AccountingQA Latest Questions

Astha
AsthaLeader
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  2. Rahul_Jose Aspiring CA currently doing Bcom

    When a business deposits its money into a bank account, it receives a percentage of the amount deposited as bank interest. The journal entry for interest received from a bank is as follows: Since the Bank account is a current asset, it gets debited. This is in accordance with the modern rules of accRead more

    When a business deposits its money into a bank account, it receives a percentage of the amount deposited as bank interest. The journal entry for interest received from a bank is as follows:

    Since the Bank account is a current asset, it gets debited. This is in accordance with the modern rules of accounting where an increase in assets is debited while a decrease in assets is credited. According to the traditional rules (golden rules) of accounting, a bank account is classified under Personal account with the rule of “debit the receiver” and “credit the giver”. In the given journal entry bank account is receiving money and is hence debited.

    Meanwhile, Bank interest is the income received by the business and according to the modern rule of accounting, an increase in incomes is credited and a decrease in incomes is debited. Whereas, considering the traditional rules (golden rules), bank interest comes under Nominal account where “all incomes are credited” and “all expenses are debited”. Therefore, considering these rules, bank interest is credited.

    EXAMPLE

    If Gregor Ltd has a bank account with HSBC, having an opening balance of Rs 10,000 earning an interest of 5% per annum, then the journal entry for interest received from the bank is recorded as

    The interest amount is taken on the amount deposited in the bank (10,000 * 5%).

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning of lease A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments. There are two parties in a lease agreRead more

    Meaning of lease

    A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments.

    There are two parties in a lease agreement:

    • Lessor: The party who gives the right to use its asset in return for a series of payments or a single payment.
    • Lessee: The party who receives the right to use the asset from the Lessor.

    This is similar to a rent agreement or contract. The only difference between lease and rent is duration. A rent agreement is generally for less than 12 months while a lease agreement is for more than 12 months like 5 years or 10 years, sometimes even for like 99years.

     

    Type of lease

    There are two types of lease:

    • Operating lease
    • Finance Lease

     

    Operating lease

    • An operating lease is a type of lease in which the possession of the leased asset is transferred back from the lessee to the lessor at the end of the lease period.
    • Here, all the risk and rewards incident to ownership remains with the lessor, not the lessee.
    • The depreciation on the leased asset in case of operating lease is not charged by the lessee to its profit and loss account as the leased asset is not shown in the balance sheet. A leased asset is an off-balance sheet item in the case of an operating lease.

     

    Finance lease

    • Unlike an operating lease, the ownership of the leased asset is transferred to the lessee at the end of the leased period.
    • Thus, at the inception of the lease agreement, all the risk and rewards incident to ownership is transferred from the lessor to the lessee.
    • The depreciation on the leased asset is charged by the lessee to its profit and loss account as the leased asset is shown in the balance sheet. A leased asset is a balance sheet item in the case of an operating lease.
    • Along with the leased asset, the obligation to pay the future lease payment is also shown in the balance sheet as a non-current liability or current liability as the case may be.

     

    Difference between operating lease and finance lease in tabular format

     

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Simerpreet
SimerpreetHelpful
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  2. ShreyaSharma none
    This answer was edited.

    Ledger posting As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting toRead more

    Ledger posting

    As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting to the ledger accounts. Balancing of ledgers is carried out to find differences at the year’s end.

    Posting to the ledger account means entering information in the ledger, and respective accounts from the journal for individual records. The accounts that are credited are posted to the credit side and vice versa.

    Ledger maintenance is done at the end of an accounting period and it’s maintained to reflect a permanent summary of all the journal accounts. In the end, all the accounts that are entered and operated in the ledger are closed, totaled, and balanced. Balancing the ledger means finding the difference between the debit and credit amounts of a particular account.

    While posting to the ledger account, suppose goods were bought for cash. While passing the journal entry, we’ll be debiting the purchases a/c and crediting the cash a/c by stating it as, ‘To Cash A/c’.

    Now, this entry will be affecting both the purchases account and the cash account. In the cash account, we’ll be debiting purchases. Whereas in the purchases account, we’ll be crediting the cash. That’s how it works in the double-entry bookkeeping system of accounting.

    Example

    Mr. Tony Stark started the business with cash of $100,000 on April 1, 2021. He bought furniture for business for $15,000. He further purchased goods for $75,000.

    Now, we’ll be journalizing the transactions and posting them into the ledger accounts.

