AccountingQA Latest Questions

Bonnie
BonnieCurious
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  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    To start with let me first explain the difference between receipts and income & payment and expenditure. Although Receipts and Income may look similar terms, there are some differences. Receipts have their relation with both cash and cheques received on account of various items of the organizatiRead more

    To start with let me first explain the difference between receipts and income & payment and expenditure.

    Although Receipts and Income may look similar terms, there are some differences.

    Receipts have their relation with both cash and cheques received on account of various items of the organization. Whereas, income is considered as a revenue item for finding surplus or deficit of the organization. All the receipts collected during the year may not be considered as income.

    For Example, if an organization sale of its assets that is of a capital nature, it would not be considered as an item of income and hence would be treated in the balance sheet.

    Similarly, Payment and Expenditure are two different terms. Payments are those that have their relation with cash and cheques given for various activities of the organization. Whereas, Expenditure is considered as revenue expenditure for ascertainment of surplus or deficit in the case of a not-for-profit organization. All payments made during the year may not be considered as expenditures.

    Differences

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SidharthBadlani
SidharthBadlani
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Journal Entry is an entry made in the journal is called journal entry. And the process of recording a transaction in a journal is called journalizing. Broadly journal entries are of two types : 1. Simple entry 2. Compound entry Otherwise, they are categorized into seven types which are asRead more

    Definition

    Journal Entry is an entry made in the journal is called journal entry. And the process of recording a transaction in a journal is called journalizing.

    Broadly journal entries are of two types :

    1. Simple entry
    2. Compound entry

    Otherwise, they are categorized into seven types which are as follows :

    1. Opening entries
    2. Closing entries
    3. Rectification entries
    4. Transfer entries
    5. Adjusting entries
    6. Entries on dishonor of bills
    7. Miscellaneous entries

    Explanation

    Now let me explain to you the above types of entries mentioned which are as follows ;

    Simple entry
    • Is a journal entry in which one account is debited and another account is credited with an equal amount.
    • For example, the purchase of goods of Rs 5000 cash. It will affect two accounts,i.e., purchase A/C and cash A/C with the amount of Rs 5000.

    Compound entry
    • Is a journal entry in which one or more accounts are debited and/or one or more accounts credited or vice versa.
    • For example the sale of goods to Sati for Rs 5000, Rs 2000 is received in cash, and the balance is to be received later.
    • This transaction of the sale has an effect on three accounts i.e cash or bank A/C, Sati A/C, and sales A/C.

    Opening entries
    • Are defined as when books are started for the new year, the opening balance of assets and liabilities are journalized. For example bills payable, short-term loans, etc.

    Closing entries
    • At the end of the year, the profit and loss account has to be prepared. For this purpose, the nominal accounts are transferred to this account. This is done through journal entries called closing entries.

    Rectification entries
    • If an error has been committed, it is rectification through a journal entry.

    Transfer entries
    • If some amount is to be transferred from one account to another, the transfer will be made through a journal entry.

    Adjusting entries
    • At the end of the year, the number of expenses or income may have to be adjusted for amounts received in advance or for amounts not yet settled in cash.
    • Such an adjustment is also made through journal entries. Usually, the entries pertain to the following :

    Outstanding expenses,i.e., expenses incurred but not yet paid;

    Prepared expenses,i.e., expenses paid in advance for some period in the future ;

    Interest on capital is the interest proprietor’s investment in the business entity investment; and

    Depreciation fall in the value of assets used on account of wear and tear. For all these, journal entries are necessary.

    Entries on dishonor of bills
    • If someone who accepts a promissory note ( or bill) is not able to pay in on the due date, a journal entry will be necessary to record the non–payment or dishonor.

    Miscellaneous entries
    The following entries will also require journalizing
    • Credit purchase of things other than goods dealt in or materials required for the production of goods e.g. Credit purchase of furniture or machinery will be journalized.
    • An allowance to be given to the customers or a charge to be made to them after the issue of the invoice.
    • Receipt of promissory notes or issue to them if separate bills books have not been maintained.
    • On an amount becoming irrecoverable, say, because, of the customer becoming insolvent.
    • Effects of accidents such as loss of property by fire.
    • Transfer of net profit to capital account.

