AccountingQA Latest Questions

prashant06
prashant06
In: >

  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    The journal entry for the opening stock will be: Particulars Amt Amt Trading A/c INR              To Opening Stock A/c INR (Being opening stock transferred to Trading A/c) Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. ORead more

    The journal entry for the opening stock will be:

    Particulars Amt Amt
    Trading A/c INR
                 To Opening Stock A/c INR
    (Being opening stock transferred to Trading A/c)

    Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. Opening stock may include stock of raw material, semi-finished goods, and finished goods. It is a part of the cost of sales.

    Closing stock is the value of unsold inventory left with the company at the end of the year. The previous year’s closing stock is the current year’s opening stock.

    Trading Account is a nominal account. According to the golden rules of accounting, the nominal account is the account where “Debit” all expenses and losses, and “Credit” all income and gains.

    In the above journal entry, the opening stock account is credited because it is the balance that is carried forward from the previous year and carried forward with the aim of selling it and gaining profit from it. The trading account here is debited as opening stock is carried forward to the next year from the trading account only.

    According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenues, and decreases assets and expenses.

    Here, Trading A/c is debited because an expense is incurred while bringing stock into the business. Opening Stock A/c is credited because indirectly it is creating a source of income for the business.

    The formula for calculating opening stock is as follows:

    Opening Stock = Cost of Goods Sold + Closing Stock – Purchases

    For example, AB Ltd. started a new accounting period for dairy products and introduced opening stock worth Rs.1,00,000 in the business.

    Here, the journal entry will be,

    Particulars Amt Amt
    Trading A/c 1,00,000
                 To Opening Stock A/c 1,00,000
    (Being opening stock transferred to Trading A/c)
    See less
    • 0
Jayesh Gupta
Jayesh GuptaCurious
In: >

If someone can tell me the complete accounting with the percentage that would be great.

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

    I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be moreRead more

    I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be more than the rates prescribed in the Income Tax Act, 1961.

    It is a general practice to take depreciation rate lower than the Income Tax Act, 1961, so that the financial statements look good because of slightly higher profit. There is no harm in it as it is a sole proprietor.

    The Income Tax Act, 1961 has prescribed rates at which depreciation is to be given on different blocks of assets. For motor vehicles, the rates are as follows:

    Particulars Rates (WDV)
    1 Motor buses, motor Lorries and motor taxis used in a business of running them on hire. 30%
    2 Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August 2019 but before the 1st day of April 2020 and is put to use before the 1st day of April 2020. 45%
    3 Commercial vehicles to use in business other than running them on hire. 40%

    Let’s take an example to understand the accounting treatment:-So a business can choose to charge depreciation at rates slightly lower than the above rates.

    Mr A purchased a lorry for ₹1,00,000 on 1st April 2021 for his business, to be used for transportation of the finished goods. Now, Mr A decided to charge depreciation on the WDV method @30% (prescribed rate is 40%).

    Following will be the journal entries.

    I hope I was able to answer your question.

    See less
    • 0
Aadil
AadilCurious
In: >

CapitalReserve CapitalReservesUncalled CapitalUnsubscribed Capital
  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Reserve capital is part of ‘Uncalled capital’. ‘Uncalled capital’ means the outstanding amount on shares on which the call money is not yet called. A company may issue its shares and receive the money either in full or in instalments. The instalments are named: Application money – Received by a compRead more

    Reserve capital is part of ‘Uncalled capital’. ‘Uncalled capital’ means the outstanding amount on shares on which the call money is not yet called.

    A company may issue its shares and receive the money either in full or in instalments. The instalments are named:

    • Application money – Received by a company from the people who apply for allotment of the shares.
    • Allotment money – Called by the company from the people to whom the shares are allotted at the time of allotment.
    • Call money – The outstanding amount is called by way of call money in one or more instalments.

     For example, X Ltd issues 1000 shares at a price of Rs. 100 per share which is payable Rs. 25 at application, Rs. 30 at the allotment, Rs. 25 at the first call and Rs. 20 at the second and final call.

    The shares at fully subscribed and X Ltd has called and received money till the first call. The second call is not made yet.

     This amount of Rs 20,000 (1000 x Rs.20) will be uncalled capital.

