AccountingQA Latest Questions

Vijay
VijayCurious
In: >

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

    Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense. Outstanding expenses are treated as a liability as the business is yet tRead more

    Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense.

    Outstanding expenses are treated as a liability as the business is yet to make payment against them. Examples of outstanding expenses include outstanding rent, salary, wages, etc.

    At the end of the accounting year, outstanding expenses have to be accounted for in the book of accounts so that the financial statements reflect the accurate profit/loss of the business.

    Journal entry for recording outstanding expenses:

    Expense A/c Debit
       To Outstanding Expenses A/c Credit
    (Being expenses outstanding at the end of the year)

    The concerned expense A/c is debited as there is an increase in expenses. Outstanding expenses are a liability, hence they are credited.

    Let me give you a simple example,

    Max, a sole proprietor pays 1,00,000 as salary for his employees at the end of every month. Due to the Covid-19 lockdown, he could not pay his employees’ salaries for March month. So the salary for March (1,00,000) will be treated as an outstanding expense. The following entry is made to record outstanding salaries for the year.

    Salary A/c   1,00,000
       To Outstanding Salaries A/c   1,00,000
    (Being salaries outstanding at the end of the year)

    At the end of the year, outstanding salary will be adjusted in the P&L A/c and it will be shown as a Current Liability in the Balance Sheet.

    See less
    • 0
Ayushi
AyushiCurious
In: >

  2. ShreyaSharma none
    This answer was edited.

    No, the building is not a current asset. Explanation Current assets are those in a business that is reasonably expected to be sold, consumed, cashed, or exhausted within one year of accounting through normal day-to-day business operations. Examples: Cash and cash equivalent, stock, liquid assets, etRead more

    No, the building is not a current asset.

    Explanation

    Current assets are those in a business that is reasonably expected to be sold, consumed, cashed, or exhausted within one year of accounting through normal day-to-day business operations.

    Examples: Cash and cash equivalent, stock, liquid assets, etc.

    The building is expected to have a valuable life for more than a year and is bought for a longer term by a company. The building is a fixed asset/non-current asset, those assets which are bought by the company for a long term and aren’t supposed to be consumed within just one accounting year.

    In order to understand it more clearly, let’s see the two types of assets in the classification of the assets on the basis of convertibility:

    In the classification of the assets on the basis of their convertibility, they are classified either as current assets or fixed assets. Also referred to as current assets/ non-current assets or short-term/ long-term assets.

    • Current Assets – As explained above, those assets in a business that is reasonably expected to be sold, consumed, cashed, or exhausted within one year of accounting.
    • Fixed Assets – Those assets which are not likely to be converted into cash quickly and are bought by the business for a long term.

    Building in the balance sheet

    Let us take a look at the balance sheet’s asset side and see where building and current assets are shown

    Balance Sheet (for the year ending…)

     

    As we can see, the building is shown on the long-term assets side and not in the current assets.

    Therefore, the building is not a current asset.

     

    See less
    • 0
Jasmeet_Sethi
Jasmeet_SethiCurious
In: >

  2. GautamSaxena Curious .
    This answer was edited.

    Depreciation on Tools and Equipment Tools and Equipment are the instruments that are used for producing any product, machine, or service. Also, tools and equipment are a part of plants and machinery, making them a major fixed asset. Therefore, a certain percentage of depreciation is charged on ToolsRead more

    Depreciation on Tools and Equipment

    Tools and Equipment are the instruments that are used for producing any product, machine, or service. Also, tools and equipment are a part of plants and machinery, making them a major fixed asset. Therefore, a certain percentage of depreciation is charged on Tools and Equipment.

    As we’re aware, depreciation refers to a process in which assets lose their value over time until it becomes obsolete or zero. It is chargeable on the fixed assets and it ultimately results in depreciation of the value of fixed assets except, land. The land is an exception in fixed assets as where all the fixed assets are depreciated, the land’s value is appreciated over time.

    The rate of depreciation as per the Income Tax Act on tools and equipment (plant and machinery) is 15%.

    Example

    Suppose given below are the details regarding the tools and equipment:

    And, we’re required to calculate the value of the tools and equipment as on 1-Mar-22

    In this, as we can see the business’ accounting period starts in March and ends in April. Therefore, we can easily deduct the depreciation amount and get the desired result.

    Solution: Opening Value = $30,000

    Depreciation = 15% of $30,000 = $4,500

    Value of tools and equipment as on 1-Mar-22 = $30,000 – $4500 = $25,500

     

    See less
    • 0
Simerpreet
SimerpreetHelpful
In: >

  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

     

     

     

    See less
    • 0
A_Team
A_Team
In: >

  2. AishwaryaMunot
    This answer was edited.

    Meaning New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit. Thus, New pRead more

    Meaning

    New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit.

    Thus, New profit-sharing ratio can be stated as ratio in which all the partners, Old and New will share profits and losses of the partnership in future. The new profit-sharing ratio can be calculated as follows.

     

    Formula

    Sacrifice ratio is the ratio in which old/existing partners agrees to give away their share in profits for the new partner.