    Here are some examples of journal entries showing the above types :

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Simerpreet
SimerpreetHelpful
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  2. Kajal

    A Realisation account is prepared at the time of dissolution of the Partnership firm to ascertain profit or loss from the sale of assets and payment of liabilities of the firm. All assets that can be converted into cash (i.e. from which any value can be realised) and all external liabilities to be pRead more

    A Realisation account is prepared at the time of dissolution of the Partnership firm to ascertain profit or loss from the sale of assets and payment of liabilities of the firm. All assets that can be converted into cash (i.e. from which any value can be realised) and all external liabilities to be paid are transferred to the Realisation A/c.

    So, Cash and Bank (already in liquid form), fictitious assets (doesn’t have any value to be realised), Partner’s Loan (internal liability) and Undistributed profits (not something that can be realised) are not included in the Realisation account.

     

    DISSOLUTION OF PARTNERSHIP FIRM

    It means the firm closes down its business and comes to an end. Simply, it means the firm will cease to exist in the future. As the firm is closing down, its assets are sold, liabilities are paid off, and the remaining amount (if any) is distributed among the partners.

     

    REALISATION ACCOUNT

    This account is prepared only once, at the time of dissolution of the Partnership firm. It is opened to dispose of all the assets of the firm and make payments to all the external creditors of the firm.

    It ascertains the profit earned or loss incurred on the realisation of assets and payment of liabilities.

     

    Items not included in Realisation A/c

     

    1. ASSETS

    CASH AND BANK BALANCES are not included in the Realisation account as the purpose of the Realisation account is to sell assets to realise cash, but cash and bank are already in liquid form and thus, not included.

    These are directly used for the payment of liabilities and if there is any remaining amount, then that amount is distributed among the partners.

     

    FICTITIOUS ASSETS are huge expenses or losses that are written off over the years by writing off a portion of it every year for the next few years like accumulated losses, balance of Advertisement expenses, Preliminary expenses, Loss on the issue of Debentures, etc. They don’t have any physical existence or realisable value.

    Since nothing can be realised from these assets they are not included in the Realisation account. These are transferred to the Partner’s Capital A/c.

     

    2. LIABILITIES

     

    PARTNER’S LOAN refers to the loan given to the firm by any partner of the firm. 

    Suppose, there are three Partners A, B and C. ‘C’ gave the firm a loan of $5,000. This $5,000 will be recorded as a Partner’s Loan and not just as a normal loan taken from an external party.

    Since, Partner’s Loans are the internal obligation of the firm, they are not included in the realisation account instead a separate account is prepared to settle Partner’s Loan after all external liabilities are settled.

    So, we can say in the Realisation account only external liabilities are included and paid.

     

    UNDISTRIBUTED PROFITS  are the  Profits that are not distributed among the Partners like General Reserve, Reserve Fund, and Credit balance of P&L A/c.

    They are not included in the realisation account as they can’t be sold as an asset neither they are any liabilities that should be paid. Undistributed profits belong to the Partners of the firm and thus, are transferred to Partner’s capital A/c.

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Bonnie
BonnieCurious
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Calls in AdvanceCompanies Act
  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    To begin with, lets us understand what the Companies Act 2013 tells about calls-in-advance, so basically as per section 50 of the companies act 2013 "A company may if so authorized by its articles, accepts from any members the whole or part of amount remaining unpaid on any share held by him, even iRead more

    To begin with, lets us understand what the Companies Act 2013 tells about calls-in-advance, so basically as per section 50 of the companies act 2013 “A company may if so authorized by its articles, accepts from any members the whole or part of amount remaining unpaid on any share held by him, even if no amount has been called up”.

    To be more precise whenever excess money is received by the company than, what has been called up is known as calls-in-advance.

    Accounting Treatment

    Well, it is to be noted that calls-in-advance is never a part of share capital. A company when authorized by its article can accept those advance amounts and directly credit the amount received to the calls-in-advance account.

    As these advance amounts are a liability for the company these are shown under the head current liability of the balance sheet until calls are made and are paid to the shareholders.

