AccountingQA Latest Questions

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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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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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 ...

  2. 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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Anushka Lalwani
Anushka Lalwani
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ReservesRevenue Reserve
  2. Rahul_Jose Aspiring CA currently doing Bcom
    This answer was edited.

    A revenue reserve is a type of reserve where a portion of the net profit is set aside for future requirements. It serves as a great source of internal finance for the company to meet its short term requirements. The funds put into this reserve are earned from the daily operations of a company. RevenRead more

    A revenue reserve is a type of reserve where a portion of the net profit is set aside for future requirements. It serves as a great source of internal finance for the company to meet its short term requirements. The funds put into this reserve are earned from the daily operations of a company. Revenue reserves are shown on the liabilities side of a balance sheet under reserves and surplus. Some examples of revenue reserve are :

    • General Reserve: This reserve is used for no specific purpose, but the general financial growth of the company. It is a free reserve which means the company is not compelled to make one. It helps to curb future losses which may arise in the future.
    • Specific Reserve: These are those reserves that can only be used for specific purposes. This money cannot be used for any other requirement. It is not a free reserve. A reserve created to redeem debentures would be called a debenture redemption reserve.
    • Secret Reserve: This is a type of reserve whose existence is not disclosed in the balance sheet. This type of reserve cannot be created by joint-stock companies. However, banks and financial institutions are allowed to create such secret reserves.

    Retained Earnings is that part of the net profit which is left after the distribution of dividends to shareholders. This amount can be invested in the company to gain profits. It is not technically a reserve as it is held after distribution of dividends but it can still be used as one.

    On the other hand, a capital reserve is not a part of the revenue reserve. It is created from capital profits to finance long term projects of a company. It is used for specific purposes only.

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Simerpreet
SimerpreetHelpful
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Explain Business entity, money measurement concept, Going concern concept etc.

Accounting ConceptsGAAP
  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Accounting Concepts Accounting concepts are the rules, assumptions and methods generally accepted by accountants in the preparation and presentation of financial statements of an entity. These concepts have been developed by the accounting profession for a long period. These concepts constitute theRead more

    Accounting Concepts

    Accounting concepts are the rules, assumptions and methods generally accepted by accountants in the preparation and presentation of financial statements of an entity. These concepts have been developed by the accounting profession for a long period.

    These concepts constitute the foundation of accounting and one has to be aware of them to maintain correct and uniform financial statements.

    I have listed and briefly explained the following accounting concepts.

    1. Entity Concept 
    2. Money Measurement concept 
    3. Going on concern 
    4. Periodicity concept 
    5. Accrual concept 
    6. Cost concept 
    7. Realisation concept 
    8. Matching concept 
    9. Dual aspect concept 
    10. Conservatism concept 
    11. Materiality concept 
    12. Consistency concept

     

    #1 Entity Concept 

    As per this concept, the business and its owner are separate entities from the point of view of accounting. It means the assets and liabilities of the business and owner are not the same. 

    However, in the eyes of law, the business and its owner may be a single entity.

     

    #2 Money measurement concept

    This concept states that the transaction which can be measured in terms of money shall only be recorded in the books of accounts.

    Any transaction which cannot be measured in terms of money shall not be recorded.

    #3 Going concern concept 

    Going concern concept is also a fundamental accounting assumption. It assumes that an enterprise will continue to be in business for the foreseeable future.

    It means its accounts will also be prepared to take such assumptions that the business will continue in future.

     

    #4 Periodicity concept 

    The periodicity concept states an entity needs to carry out accounting for a definite period, generally for a year known as the accounting period. The period can also be half-year or a quarter.

    The cycle of accounting restarts at the start of every accounting period.

     

    #5 Accrual concept 

    The word accrual comes from the word

    As per the accrual concept, the expense and incomes are recorded in the books of accounts in the period in which they are expected to incur whether payment in cash is made or cash is received or not.

    For example, the salary to be paid by a business is to be recorded as an expense in the year in which it is expected or liable to be paid.

     

    #6 Cost concept 

    It is concerned with the purchase of the assets of a business. As per the cost concept, a business shall record any asset in its books at the acquisition cost or purchase cost.

     

    #7 Realisation concept 

    This concept is concerned with the sale of assets. A business shall record the sale of the assets in its books only at the realised cost.

     

    #8 Matching concept 

    As per this concept, revenue earned during a period should be matched with the expenses incurred in that period. In short, an entity needs to record the income and the expenses of the same period.

     

    #9  Dual concept 

    This concept is the foundation of double-entry accounting. Dual concepts state that every transaction has two effects, debit and credit. 

    One or more accounts may be debited and other one or more accounts are credited so that the total amount of debit and credit equals.

     

    #10 Conservatism concept 

    The conservatism concept states that an entity has to account for expected losses and expenses but not for future expected profits and gains.