    For better understanding let’s see how calculation of New profit-sharing ratio can be done:

    Example : There are two partners in a partnership firm, Mr. Anil & Mr. Mukesh. Their profit-sharing ratio is 2:3. They wants to admit Mr. Nikhil as their third partner for 1/3rd share.

    In such case, Calculation of New profit-sharing ratio would be as follows:

    Total profit = 1

    Mr. Nikhil’s Share = 1/3

    Remaining Profit = 1 – 1/3 = 2/3

    So, this remaining share of 2/3 is shared among the old partners in their old ratio of 2:3.

    Mr. Anil’s Share = 2/3 x 2/5 = 4/15

    Mr. Mukesh’s Share = 2/3 x 3/5 = 6/15

    Mr. Nikhil’s Share = 1/3 x 5/5 =5/15

    So, New ratio would be 4/15: 6/15: 5/15 i.e., 6:4:5

    See less
    • 0
A_Team
A_Team
In: >

Cash Stock in trade Furniture Advance Payment

  2. GautamSaxena Curious .
    This answer was edited.

    The correct option is 3.) The term current assets do not include furniture. Explanation A current asset is any asset that can reasonably be expected to be sold, consumed, or exhausted through the normal operations of a business within one accounting year. Thus, current assets don't have life for morRead more

    The correct option is 3.)

    The term current assets do not include furniture.

    Explanation

    A current asset is any asset that can reasonably be expected to be sold, consumed, or exhausted through the normal operations of a business within one accounting year. Thus, current assets don’t have life for more than a year.

    Example: Cash and cash equivalent, stock, liquid assets, etc.

    Furniture is expected to have a useful life for more than a year and they are bought for a long term by a company.

    Cash is a more liquid asset of a company making it a more “current” asset. It requires no conversion and is spendable as it is. Thus, making it a vital current asset.

    Stock in trade is a current asset because it can be converted into cash within one year and all the stock in trade of a company is expected to be sold within one accounting period and should not stick for a longer period.

    Advance payment, on the other hand, is an amount paid to an employee, essentially a short-term loan by the employer. It’s recorded on the asset side of the balance sheet and as these assets are used, they are expended and recorded on the income statement for the period in which they are incurred, making it a short-term asset ending within an accounting year.

    Thus, on the asset side of the balance sheet, we can clearly see which current assets are and which are not included in the current asset

    Balance Sheet (As at…..)

    Therefore, (3) Furniture, won’t be included in current assets.

    See less
    • 0
Radha
Radha
In: >

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

    The journal entry for asset purchase is- Particulars Amount Amount Asset A/c                                                             Dr $$$      To  Bank A/c $$$ According to the Modern Approach for Assets Account: When there is an increase in the Asset, it is ‘Debited’. When there is a decreaseRead more

    The journal entry for asset purchase is-

    Particulars Amount Amount
    Asset A/c                                                             Dr $$$
         To  Bank A/c $$$

    According to the Modern Approach for Assets Account:

    • When there is an increase in the Asset, it is ‘Debited’.
    • When there is a decrease in the Asset, it is ‘Credited’.

     

    So the journal entry here is about the purchase of an asset and since there is an increase in Asset, the assets account will be debited as per the modern rule and due to the decrease of cash in the bank account, it will be credited.

    For Example, Richard purchased furniture worth Rs 6,000 for his business.

    I will try to explain it with the help of steps.

    Step 1: To identify the account heads.

    In this transaction, two accounts are involved, i.e. Furniture A/c and Bank A/c as Richard has acquired the furniture paying a certain amount.

    Step 2: To Classify the account heads.

    According to the modern approach: Furniture A/c is an Asset account and Bank A/c is also an Asset account.

    According to the traditional approach: Furniture A/c is a Real account and Bank A/c is also a Real account.

    Step 3: Application of Rules for Debit and Credit:

    According to the modern approach: As asset increases because Furniture has been bought, ‘Furniture A/c’ will be debited. (Rule – increase in Asset is debited).

    Bank account is also an Asset account. As the asset is in the form of cash decreases because the amount has been paid by cash or cheque, Bank account will be credited. (Rule – decrease in Asset is credited).

    According to the traditional approach: Furniture A/c is a Real account and Bank is also a Real account, for which the rule to be applied is ‘Debit what comes in and Credit what goes out’. Furniture being asset comes in the business, so Furniture A/c will be debited and as cash goes out Bank A/c will be credited.

    So from the above explanation, the Journal Entry will be-

    Particulars Amount Amount
    Furniture A/c                                                      Dr 6,000
         To  Bank A/c 6,000

     

    See less
    • 0
A_Team
A_Team
In: >

Deferred Revenue Expenditure Capital Expenditure Capital Gain Revenue Expenditure

DepreciationFixed Assets
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    The correct answer is 4. Revenue Expenditure. Depreciation is a non-cash expense and is charged on the fixed asset for its continuous use. Revenue expenditure is a day-to-day expense incurred by a firm in order to carry on its normal business. Depreciation is considered a revenue expense due to theRead more

    The correct answer is 4. Revenue Expenditure.

    Depreciation is a non-cash expense and is charged on the fixed asset for its continuous use. Revenue expenditure is a day-to-day expense incurred by a firm in order to carry on its normal business. Depreciation is considered a revenue expense due to the regular use of the fixed assets.