    Since this is the liability of the company, it is liable to pay the interest amount on such call money from the date of receipt until the payment is done to the shareholders. The rate of interest is mentioned in the articles of association. If the article is silent regarding the rate on which interest is paid then it is assumed to be @6%.

    Accounting Entry

    Bonnie let us understand the entries with help of an example

    ADIDAS LTD issued 25,000 equity shares of Rs 10 each payable as follows:

    ON APPLICATION  Rs 5

    ON ALLOTMENT    Rs 3

    ON FINAL CALL     Rs 2

    Application on 30,000 shares was received. excess money received on the application was refunded immediately. Mr. X who was allotted 1,000 shares paid the call money at the time of allotment and all amounts were duly received assume interest rate @6% for 3 months, so the relevant accounting entry goes as follows:

    Important Points to be noted under calls-in-advance as per the companies act 2013

    • The shareholder is not entitled to any voting rights on money paid until the said money is called for.
    • No dividends are payable on advance money.
    • Board may pay interest on advance not exceeding 12%.
    • The shareholders are entitled to claim the interest amount as mentioned in the article, if there are no profits, then it must be paid out of capital because shareholders become the creditors of the company.
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Simerpreet
SimerpreetHelpful
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Introduction   Furniture is treated as a fixed asset of an enterprise unless it deals in the manufacturing or the trade of furniture. As stock in trade, it will be treated as current assets. In both cases, they are real accounts. Hence, the golden rule of accounting will be the same. But, when it coRead more

    Introduction

     

    Furniture is treated as a fixed asset of an enterprise unless it deals in the manufacturing or the trade of furniture. As stock in trade, it will be treated as current assets.

    In both cases, they are real accounts. Hence, the golden rule of accounting will be the same.

    But, when it comes to journal entries, Furniture A/c will appear only when it is treated as a fixed asset.

    No journal entries are passed in the stock-in-trade account except for some balance transferring entries.

    Journal Entries on taking Furniture as a fixed asset

    Taking furniture as a fixed asset, we can pass various entries related to it. Since furniture is an asset, any increase is debited and the decrease is credited.

    Also, furniture is a real account which means the golden rule of accounting  applicable is, “Debit what comes in and credit what goes out”.

    Following are the basic entries related to furniture.

    Purchase of furniture

    The most common entry related to furniture is the purchase of furniture:

    Furniture A/c                                            Dr. Amt
    To Cash / Bank A/c Amt

    Here Furniture A/c is increased, hence debited.
    Cash or Bank being reduced is credited.

    Sale of furniture

     

    Cash / Bank A/c                                       Dr. Amt
    Profit and Loss A/c *                               Dr. Amt
    To Furniture A/c Amt
    To Profit and Loss A/c  ** Amt

     *In case of loss

    **In case of profit

     On the sale of furniture, its balance gets reduced, hence credited.
    Cash or Bank is debited as cash comes in hand or into the bank.

    Also, profit or loss may arise due to the difference in sale value and the carrying amount of the furniture A/c.

    The difference is debited to Profit and Loss A/c in case of loss and credited in case of profit.

     

    Depreciation on Furniture

    Depreciation A/c                                         Dr. Amt
    To Furniture A/c Amt

    Here, furniture is credited as it is decreased by the amount of depreciation.

    Depreciation being a non-cash expense, is debited.

    Journal Entries on taking Furniture as stock in trade

    When furniture is stock of trade of a business, the journal entries will be like normal purchase and sales entries as below:

     

    Purchase A/c                                               Dr. Amt
    To Cash / Bank A/c Amt

     

     

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

    There will be no furniture account.

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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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Anushka Lalwani
Anushka Lalwani
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  2. Radhika
    This answer was edited.

    Unrecorded Assets are the assets that are completely written off but still physically available in the company or assets that are not shown in the books of the company. Unrecorded assets are generally recorded or recognized at the event of admission, retirement, death of a partner when all the assetRead more

    Unrecorded Assets are the assets that are completely written off but still physically available in the company or assets that are not shown in the books of the company.

    Unrecorded assets are generally recorded or recognized at the event of admission, retirement, death of a partner when all the assets and liabilities are revalued or dissolution of the firm.