     

    #11 Materiality concept 

    As per this concept, only those items which are material should be shown in the financial statements of an entity. It says that items which are immaterial or insignificant in terms of value or importance to stakeholders can be ignored.

     

    #12 Consistency concept 

    It says that an entity should follow consistent accounting policies every accounting period so that a comparison can be made among the financial statements of different accounting periods.

     

    GAAP 

    Generally Accepted Accounting Principles or GAAP is a combination of authoritative standards which are set by policy boards and commonly accepted methods of recording and presenting accounting information. 

    GAAP or US GAAP is formulated by the Financial Accounting Standards Board or FASB  and almost state in the USA is compliant with GAAP. 

    The main goal of the GAAP is to ensure that the financial statements of an entity are complete, consistent and comparable.

    It can be said accounting concepts are part of GAAP.

     

    Ten key principles of GAAP

    #1 Principle of regularity

    It states that an accountant has to comply with GAAP regulations as a standard.

     

    #2 Principle of Consistency

    Accountants should be committed to applying the same set of standards throughout the accounting and reporting process, from one period to another. This is to be done to ensure comparability of financial statements between periods.  

    Also, the accountants have to fully disclose and explain the reason behind any changed or updated standards in the note of accounts of financial statements.

     

    #3 Principle of sincerity

    It states that the accountant should strive to provide an accurate and unbiased view of the financial situation of a company.

     

    #4 Principle of Permanence of Methods

    As per this principle, a company should be consistent in procedures used in financial statements so that it allows the comparison of the company’s financial information.

     

    #5 Principle of Non-Compensation

    Both negative and positive should be reported with full transparency. There should be no debt compensation i.e. debt should not be set off against any asset or expenses against revenue.

    #6 Principle of Prudence

    It states that financial data presentation should be fact-based. This principle is similar to the conservatism concept.

     

    #7 Principle of Continuity

    This is as same the going concern concept. It states that while valuing assets, it should assume that the business will continue for the foreseeable future.

     

    #8 Principle of Periodicity

    It is the same as the matching concept. It states that the revenue and expenses should be recorded in the period in which they occur.

     

    #9 Principle of Materiality

    Accountants should disclose all the financial information that is significant in the decision-making of the users of financial statements.

     

    #10 Principle of Utmost Good Faith

    It states that all parties to a transaction should act honestly and not mislead or hide crucial information from one another.

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Jayesh Gupta
Jayesh GuptaCurious
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    Unfavorable balance as per cash book generally means credit balance in the cash book. This is also known as bank overdraft. Making the above definition more clear, unfavorable balance or bank overdraft means an excessive amount of cash withdrawn than what is deposited in the bank. Simply it is the lRead more

    Unfavorable balance as per cash book generally means credit balance in the cash book. This is also known as bank overdraft.

    Making the above definition more clear, unfavorable balance or bank overdraft means an excessive amount of cash withdrawn than what is deposited in the bank. Simply it is the loan taken from the bank. When there is an overdraft balance the treatment is just the opposite of that of favorable balance.

    Generally for business overdraft occurs when there is immediate or emergency funding for the short term. This can be seen for small and medium-sized businesses. This is considered to be convenient for these businesses because there is no requirement to pay interest on the lump-sum loan, only have to pay interest on the fund you use. Generally linked to an existing transaction account.

    To reconcile this we need to prepare a Bank reconciliation statement. The procedure of preparing BRS under unfavorable conditions is as follows

    • If we start from the cash book balance then “ADD” all the transactions resulting in an increase in the passbook. “DEDUCT” all the transactions that resulted in a decrease in the balance of the passbook. Then the net overdraft balance should be the same as in the passbook.
    • If we start from the balance as per the passbook then “ADD” all the transactions resulting in an increase in the balance of the cashbook and “DEDUCT” all the transactions related to a decrease in the balance of the cash book. The net overdraft balance as per the passbook should reconcile with the cash book.

     

    Let us take one example considering one of the above conditions.

    The cash book of M/s Alfa ltd shows a credit balance of Rs 6,500.

    • A Cheque of Rs 3,500 was deposited but not collected by the bank.
    • The firm issued a cheque of Rs 1,000 but was not presented for payment.
    • There was a debit balance in the passbook of Rs 200 and Rs 400 for interest and bank charges.

     

    Bank Reconciliation Statement

    Particulars Add Deduct
    1. Balance as per cash book 6,500
    2. Cheque issued but not yet presented 1,000
    3. cheque deposited but not yet credited by the bank 3,500
    4. bank and interest charges 600
    Balance as per passbook (overdraft) 9,600
    10,600 10,600
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Anushka Lalwani
Anushka Lalwani
In: >

  2. Akash Kumar AK
    This answer was edited.

    Depreciation is an accounting process of allocating the value of an asset over its estimated useful life. When a company purchases an asset, depreciation will be calculated at the end of every financial year on the asset. The company records the amount of depreciation in a separate ledger, i.e., AccRead more

    Depreciation is an accounting process of allocating the value of an asset over its estimated useful life.