    Now, It is up to the management when to make the second and final call.

    If the management shows no intention of calling the outstanding money on such shares, then the uncalled capital will be called reserve capital.

    Such shares which are not fully called are known as party paid shares.

    It is ultimately payable to the company by the shareholders of partly paid shares at the time of dissolution.

    Reserve capital is not shown either in the balance sheet or in the notes to accounts to the balance sheet. But one can ascertain it just by examining the notes to accounts to the balance. If the shares are partly paid and the management seems to have no intention of calling the outstanding money then such uncalled share capital is reserve capital.

    Reserve capital is neither a liability nor an asset for the company.

    But at the time of winding up of the company, it becomes a liability for the shareholders to pay the balance amount of their shares.

    By now, you must have understood why reserve capital is not part of unsubscribed capital. It is because reserve capital is related to shares that are issued and subscribed.

    See less
    • 0
Radha
Radha
In: >

  2. Manvi Pursuing ACCA
    This answer was edited.

    The principal book of accounting is “Ledger”. It records all types of transactions relating to a real, personal or nominal account. It records transactions relating to an income, expense, asset or a liability. A ledger classifies a transaction which is recorded in journal to their respective accountRead more

    The principal book of accounting is “Ledger”. It records all types of transactions relating to a real, personal or nominal account. It records transactions relating to an income, expense, asset or a liability.

    A ledger classifies a transaction which is recorded in journal to their respective accounts, and in the end calculates a closing balance for the same account. The closing balance is further transferred to the financial statements, and hence ledger is called the books of final entry as it gives true and fair picture of an account.

    Template of Ledger:

     

    For example, ABC Ltd purchased machinery for cash amounting to Rs 1,00,000 on 1st January. This transaction will include a machinery account and a cash account. The amount will be recorded in the respective accounts for that period.

    The reason being ledger is called a principal book of accounting is, it helps a business in preparation of trial balance and financial statements.

    See less
    • 0
Radha
Radha
In: >

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

    The term ‘contra’ means opposite or against. In financial accounting, we encounter the term ‘contra’ in: Contra accounts Contra entries The meaning of contra in the above mention terms is also the same as their general meaning. Contra accounts mean the account which is opposite of the account it corRead more

    The term ‘contra’ means opposite or against. In financial accounting, we encounter the term ‘contra’ in:

    • Contra accounts
    • Contra entries

    The meaning of contra in the above mention terms is also the same as their general meaning. Contra accounts mean the account which is opposite of the account it corresponds to.

    Contra entries are entries of the debit and credit aspects related to the same parent account.  Let’s discuss them in detail.

    Contra accounts

    Any account which is created with the purpose of reducing or offsetting the balance of another account is known as a contra account.

    A contra account is just the opposite of the account to which it relates. The most common examples are the sales discount account and sales return account which is the contra account of the sales account.  They are just the opposite of the sales accounts.

    Contra Entries

    Contra entries refer to the entries which show the movement of the amount within the same parent account. Here, the debit and credit entry is posted on the debit and credit side respectively of a single parent account.  Mainly, contra entries are the entries involving cash and bank accounts.

    The following transactions are recorded as contra entries:

    • Cash to Bank transactions: Deposit of cash into the bank account by the entity.
    • Bank to Cash transactions: Withdrawal of cash from the bank.
    • Cash to cash transactions: Transfer of cash to the petty cash account.
    • Bank to Bank transactions: Transfer of amounts from one bank account to other bank accounts of the same entity.

    Contra entries are marked by the letter ‘C’ beside the postings in the ledger. Deposit of cash in to bank will be posted in cashbook as below:

    See less
    • 0
Aadil
AadilCurious
In: >

  2. Ayushi Curious Pursuing CA

    The accounting equation for a non-profit organisation is almost the same as in the case of the profit-oriented organisation. Let's first briefly understand what accounting equation and non-profit organisation are: Accounting Equation Accounting equation is an equation that depicts the relationship bRead more

    The accounting equation for a non-profit organisation is almost the same as in the case of the profit-oriented organisation. Let’s first briefly understand what accounting equation and non-profit organisation are:

    Accounting Equation

    Accounting equation is an equation that depicts the relationship between assets, liabilities and capital of an entity.

