be shown in the balance sheet and therefore it is a balanced account.

    The balance is transferred to the profit and loss account and therefore depreciation account is an unbalanced account.

    The balance of creditors account will be shown in the balance sheet and therefore it is a balanced account.

    The balance is transferred to the profit and loss account and therefore purchases account is an unbalanced account.

    The balance of the cash account will be shown in the balance sheet and therefore it is a balanced account.

    The balance is transferred to the profit and loss account and therefore interest account is an unbalanced account.

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