    Depreciation is the systematic and periodic reduction in the cost of a fixed asset. It is a non-cash expense. Mostly, depreciation is charged according to the straight-line method or written down method as per the policy of the company.

    Depreciation is the systematic and periodic reduction in the cost of a fixed asset. It is a non-cash expense. Mostly, depreciation is charged according to the straight-line method or written down method as per the policy of the company. It is calculated as-

    Depreciation = Cost of the asset – Scrap value / Expected life of the asset.

    For Example, ONGC bought machinery at the beginning of the year for Rs 10,00,000

    It charges depreciation @10% at the end of the year.

    10,00,000 x 10/100 = 1,00,000 will be depreciation for the year and will be shown on the debit side of Profit & Loss A/c.

    As the fixed assets are used in the day-to-day activities of the firm and hence the depreciation charged on it on the daily basis would be revenue in nature. so depreciation is said to be an item of revenue expenditure.

    See less
    • 0
Anushka Lalwani
Anushka Lalwani
In: >

  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    In a partnership firm, the partners may withdraw certain amounts from the firm for their personal use. Such amounts withdrawn by the partners are called drawings. This amount is usually deducted from their capital. The partners are required to pay an amount as interest, based on the time period forRead more

    In a partnership firm, the partners may withdraw certain amounts from the firm for their personal use. Such amounts withdrawn by the partners are called drawings. This amount is usually deducted from their capital. The partners are required to pay an amount as interest, based on the time period for which the money was withdrawn. This amount is called Interest on Drawings.

    The journal entry for interest on drawings is as follows:

    Since interest on drawings is an income to the firm, it is credited based on the rule that “increase in incomes are credited”. Since the partner has to bear the interest amount, his capital account is debited as a “ decrease in capital is debited”.

     

    FORMULAS

    The basic formula for interest on drawings is:
    Interest on drawings = Amount of Drawings x Rate/100 x No. of months/12

    1. When equal amounts of drawings are withdrawn at the beginning of every month, then
      Interest on Drawings = Total Drawings x Rate/100 x (12+1)/2
    2. When equal amounts of drawings are withdrawn at the end of every month, then the Interest on Drawings = Total Drawings x Rate/100 x (12-1)/2
    3. When the date of the drawing is not specified, it is assumed to be withdrawn evenly. Hence Interest on Drawings = Total Drawings x Rate/100 x 6/12

    The calculations in 1,2 and 3 are done so that drawings can be calculated for the average period.

     

    EXAMPLE

    Jack is a partner who withdrew $20,000 on 1st April 2020. Interest on drawings is charged at 10% per annum. If we have to calculate interest on drawings as of 31st December, then

    Interest on Drawings = 20,000 x 10/100 x 9/12 = $1,500
    (Here, interest on drawings is outstanding for 9 months, that is from April to December)

    See less
    • 0
Jayesh Gupta
Jayesh GuptaCurious
In: >

  2. Rahul_Jose Aspiring CA currently doing Bcom

    When a partnership firm decides to admit a new partner into their firm, the old partners have to forego a part of their share for the new partner. Therefore, sacrificing Ratio is the proportion in which the existing partners of a company give up a part of their share for the new partner. The partnerRead more

    When a partnership firm decides to admit a new partner into their firm, the old partners have to forego a part of their share for the new partner. Therefore, sacrificing Ratio is the proportion in which the existing partners of a company give up a part of their share for the new partner. The partners can choose to forego their shares equally or in an agreed proportion.

    Before admission of the new partner, the existing partners would be sharing their profits in the old ratio. Upon admission, the profit-sharing ratio would change to accommodate the new partner. This would give rise to the new ratio. Hence Sacrificing ratio formula can be calculated as:
    Sacrificing Ratio = Old Ratio – New Ratio

    To further understand the formula, let’s say Bruce and Barry are sharing a pizza of 6 slices equally (3 slices each). They decide to share their pizza with Arthur such that they all get equal slices (2 slices each). Hence, we can use the formula to calculate their sacrifice as follows:
    Bruce’s sacrifice = 3 – 2 = 1 slice
    Barry’s sacrifice = 3 – 2 = 1 slice

    Therefore, their sacrificing ratio = 1:1. In this same way, we can solve various problems to calculate the sacrifice of partners during a change in their profit sharing ratio.

    For example, Joshua and Edwin are partners, sharing profits in the ratio 7:3. They admit Adam into their partnership such that the new profit-sharing ratio is 5:2:3. Therefore, their sacrificing ratio can be calculated as:
    Joshua’s sacrifice = old share – new share = 7/10 – 5/10 = 2/10
    Edwin’s sacrifice = old share – new share = 3/10 – 2/10 = 1/10

    Hence, sacrificing ratio of Joshua and Edwin is 2:1. Once the denominators are equal, we ignore them and only consider numerators while showing sacrificing ratio.

    See less
    • 0

Most Helping Users

Astha

Astha

Leader
Simerpreet

Simerpreet

Helpful
AbhishekBatabyal

AbhishekBatabyal

Helpful