    Journal Entries

    Posting to Ledger Account

    Cash A/c

    Capital A/c

    Furniture A/c

    Purchases A/c

     

     

     

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Bonnie
BonnieCurious
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  2. A_Team (MBA - Finance Student) ISB College

    Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated. In terms of profitability ratios, there are several types, each providing a different viewpoint.Read more

    Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated.

    In terms of profitability ratios, there are several types, each providing a different viewpoint.

    The following are some common profitability ratios:

    Gross profit margin: This ratio measures the percentage of revenue that remains after the cost of goods sold has been deducted. Producing and selling efficiently is indicated by this metric.

    Net profit margin: An organization’s net profit margin is the portion of revenue left after all expenses have been deducted. A company’s profitability is measured by this indicator.

    Return on assets (ROA): This ratio measures how profitable a company’s assets are. In other words, it indicates how effectively a company generates profits from its assets.

    Return on equity (ROE): This ratio measures the profitability of a company’s equity. It shows how effectively a company generates profits from its shareholders’ investments.

    Analysts and investors use profitability ratios to evaluate a company’s performance and profitability ability.

    An investor or analyst can evaluate a company’s relative strength and identify potential opportunities or risks by comparing its profitability ratios with its peers or its industry averages.

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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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Aditi
Aditi
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  2. Mehak

    The terms outstanding expenses and accrued expenses are two accounting terms which are often used interchangeably. However, these two terms are not the same and have different meanings. The difference between these two terms is given below: What are Outstanding expenses? As the name suggests, outstaRead more

    The terms outstanding expenses and accrued expenses are two accounting terms which are often used interchangeably. However, these two terms are not the same and have different meanings. The difference between these two terms is given below:

    What are Outstanding expenses?

    As the name suggests, outstanding expenses are the expenses that are due but have not been paid yet. It means that the business is supposed to pay the amount due but it has not paid the same at the end of the accounting period.

    Outstanding expenses are recognized as a current liability because the business is liable to pay such expenses. These expenses are recorded in the books of accounts but the payment is still pending.

    Some examples of outstanding expenses are:

    1. The electricity bill is due for the month of January but has not yet been paid on 31st January.
    2. Salaries of employees of 50,000 is due for the month of March but have not been paid yet by the business.

    What are Accrued expenses? 

    Accrued expenses are the expenses that a business has incurred during the accounting period but they have not yet been recorded in the books of accounts because the bill has not yet been received or the payment is not due yet.

    The concept of Accrued expenses helps in complying with the accrual basis of accounting which says that the expense shall be recognised at the time it occurs regardless of the fact that payment is received or not.

    Examples of accrued expenses are:

    1. The electricity bill for December is received in the month of January. However, it shall be recognised as an expense in the month of December.
    2. The salaries of the employees for the month of April are paid in May. However, this expense shall be recognized in April.

     

    Key differences between outstanding expenses and accrued expenses

    To summarise the above discussion, the key differences between outstanding expenses and accrued expenses are given in the table below:

     

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Simerpreet
SimerpreetHelpful
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Cash FlowDepreciation
  2. Astha Leader Pursuing CA, BCom (Hons.)
    This answer was edited.

    Depreciation refers to that portion of the value of an asset that a company uses in an accounting year to generate revenue. Assets are written off in form of depreciation over time also called the useful life of the asset. It denotes the wear and tear of an asset over time. Suppose, a company namedRead more

    Depreciation refers to that portion of the value of an asset that a company uses in an accounting year to generate revenue. Assets are written off in form of depreciation over time also called the useful life of the asset. It denotes the wear and tear of an asset over time.

    Suppose, a company named Johnson ltd. purchases machinery for 50,000 that has a useful life of 5 years with nil salvage value. Then the yearly depreciation to be charged can be calculated as:

    Depreciation calculation with formula

    Is Depreciation a Cash Flow?

    Cash flows are inflows and outflows of cash and cash equivalents in an entity. The payments made by the entity denote the outflows whereas the revenues or incomes of the entity denote the inflows. Talking about cash flows, depreciation is a non-cash item of expense which means it neither results in inflow nor outflow of cash resources.

    In the adjacent Profit and Loss statement, a cash payment of 7,000 for electricity implies outflow of cash however, depreciation of 10,000 is merely an imputed cost to write off an asset or we can say, a part of profits set aside each year so that there are sufficient funds available to procure a new asset after the currently available asset is discarded.

    showing depreciation in profit and loss account

    However, cash flow statements are affected by depreciation. Depreciation is added back to the net profits while calculating cash flows from operating expenses since it is a non-cash item and has been deducted while calculating net profits in the profit and loss statement.