    Since Accounting Standards require firms to record all the assets and liabilities in their books, it is therefore mandatory to record such unrecorded assets.

    There can be two cases for treatment of such unrecorded assets:

    • Unrecorded Asset entered into the business and recorded in books
    Unrecorded Asset A/c (Dr.) Amt
     To Revaluation A/c Amt

    The unrecorded asset is now debited since it has to be recorded in the books now and Revaluation Account is credited since it is again for the business which will eventually be transferred to Partners’ Capital Account.

    • Unrecorded Asset taken over by a partner and paid cash   
    Cash A/c (Dr.) Amt
     To Partners’ Capital A/c Amt

    If a partner decides to take over an unrecorded asset then his account is credited with that amount and since cash paid by the partner comes into business Cash Account is debited.

    • Unrecorded Asset discovered during Dissolution
    Cash/ A/c (Dr) Amt
     To Realization A/c Amt

    When an unrecorded asset is discovered during the dissolution of the firm, such an asset is sold directly to the outsider and as a result, cash A/c is debited since the cash is entering the business. The entry is made through the Revaluation A/c and it is hence credited.

    Example:

    At the time of revaluation, firms find a typewriter that has not been recorded in the books and is valued at Rs 10,000.  The journal entry to record that typewriter will be:

    Typewriter A/c (Dr.) 10,000
      To Revaluation A/c 10,000

     

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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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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Samar Sparsh

    The current ratio is a liquidity ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is important because short-term liabilities are due within a period of twelve months. The current ratio is calculated using two standard figures thatRead more

    The current ratio is a liquidity ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is important because short-term liabilities are due within a period of twelve months.

    The current ratio is calculated using two standard figures that are shown in the company’s balance sheet: current assets and current liabilities. The formula for the same goes as:

    Current ratio = Current Assets / Current Liabilities

    A current ratio of 2:1 is considered ideal. Generally, a ratio between 1.5 to 2 is considered beneficial for the business, which means that the company has more financial resources (Current Assets) to cover its short-term debt (Current Liabilities).

    A high current ratio may indicate that the business is having difficulties managing its capital efficiently to generate profits.

    On the other hand, a lower current ratio (especially lower than 1) would signify that the company’s current liabilities exceed its current assets and the business may have difficulty covering its short-term debt. Although the definition of a good current ratio may vary in the different industry groups.

    Example- Where,

    1) CR is 2:1, the company is in a good situation as it has double the Current Assets in order to cover the short-term debt.

    2) CR is 0.5:1, the company is not in a good situation as it has only half the Current Assets in order to cover the short-term debt.

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Bonnie
BonnieCurious
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Calls in AdvanceJournal Entry
  2. Manvi Pursuing ACCA
    This answer was edited.

    Journal Entry for Calls in Advance  Calls in advance mean excess money received by the company than what has been called up. Calls in advance are treated as Current Liability and shown in the Balance Sheet on the liability side. Journal Entry will be : Here we will "Debit" Bank A/c as it will increaRead more

    Journal Entry for Calls in Advance 

    Calls in advance mean excess money received by the company than what has been called up. Calls in advance are treated as Current Liability and shown in the Balance Sheet on the liability side.

    Journal Entry will be :

    Here we will “Debit” Bank A/c as it will increase assets of the company and “Credit” Calls in Advance A/c because it will increase the company’s current liabilties.

    For Example:

    Mr.Z shareholder of ABC Ltd was allotted 2,000 equity shares of Rs.10 each. He paid call money at the time of allotment.

    On Application Rs 5
    On Allotment Rs 2
    On First and final call Rs 3

     

    Journal Entry is as follows:

    Here, the company received an excess amount of Rs.6,000 (2,000*3) from a shareholder Mr.Z who paid the call money in advance. ABC Ltd will record this under Calls in Advance A/c. While passing journal entry ABC Ltd will debit its Bank A/c by Rs.6,000 and credit calls in advance account by Rs.6,000.

    When share calls are called up, calls received in advance are adjusted. The company will hold only the required amount which will make allotted shares fully paid.

    Once the amount is transferred to relevant call accounts, calls in advance account will be written off.

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