AccountingQA Latest Questions

Anushka Lalwani
Anushka Lalwani
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  2. Saurav

    Brands can be considered as an Intangible asset as they are a long-term investment done by the company and it gives benefit to an entity in future periods. Like any other intangible asset, brands require long-term investment and will pay over time. Like any other asset, these brands can be bought anRead more

    Brands can be considered as an Intangible asset as they are a long-term investment done by the company and it gives benefit to an entity in future periods.

    Like any other intangible asset, brands require long-term investment and will pay over time. Like any other asset, these brands can be bought and sold. Brands are best used when they serve the vision and mission of the company.

    So, we can definitely consider an organization brand as an intangible as it is expected to increase sales volume in the future period.

    Further, we can understand both terms to get a deep understanding-

     

    BRAND

    Brand means a product, or service which has a unique identification and can be distinct from other products in the market. Branding is a process by which expenditure is incurred by an entity to create awareness towards the product in the customer’s eyes.

    For example- Maggie, Coca-Cola, BMW

    Brands can be created through these elements-

    • Design
    • Packaging
    • Advertisement

     

    INTANGIBLE ASSETS

    Intangible asset are assets that can’t be seen or touched but the benefit of it occur in future periods for the entity. Even though intangible assets have no physical form but their benefits will accrue in future years. Businesses commonly hold intangible assets. Intangible assets can be further bifurcated in

    Definite– Intangible assets that stay and give benefit for a limited or specific period of time covered under this

    For example- An agreement is entered with an entity to patent a product for 5 years so this will stay for a definite period only

    Indefinite– Intangible assets that stay and  give benefit for an unlimited  period of time covered under this

    For example- A brand which is made by an entity will stay for an indefinite period

    Intangible assets can be in various forms these are the following –

    Trademark– A trademark is a sign, design, and expression that distinguish the company’s product or services from other company. Trademark is considered an Intellectual Property Right.

    Goodwill– Goodwill refers to the value of the company that the company gets from its brand, customer base, and brand Reputation associated with its intellectual property.

    Patents– A patent refers to a right reserved for a product exclusively by a person or entity. Under this the right of such making of the product gets reserved by the company and other person or entity can’t make this product.

    Copyright– Copyright refers to an intellectual property right that protects the work of the original owner from being copied by some other person.

    Brand– Brand means a product, or service that has a unique identification and can be distinct from other products in market

    So, we can definitely consider that brand is a subpart of an intangible asset and can be considered as an intangible asset as it also can’t be touched or seen. Still, its benefit will accrue till future time. These both help an entity to grow its business till the future

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Anushka Lalwani
Anushka Lalwani
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  2. GautamSaxena Curious .
    This answer was edited.

    Sundry debtor refers to either a person or an entity that owes money to the business. If someone buys some goods/services from the business and the payment is yet to be received, a group of such individuals or entities is called sundry debtors. Sundry debtors are also referred to as trade receivableRead more

    Sundry debtor refers to either a person or an entity that owes money to the business. If someone buys some goods/services from the business and the payment is yet to be received, a group of such individuals or entities is called sundry debtors. Sundry debtors are also referred to as trade receivables or account receivables.

    The term ‘Sundry’ means various or several, referring to a collection of miscellaneous items combined under one head. Sundry debtors typically arise from core business activities such as sales of goods or services. The business treats them as an asset.

     

    Example

    Suppose you run a business, ABC Ltd. Mr. Y bought goods from you on credit. Therefore, Mr. Y will be recorded as Debtor (current asset) in your books of accounts. Similarly, a collection of such debtors is viewed as sundry debtors from the business’ point of view.

    Journal Entry

    Rules

    As per the golden rules of accounting, we ‘debit the receiver and credit the receiver’. That’s how in this journal entry we’ll be debiting the sundry debtor’s account. Also, ‘debit what comes in and credit what goes out.’ That’s why sales a/c is credited and cash a/c is debited.

    As per the modern rules of accounting, ‘debit the increase in asset and credit the decrease in asset’. That’s why we debit sundry debtors and cash a/c. And credit sales a/c when goods are sold and inventory decreases.

     

    Why debtor is an asset?