    When a company purchases an asset, depreciation will be calculated at the end of every financial year on the asset. The company records the amount of depreciation in a separate ledger, i.e., Accumulated Depreciation. This expense will be debited instead of depreciation in the Asset ledger.

     

    Accumulated Depreciation

    Accumulated depreciation is the accumulated reduction in the cost of an asset over time.

    Depreciation is the reduction in the value of an asset over a specific timeframe, whereas accumulated depreciation is the sum of total depreciation on an asset since we bought it.

    we will understand this concept with a simple example.

    suppose machinery depreciates as follows

    Year 1 – Depreciation is 5,000

    Year 2 – Depreciation is 5,000

    Year 3 – Depreciation is 5,000

    Accumulated Depreciation in Year 3 = 5,000 + 5,000 + 5,000

    Therefore, overall 3 years of depreciation are accumulated at the last year-end.

     

    Journal entry for accumulated depreciation

    Example: Excellence Co. has purchased a new motor vehicle which costs $8,000 for their cab business. The motor vehicle is depreciated at @20% per annum. At the end of the year, Excellence Co. will record this accumulated depreciation journal entry.

    Year 1

    Depreciation A/c Dr. – $1600

    To Accumulated depreciation A/c – $1600

    Year 2

    Depreciation A/c Dr. – $1600

    To Accumulated Depreciation A/c – $1600

    Therefore, the Accumulated depreciation for the 2nd year end is $3200.

    At the time of the sale of the motor vehicle, the amount of accumulated depreciation will be reduced from the total value of the asset.

     

    Provision for depreciation

    Provision for depreciation is very similar to accumulated depreciation. Instead of reducing the amount of depreciation from the value of an asset, a separate provision A/C will be created, and the depreciation amount will be credited to the provision account, i.e., Provision for Depreciation account every year, and the asset will be shown the same value without reducing the depreciation from it.

     

    Journal entry for provision for depreciation

    Example: Yesman Co. purchased Machinery worth $40000 at the beginning of the current year for their production. The machinery will be depreciated at @10% per annum. At the end of the year, Yesman Co. will record this provision for depreciation journal entry.

    Year 1

    Depreciation A/c Dr. – $4000

    To Provision for Depreciation A/c – $4,000

    Year 2

    Depreciation A/c Dr. – $4000

    To Provision for Depreciation A/c –  $4000

    Therefore, the Provision for depreciation balance will be $8000 at the 2nd year-end.

    At the time of sale of the machinery, the amount of provision for depreciation created till the date will be reduced from the asset’s value.

     

    Conclusion

     

     

    Provision for depreciation and accumulated depreciation refers to the amount of depreciation accumulated over the useful life of an asset.

    The terms accumulated depreciation and provision for depreciation are different in hearing, but these are similar from the financial perspective.

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Atreya
AtreyaCurious
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  2. Ishika Pandey Curious ca aspirant

    Definition Goodwill is an intangible asset that places an enterprise in an advantageous position due to which the enterprise is able to earn higher profits without extra effort. For example, if the enterprise has rendered good services to its customers, it will be satisfied with the quality of its sRead more

    Definition

    Goodwill is an intangible asset that places an enterprise in an advantageous position due to which the enterprise is able to earn higher profits without extra effort.

    For example, if the enterprise has rendered good services to its customers, it will be satisfied with the quality of its services, which will bring them back to the enterprise.

    Features

    The value of goodwill is a subjective assessment of the valuer.
    • It helps in earning higher profits.
    • It is an intangible asset.
    • It is an attractive force that brings in customers to the business.
    • It has realizable value when the business is sold out.

    Need for goodwill valuation

    The need for the valuation of goodwill arises in the following circumstances :
    • When there is a change in profit sharing ratio.
    • When a new partner is admitted.
    • When partner retires or dies.
    • When a partnership firm is sold as a going concern.
    • When two or more firms amalgamate.

    Classification of goodwill

    Goodwill is classified into two categories:
    • Purchased goodwill
    • Self-generated goodwill

    Purchased goodwill :

    Is that goodwill acquired by the firm for consideration whether paid or kind?
    For example: when a business is purchased and purchase consideration is more than the value of net assets the difference amount is the value of purchase goodwill.

    Self-generated goodwill

    It is that goodwill that is not purchased for consideration but is earned by the management’s efforts.
    It is an internally generated goodwill that arises from a number of factors ( such as favorable location, efficient management, good quality of products, etc ) that a running business possesses due to which it is able to earn higher profits.

    Methods of valuation

    1. Average profit method
    2. Super profit method
    3. Capitalization method

    Average profit method: goodwill under the average profit method can be calculated either by :
    • Simple average profit method or
    • Weighted average profit method

     

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Bonnie
BonnieCurious
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  2. 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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