    Assets = Liabilities + Capital

    As per this equation, the total assets of an entity are equal to the sum of its total liabilities and total capital. This equation holds good in every situation.

    Non-Profit Organisation

    A Non-Profit Organisation is an entity which exists for purposes other than for profit. Such organizations exist and operate for charitable purposes, promotion of culture and sports and welfare of society. The accounting for Non-profit organisation is slightly different from For-profit organisations. In the case of a non-profit organisation, the capital account is known as the capital fund.

    Accounting Equation for non-profit organisations

    The Accounting equation for a non-profit organisation is as follows:

    Assets = Liabilities + Capital fund.

    The difference is only in name. In the case of non-profit organizations, the capital is known as a capital fund. Rest everything is the same. The accounting equation will be prepared as normally prepared for business concerns.

    See less
    • 0
Anushka Lalwani
Anushka Lalwani
In: >

  2. Akash Kumar AK
    This answer was edited.

    Expenses are of two types, are Direct Expenses Indirect Expenses   Direct Expenses Direct expenses are those expenses are which are directly related to the manufacturing or production of the final goods. These expenses are also known as Manufacturing expenses. Manufacturing or production of gooRead more

    Expenses are of two types, are

    1. Direct Expenses
    2. Indirect Expenses

     

    Direct Expenses

    Direct expenses are those expenses are which are directly related to the manufacturing or production of the final goods. These expenses are also known as Manufacturing expenses.

    Manufacturing or production of goods indicates the conversion of Raw material into finished goods. the expenses incurred in the stage of conversion are treated as Direct expenses or Manufacturing expenses.

    Direct expenses are shown on the Debit side of the Trading Account.

     

    Indirect Expenses

    Indirect expenses are those expenses that are incurred to run a business day-to-day and maintenance of the company.  In other words, they are not directly related to making a product or service or buying a wholesale product to resell.

    Indirect expenses are classified into three types, which are

    1. Factory Expenses
    2. Administrative Expenses
    3. Selling & Distribution Expenses

    Indirect Expenses are shown on the Debit side of the Profit and Loss Account.

     

    Presentation of Direct Expenses in Trading Account

     

    Examples of Direct Expenses

    1. Gas, water, and Fuel: Gas, water, and fuel are the essentials to run a factory and are used in machinery to manufacture its final goods.
    2. Wages: Wages are the daily payments to the workers or Labours working in the factory premises on a daily or weekly payment basis.
    3. Freight and Carriage: Freight and Carriage are the expenses related to the importing of raw materials from the godown or from the outsiders to the Factory.
    4. Factory Rent: Rent paid for the factory area or any payment related to the place of the factory is known as factory rent.
    5. Factory Lighting: The expenses related to the uniform distribution of light over the working plane are obtained in the factory premises.
    6. Factory Insurance: The payment of insurance related to the factory will come under direct expenses.
    7. Manufacturing Expenses: Any other expenses related to the manufacturing process of finished goods are manufacturing expenses.
    8. Cargo Expenses: These are the expenses related to goods or freight being shipped or carried by the ocean, air, or land from one place to another.
    9. Upkeep and Maintenance: These are the expenses related to the maintenance of the factory for smooth running.
    10. Repairs on Machinery: The expenses related to any repair on machinery which is used in the production.
    11. Coal, Oil, and Grease: Coal, oil, and grease are the essentials to run machinery which results in the conversion of raw material to finished goods.
    12. Custom Charges: The expenses related to the payment of any Customs duty for the material imported.
    13. Clearing Charges: A clearing charge is a charge assessed on securities transactions by a clearing house for completing transactions using its own facilities.
    14. Depreciation on Machinery: Generally it is a nonmonetary expense but recorded in the trading account as a direct expense as per the accrual accounting.
    15. Import duty: any payment related to the importing of any machinery or any material from other countries is known as import duty.
    16. Octroi: this is the tax levied by a local political unit, normally the commune or municipal authority, on certain categories of goods as they enter the area.
    17. Shipping expenses: any expense related to the shipment charges of the raw material is known as shipping expenses.
    18. Motive power: Motive Power basically means any power, such as electricity or steam energy, etc, used to impart motion to any source of mechanical energy.
    19. Dock dues: a payment that a shipping company must pay for the use of a port.
    See less
    • 0
SidharthBadlani
SidharthBadlani
In: >