    As we know, a debtor refers to a person or entity who owes money to the business which means, the money is to be received by them in the future, making them an asset. On the other hand, creditors are a liability to the firm as we owe them money and it is to be paid by us in the near future, making it an obligation for the firm.

     

    Sundry Debtors in Balance Sheet

    Sundry debtors are shown under the current asset heading on the balance sheet. They are often referred to as account receivables.

     

    Balance Sheet (for the year ending….)

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Karan
Karan
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Accumulated profit is the amount of profit left after the payment of dividends to the shareholders. It is also known as retained earnings. It is the profit that is not distributed as dividends to shareholders, hence called retained earnings. This accumulated profit is an important source of internalRead more

    Accumulated profit is the amount of profit left after the payment of dividends to the shareholders. It is also known as retained earnings. It is the profit that is not distributed as dividends to shareholders, hence called retained earnings. This accumulated profit is an important source of internal finance for a company. Accumulated profit or retained earnings can be ascertained using the following formula:

    Accumulated profit = Opening balance of accumulated profit + Net Profit/Loss (loss being in the negative figure) – Dividend paid

    Accumulated profit can be put to the following uses:

    • To reinvest into the business in form of capital assets or working capital.
    • To repay the debt of the company.
    • To pay dividends in future.
    • To set off the net loss made by the company.

    Accumulated profit and reserves are often considered the same. But in substance, they are not. The reserves are actually part of the accumulated profit, but the converse is not true. They are created by transferring amounts from the accumulated profit. While reserves are created for purpose of strengthening the financial foundation of a firm, the accumulated profit’s main purpose is to make reinvest in the business to increase its growth.

    The amount of accumulated profits depends upon the retention ratio and dividend payout ratio of a company.  The retention ratio is the opposite of the dividend payout ratio.

    The formula of dividend pay-out ratio = Dividend payable/Net Income

    And retention ratio = 1 – (Dividend payable/Net Income)

    If the retention ratio is more than the dividend payout ratio, the accumulated profit remains positive.

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Simerpreet
SimerpreetHelpful
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A. Events B. Transactions C. Journals D. None of These

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

    The correct option is Option C: Journal Entries. Journal entries are the primary entries in the books of accounts and they are passed when any transaction or event takes place. Every journal entry has a dual effect i.e. two or more accounts are affected. For example, When cash is introduced in the bRead more

    The correct option is Option C: Journal Entries.

    Journal entries are the primary entries in the books of accounts and they are passed when any transaction or event takes place. Every journal entry has a dual effect i.e. two or more accounts are affected.

    For example, When cash is introduced in the business, the journal entry passed is:

    Cash A/c    Dr.      ₹10,000

    To Capital A/c  ₹10,000

    The accounts affected here are Cash A/c and Capital A/c.

    Cash A/c gets debited by ₹10,000,

    and Capital A/c get credited by ₹10,000.

    All the processes of accounting are conducted in an ordered manner known as the accounting cycle.

    The first step in an accounting cycle is to identify the transactions and events which are monetary in nature.

    The second step is to record the identified transactions in form of journal entries.

    And the third step is to make postings in the general ledger accounts as per the journal entries.

    Hence, the preparation of the ledger is the third step in the accounting cycle and is prepared from the journal entries.

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Pooja_Parikh
Pooja_Parikh
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  2. Rahul_Jose Aspiring CA currently doing Bcom
    This answer was edited.

    Depreciation is an accounting method that is used to write off the cost of an asset. The company must record depreciation in the profit and loss account. It is done so that the cost of an asset can be realised over the years rather than one single year. Furniture is an important asset for a businessRead more

    Depreciation is an accounting method that is used to write off the cost of an asset. The company must record depreciation in the profit and loss account. It is done so that the cost of an asset can be realised over the years rather than one single year.

    Furniture is an important asset for a business. As per the Income Tax Act, the rate of depreciation for furniture and fittings is 10%. However, for accounting purposes, the company is free to set its own rate.

    JOURNAL ENTRY

    Journal entry for depreciation of furniture is:

    Here, depreciation is debited since it is an expense and as per the rules of accounting, “increase in expenses are debited”. Furniture is credited because a “ decrease in assets is credited”, and the value of furniture is reducing.