    Depreciation shown in cash flow statement

    Depreciation does not directly impact the amount of cash generated or expended by a business but it is tax-deductible and will reduce the cash outflows related to income taxes. Thus, depreciation affects cash flow by reducing the amount of cash a business has to pay for income taxes.

    depreciation effect on cash flow indirectly

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A_Team
A_Team
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The balances as per cash column of cash book and passbook The balance as per bank column of cash book and passbook The balance as per Bank column of cash book and ...

Bank Reconciliation StatementDifference Between
  2. Radha M.Com, NET
    This answer was edited.

    A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook. This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the pRead more

    A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook.

    This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the point of view of the banker. Since both are prepared from a different point of view, differences are bound to occur.

    Bank Reconciliation is the process by which on a particular date the bank balance as per Cash Book is reconciled with the balance as per Pass Book/Bank Statement.

    Whenever bank reconciliation is done, we need to identify the reasons or transactions causing the differences between both balances. Then a statement highlighting the reasons or causes of differences is prepared. This statement is known as Bank Reconciliation Statement.

    A Bank Reconciliation Statement is prepared by starting with either the (a) bank balance as per Cash Book or the (b) balance as per Pass Book/Bank Statement. Only those entries which are recorded in the Cash Book but not in the Pass Book/Bank Statement or vice versa are considered while preparing the Bank Reconciliation Statement.

    The reasons for the differences between the two balances can be broadly classified into three categories:

    1. Differences due to timing.
    2. Transactions recorded by the Bank.
    3. Errors.

     

    For example, the debit bank balance as per the Cash Book of Mr. A on 31st March is 20,000. On the same date, his Bank Statement showed a credit balance of 30,000. When the Bank Reconciliation Statement is prepared on 31st March, he will find out the transactions causing the 10,000 (30,000 – 20,000) difference between both the balances. Once the transactions are identified he will reconcile the balance as per the Cash Book with the balance as per his Bank Statement.

     

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Naina@123
Naina@123
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1. Credit balance in the cash column of the cash book 2. Credit balance in the bank column of the cash book 3. Neither of the two 4. Both (a) ...

  2. Radha M.Com, NET
    This answer was edited.

    The correct answer is 2. Credit balance in the bank column of the cash book. The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allowsRead more

    The correct answer is 2. Credit balance in the bank column of the cash book.

    The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allows the account holder to borrow a specified sum of money over and above the balance in their accounts.

    It is a form of short-term borrowing offered by banks and is extremely useful for businesses to resolve short-term cash flow issues.

    The account holder can withdraw money even when his/her account does not have enough balance to cover the withdrawal. Since the business is withdrawing money that is not in its account, an overdraft is represented by a negative bank balance. That is why they are shown as a credit balance in the bank column of the Cash Book.

    Overdraft is a liability for the business. Hence, it is shown on the Equity and Liability part of the Balance Sheet under the head Current Liabilities and sub-head Short Term Borrowings.

    Banks do not offer this facility to all customers. Only those who have a good reputation and credit score are eligible for this facility. Like any other borrowing, interest is charged on the amount utilized by the account holder as an overdraft.

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Radha
Radha
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  2. Vijay Curious M.Com
    This answer was edited.

    The difference between a ledger & a trial balance is as follows: Basis Ledger Trial Balance Meaning Ledger is a book/register in which all the accounts are put together. A Trial Balance is a statement showing the debit and credit balance of all the accounts to ascertain the arithmetical accuracyRead more

    The difference between a ledger & a trial balance is as follows:

    Basis Ledger Trial Balance
    Meaning Ledger is a book/register in which all the accounts are put together. A Trial Balance is a statement showing the debit and credit balance of all the accounts to ascertain the arithmetical accuracy of the books of accounts.
    Basis of preparation Journal is the basis for recording transactions in the ledger. The closing balances of different accounts in the ledger are the basis for preparing the trial balance.
    Objective It is prepared to see the net effect of various transactions affecting a particular account. It is prepared to check the arithmetical accuracy of the books of accounts.
    Format A ledger has four identical columns on the debit and credit sides: 1. Date, 2. Particulars, 3. Journal Folio, 4. Amount. A Trial Balance has five columns: 1. S.No, 2. Name of Accounts, 3. Ledger Folio, 4. Debit Balance, 5. Credit Balance.
    Stage of Recording A ledger is prepared after recording the transactions in the journal. A trial balance is prepared after posting the transactions in the ledger.
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