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

    Definition Posting refers to moving the transaction entries from the journal to the ledger books of the company. It is an important part of the accounting cycle. Posting helps us to classify transactions in a better manner. A journal is used to record transactions in chronological order while ledgerRead more

    Definition

    Posting refers to moving the transaction entries from the journal to the ledger books of the company. It is an important part of the accounting cycle.

    Posting helps us to classify transactions in a better manner.

    A journal is used to record transactions in chronological order while ledger books are used to classify transactions into assets, liabilities, expenses, and incomes.

    Steps of Posting

    • Create and name ledger accounts for different items of trial balance

    • Identify those entries in the journal that relate to the relevant ledger book under consideration.

    • Post the entry on the debit or credit side of the ledger account.

    • For example, when salaries are paid a salary account is debited and a bank account is credited. When posting this transaction in the bank account we will debit the bank account and write “To salaries” under the head “particular”. This will indicate that salaries were paid from a bank account causing a reduction in the bank balance.

    • After all the journal entries relevant to a particular ledger account have been posted in it, we will tally the total of the debit and the credit side of the ledger account to ascertain any balance left.

    • Usually, asset accounts have the debit side exceeding the credit side. That is to say, they have a debit balance. Liability accounts usually have a credit balance.

    • It is not necessary that every ledger account may have a balance left at the end. The total of the amounts on the debit side may be equal to the total of the amounts on the credit side in some ledger accounts.

    • The last step is to recheck the ledger account to identify and correct any mistakes that may have occurred during the posting process.

    Importance of Posting

    • Posting helps us to classify transactions in a better and more efficient manner.

    • Posting makes the books of accounts more readable.

    • An accountant may choose to engage in posting once every month or even once every day as per the requirements of the business and the financial reporting norms.

    • Posting is necessary for the creation of financial statements. A trial balance cannot be drafted without determining the balance of each ledger account.

    • Posting helps us to know the balance of each account This helps to run the business smoothly by tracking balances timely and making up for any likely deficiency in advance.

    • Analysis of how balances of various ledger accounts have changed over time helps us to draw valuable conclusions for the business.

    Conclusion

    We can conclude by saying that the process of posting refers to transferring the entries from the journal to the ledger accounts.

    Posting is an essential step of the accounting cycle and without it, financial statements cannot be prepared. Any error while posting is bound to adversely affect the creation of the financial statements.

    See less
    • 0
Anushka Lalwani
Anushka Lalwani
In: >

  2. Kajal
    This answer was edited.

    Yes, Accounts Payable can have a Debit balance. Accounts payable is a liability and thus, has a credit balance but can have a debit balance in case the creditor is overpaid or when there is purchase return (for already-paid goods)   ACCOUNTS PAYABLE Accounts payable refers to all short-term liaRead more

    Yes, Accounts Payable can have a Debit balance. Accounts payable is a liability and thus, has a credit balance but can have a debit balance in case the creditor is overpaid or when there is purchase return (for already-paid goods)

     

    ACCOUNTS PAYABLE

    Accounts payable refers to all short-term liabilities of the business that are to be paid. These are usually paid within a duration of  90 days. It includes both Trade payable (goods and services purchased on credit) as well as expenses payable (used but payment not made yet) like rent payable, electricity bill, etc.

    Businesses cannot make every payment on the spot. There can be cases when the business is facing a shortage of funds, can have funds but doesn’t have enough cash (or liquid funds) to make payment or simply doesn’t want to make payment on the spot to reduce its capital requirement.

    So, like us businessmen also purchase goods on credit or use services for which payment is to be made soon. All these are liabilities for the business.

    However, they must be related to the business to be considered as accounts payable.

     

    DEBIT BALANCE OF ACCOUNTS PAYABLE 

    Debit balance of accounts payable means money owed by others. There is Debit balance when

    OVERPAYMENT is made to the creditors or the supplier. It happens when the wrong amount is paid or payment is made twice for the same transaction.