    TYPES OF DEPRECIATION

    Furniture can be depreciated in any of the following ways:

    • Straight-Line Method – It is calculated by finding the difference between the cost of the asset and its expected salvage value, and the result is divided by the number of years the asset is expected to be used.
    • Diminishing Value Method – It is calculated by charging a fixed percentage on the book value of the asset. Since the book value keeps on reducing, it is called the diminishing value method.
    • Units of Production

    For accounting purposes, the two many methods used for depreciating furniture is the straight-line method and the diminishing value method. However, for tax purposes, they are combined into a block of furniture, where the purchase of new furniture is added and the sale of furniture is subtracted and the resulting amount is depreciated by 10% based on the written downvalue method.

    EXAMPLE

    If a company buys furniture worth Rs 30,000 and charges depreciation of 10%, then by straight-line method, Rs 3,000 would be depreciated every year for 10 years.

    Now if the company decided to use the diminishing value method (or written down value method), then Rs 3,000 (30,000 x 10%) would be depreciated in the first year, and in the second year, the book value of the furniture would be Rs 27,000 (30,000-3,000). Hence depreciation for the second year would be Rs 2,700 (27,000 x 10%) and so on.

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A_Team
A_Team
In: >

  2. Rahul_Jose Aspiring CA currently doing Bcom

    Working capital is defined as the difference between current assets and current liabilities of a business. Current assets include cash, debtors and stock whereas current liabilities include creditors and short term loans etc. FORMULA Current Assets - Current Liabilities = Working Capital Zero workinRead more

    Working capital is defined as the difference between current assets and current liabilities of a business. Current assets include cash, debtors and stock whereas current liabilities include creditors and short term loans etc.

    FORMULA

    Current Assets – Current Liabilities = Working Capital

    Zero working capital is when a company has the exact same amount of current assets and current liabilities. When both are equal, the difference becomes zero and hence the name, Zero working capital. Working Capital may be positive or negative. When current assets exceed current liabilities, it shows positive working capital and when current liabilities exceed current assets, it shows negative working capital.

    Zero working capital can be operated by adopting demand-based production. In this method, the business only produces units as and when they are ordered by the customers. Through this method, all stocks of finished goods will be eliminated. Also, raw material is only ordered based on the amount of demand.

    This reduces the investment in working capital and thus the investment in long term assets can increase. The company can also use the funds for other purposes like growth or new opportunities.

    EXAMPLE

    Suppose a company has Inventory worth Rs 3,000, Debtors worth Rs 4,000 and cash worth Rs 2,000. The creditors of the company are Rs 6,000 and short term borrowings are Rs 3,000.

    Now, total assets = Rs 9,000 ( 3,000 + 4,000 + 2,000)
    And total liabilities = Rs 9,000 ( 6,000 + 3,000)
    Therefore, working capital = 9,000 – 9,000 = 0

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Ishika Pandey
Ishika PandeyCurious
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Debtors are treated as an asset. A debtor is a person or an entity who owes an amount to an enterprise against credit sales of goods and/or services rendered. When goods are sold to a person on credit that person is called a debtor because he owes that much amount to the enterprise. Debtors are consRead more

    Debtors are treated as an asset.

    A debtor is a person or an entity who owes an amount to an enterprise against credit sales of goods and/or services rendered.

    When goods are sold to a person on credit that person is called a debtor because he owes that much amount to the enterprise.

    Debtors are considered assets in the balance sheet and are shown under the head of current assets.

    For example – Ram Sold goods to Sam on credit, Sam did not pay for the goods immediately, so here Sam is the debtor for Ram because he owes the amount to Ram. This amount will be payable at a later date.

    Liabilities Vs Assets

    Liabilities

    It means the amount owed (payable) by the business.  Liability towards the owners ( proprietor or partners ) of the business is termed internal liability. For example, owner’s capital, etc

    On the other hand, liability towards outsiders, i.e., other than owners ( proprietors or partners ) is termed as an external liability.
    For example creditors, bank overdrafts, etc.

    Assets

    An asset is a resource owned or controlled by a company. The benefit from the asset will accrue to the business in current and future periods. In other words, it’s something that a company owns or controls and can use to generate profits today and in the future.
    For example – machinery, building, etc.

    Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business. They are readily realizable into cash.

    In other words, we can say that the expected realization period of current assets is less than the operating cycle period.

    For example, goods are purchased with the purpose to resell and earn a profit, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.

     

    Why debtors are treated as assets?

    Now let me explain to you why debtors are treated as assets and not as liabilities because of the following characteristics :

    • We can say that the expected realization period is less than the operating cycle period.
    • Expected to be converted into cash in the normal course of business.
    • In the business, debtors are treated as current assets which we can see on the asset side of the balance sheet.
    • Debtors have a debit balance.

     

    Conclusion

    Now after the above discussion, I can conclude that debtors are considered to be an asset and not a liability.

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Bonnie
BonnieCurious
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  2. A_Team (MBA - Finance Student) ISB College
    This answer was edited.

    Here are 10 examples of accounting entries: A company purchases $500 worth of office supplies on credit from a supplier. Office supplies expense account would be debited Accounts payable would be credited   A firm receives $1,000 in cash from a customer for services rendered. In this case, CashRead more

    Here are 10 examples of accounting entries:

    • A company purchases $500 worth of office supplies on credit from a supplier.
      • Office supplies expense account would be debited
      • Accounts payable would be credited

     

    • A firm receives $1,000 in cash from a customer for services rendered. In this case,
      • Cash account would be debited
      • Service revenue account would be credited

     

    • A business pays $250 in salaries to its employees.
      • A debit would be made to the salaries expense account
      • A credit would be made to the cash account

     

    • A business borrows $5,000 from a bank and receives the funds as a loan. The entry would be,
      • A debit to the bank account
      • A credit to the loan payable account

     

    • A company sells $800 worth of inventory to a customer for cash.
      • The entry would be a debit to the cash account
      • A credit to the sales revenue account

     

    • A firm purchases $3,000 worth of equipment on credit from a supplier.
      • The entry would be a debit to the equipment account
      • A credit to the supplier’s account

     

    • A company incurs $500 in advertising expenses for a new marketing campaign (cash).
      • The entry would be a debit to the advertising expense account
      • A credit to the cash account

     

    • A firm collects $1,200 from a customer. The entry would be,
      • A debit to the cash account
      • A credit to the customer’s account

     

    • A business pays $700 in rent for its office space. The entry would be,
      • A debit to the rent expense account
      • A credit to the cash account

     

    • An organization pays off a $2,000 loan to the bank. The entry would be,
      • A debit to the loan payable account
      • A credit the cash account

     

    I also found a long list of example journal entries and a free PDF to download here.

     

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Aadil
AadilCurious
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Firstly, let’s understand the meaning of both terms. Revenue receipts:  The term 'revenue' suggests these are the amounts received by a business due to its operating activities. These receipts arise in a recurring manner in a business. Such receipts don’t affect the balance sheet. They are shown inRead more

    Firstly, let’s understand the meaning of both terms.

    Revenue receipts:  The term ‘revenue‘ suggests these are the amounts received by a business due to its operating activities. These receipts arise in a recurring manner in a business. Such receipts don’t affect the balance sheet. They are shown in the statement of profit or loss. Such receipts are essential for the survival of the business.

    Examples of revenue receipts are as follows:

    • Proceeds from the sale of goods.
    • Proceeds from the provision of services
    • Rent received
    • Interest received from deposits in banks or financial institutions
    • Discount received from creditors (shown in the debit side of P/L A/c)

    Capital receipts: The term ‘capital’ that such receipts are do not arise due to operating activities, hence not shown in the Profit and loss statement.  These are the money received by a business when they sell any asset or undertake any liability. These receipts do not arise in a  recurring manner in a business.  They don’t affect the profit or loss of the business. They are not essential for the survival of the business.

    Examples of capital receipts are as follows:

    • Loan from a bank or financial institution. (Increase in liabilities)
    • Proceeds from the sale of an asset. (decrease in assets)
    • Proceeds from sale of  investments. (decrease in assets)
    • Proceeds from the issue of equity shares. (Increase in liabilities)
    • Proceeds from issue of debentures. (Increase in liabilities)

    I have given a table below for more understanding:

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