    Suppose you need to pay $10,000 as rent within 30 days. After 25 days you mistakenly made a payment of $12,000.

    In this case,

    • Firstly, you will record the transaction by crediting Accounts payable (as liability increased) by $10,000
    • When payment is made after 25 days, Accounts Payable is debited by $12,000 (as liability decreased)
    • So, there will be a debit balance of $2,000 (which means the creditor owes you) till the creditor returns the excess amount.

     

    PURCHASE RETURN of already paid goods also result in debit balance of Accounts Payable.

    Suppose you bought goods worth $50,000 from Mr A on credit and paid for the same. Later, you returned all the goods because they were defective. Now, there will be Debit balance of Accounts Payable till there is a full refund of $50,000 by Mr A.

     

    How is Accounts Payable Treated Normally?

    Accounts Payable are the current liabilities of the firm and are shown under the head Current Liabilities in the Balance Sheet. Its liability, thus has a credit balance which represents the amount owed by the firm to others. It is credited when increases and debited when decreases.

    For example – Suppose you purchased goods worth $30,000 and agreed to pay after 30 days. So, Accounts payable will be credited by $30,000 and purchases will be debited by $30,000.

    Purchases A/c – $30,000 (debit)

    To Accounts Payable A/c – $30,000

    After 30 days payment is made in cash, which means the liability decreased. So, Accounts Payable A/c will be debited.

    Accounts Payable A/c – $30,00

    To Cash – $30,000

    See less
    • 0
A_Team
A_Team
In: >

Final AccountsLoose Tools
  2. Vijay Curious M.Com
    This answer was edited.

    Let me begin by giving a small explanation of what loose tools are before we dive into their accounting treatment. Loose tools are assets that are used in various steps of the production process and therefore are vital for the conversion of raw materials into finished goods. They are considered as cRead more

    Let me begin by giving a small explanation of what loose tools are before we dive into their accounting treatment.

    Loose tools are assets that are used in various steps of the production process and therefore are vital for the conversion of raw materials into finished goods. They are considered as current assets of the business as their useful life is limited. They have a small monetary value (cost-efficient) and high turnover. Examples of loose tools include screwdrivers, hammers, etc.

    One may say loose tools like screwdrivers and hammers can be used for more than one year and therefore should be classified as non-current assets. But unlike fixed assets, these loose tools have a high probability of being misplaced or lost. Hence they are classified as current assets.

    Since loose tools are treated as an asset for the business, they are shown as a debit balance in the trial balance.

    The cost of loose tools consumed for the year will be shown on the debit side of the Profit & Loss A/c as an expense. In the balance sheet, loose tools are shown on the Assets side under the head Current Assets and sub-head Inventories. Since they aid the production process, loose tools are shown as a part of the inventory of the business.

    Let us take an example,

    XYZ Ltd. at the beginning of the year had loose tools worth 5,000. During the year they purchased loose tools worth 500. At the end of the year, the company valued its loose tools at 4,500.

    Now let us find the cost of loose tools consumed. The formula for finding the cost of loose tools consumed is as follows:

    Cost of loose tools consumed  = Opening inventory of loose tools + Purchases of loose tools – Closing inventory of loose tools

    Cost of loose tools consumed = 5,000 + 500 – 4,500 = 1,000

    So, the cost of loose tools consumed (1000) will be shown on the debit side of the P&L A/c as follows:

    The closing inventory of loose tools worth 4,500 will be shown on the assets side of the balance sheet under the head current assets and sub-head inventory in the following manner:

    One thing to remember here is there is an exception to loose tools. While calculating liquidity ratios like the Current ratio, Quick ratio, etc. loose tools are excluded from current assets. The reason for this is loose tools cannot be easily converted into cash i.e. they are less liquid. The purpose of calculating the current ratio is to check the liquidity of a company. Including loose tools (which cannot be easily converted into cash) in current assets defeats the purpose of calculating the ratio.

     

    See less
    • 0

Most Helping Users

Astha

Astha

Leader
Simerpreet

Simerpreet

Helpful
AbhishekBatabyal

AbhishekBatabyal

Helpful