AccountingQA Latest Questions

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

    You must have knowledge of what depreciation is. Depreciation is the process of allocating the value of an asset over its useful life. It reduces the carrying value of the asset year by year till it is scraped. It is an expense (expense of using the asset for business purposes) and it is charged toRead more

    You must have knowledge of what depreciation is. Depreciation is the process of allocating the value of an asset over its useful life. It reduces the carrying value of the asset year by year till it is scraped.

    It is an expense (expense of using the asset for business purposes) and it is charged to profit and loss account.

    Depreciation can be reported in the financial statement in two ways:

    1. Deduct depreciation from the asset account and show the asset at “depreciation less” value. See the journal entries below:

    1. Maintain a provision for depreciation account and show the asset account at original cost. In this method, no entry is passed through the asset account. See the journal entries below:

     

    Provision for depreciation account represents the collection of total depreciation till date on an asset. That’s why it is also called accumulated depreciation account. When an asset is sold, its accumulated depreciation is credited to the asset account. See the journal entry below:

    It is shown on the liabilities side of the balance sheet. It is a nominal account because it is shown as an expense in the statement of profit or loss.

    In case provision for depreciation account is not maintained then the balance sheet looks like this:

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

    Meaning The term ‘Sundry creditors’ consist of two words:  ‘Sundry’ and ‘creditors’.  The word ‘sundry’ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items. Creditors are the person from whom money is borrowed or goods are puRead more

    Meaning

    The term ‘Sundry creditors’ consist of two words:  ‘Sundry’ and ‘creditors’. 

    The word ‘sundry’ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items.

    Creditors are the person from whom money is borrowed or goods are purchased on credit by a business or a non-business entity. They have to be repaid after a period of time which is usually less than or up to one year.

    By combining the meaning of both words, ’sundry’ and ‘creditor’, the term ‘sundry creditor’ will refer to the collection of insignificant creditors of an entity.

    Back in the days when accounting records were maintained on paper, only the records of those creditors were maintained separately, from whom goods are purchased regularly and in large amounts. 

    But there used to be numerous other creditors with whom the transactions were occasional and insignificant. To reduce the paperwork, records of all such creditors were maintained on a single page or book under the head ‘Sundry Creditors’

    Nowadays, as accounting records are maintained digitally, hence maintaining records of each and every creditor is not a problem. 

    Hence, every creditor whether small or big, is grouped under the head ‘Sundry creditor’ or ‘Trade Creditor’.

     

    Accounting Treatment 

    Sundry creditors are the persons to whom a business owes money. 

    Hence, as per golden rules of accounting, Sundry creditor is a personal account and the golden rule for personal account is, ‘Debit the receiver and credit the giver’ 

    We know sundry creditors are liabilities, hence, as per modern rule of accounting, sundry creditors are credited in case of increase and debited in case of decrease.

    Example, a business purchased goods for Rs. 10,000 from ABC & Co. The journal entry will as follows:

    Here, ABC & Co is the creditor. It is credited as it is a personal account and the creditor has given the goods to the business, hence the giver is credited.

    From point of view of modern rules of accounting, ABC & Co. is a creditor, a liability. On purchase of goods on credit, a liability is created. Hence, ABC & Co A/c is credited.

     

    Balance sheet

    Sundry creditor is a current liability, so it is shown on the liabilities side of a balance sheet. Trade payable and accounts payable mean sundry creditors only.

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Naina@123
Naina@123
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  2. Radha M.Com, NET
    This answer was edited.

    The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired. As per the Income Tax Act, cars come under the Plant and Machinery block of assets. The Act classifies cars into two categories, Group 1 - MotorRead more

    The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired.

    As per the Income Tax Act, cars come under the Plant and Machinery block of assets.

    The Act classifies cars into two categories,

    • Group 1 – Motor cars other than those used in the business of running them on hire.
    • Group 2 – Motor taxis used in the business of running them on hire.

     

    Group 1:

    1. If the motor car is acquired and put to use on or after 23rd August 2019 but before 1st April 2020, then the rate applicable is 30%.
    2. If the motor car is acquired and put to use on or after 1st April 1990, then the rate applicable is 15%. (All the cars which are not covered under the category (1) comes under this category.)

     

    Group 2:

    1. If the motor taxi is acquired and put to use on or after 23rd August 2019 but before 1st April 2020, then the rate applicable is 45%.
    2. The rate applicable for motor taxis not covered under category (1) is 30%.

     

    Here is a summarised version of the rates applicable to cars,

     

    The rates can also be found on the Income Tax India website.

     

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Jayesh Gupta
Jayesh GuptaCurious
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  2. Saurav
    This answer was edited.

    Credit balance means excess of credit side over debit side. For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at the end there will be a creditRead more

    Credit balance means excess of credit side over debit side.

    For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at the end there will be a credit balance of 6,000 of trade payable at the end

    .A Credit balance signifies all income and gains and all liabilities and capital that is there in business.

     

    Liabilities and Capital

    • Account Payables– Account Payables means the amount that is due to the customer by the entity. Its credit balance will always increase when there is an increase in account payables and will decrease when there is a decrease in account payables. For eg-: The stock that has been purchased in credit from creditors of 10,000 will result in an increase in credit balance.
    • Bank Overdraft-Bank Overdraft means when the amount withdrawn from the bank is more than the balance left in the bank. For example, there is a bank balance of 2,000 in the bank but an amount of 4,000 has been withdrawn from the bank. So in such a case, there will be a credit balance of 2,000 which is in Bank Overdraft
    • Bonds– Bonds are the amount that is withdrawn from people for a specific time period which gets redeemed at a coupon rate after such a specific period. For example- A 10% bond of 10,000 is given to a group of people which will be redeemed after 5 years.
    • Income Tax Payables-Income Tax Payable means the amount the company left to pay to the government in earlier periods. For example- There is a tax liability of 10,000 in FY20-21 from which 8,000 was paid in the current year and 2,000 paid in FY21-22.
    • Notes Payable– Notes Payable is a type of promissory note in which a person pays some amount to an entity that the entity will write in a specific period. For example Notes payable of 1,000 given by a person to an entity which will be returned in 3 months with interest
    • Capital– Capital means the amount that is introduced by the company at the beginning of the business for the operations and survival of the business. For example- A capital of 10,000 has been introduced by the company.

     

    Income and Gains

    • Interest Received-Interest Received means the amount which is invested by the company in some other entity and interest received on it
    • Dividend Received– Dividend means the amount received from the entity in which amount invested by the company
    • Rent Received– Rent is the amount that the company receives by letting out their land to another person or entity for use
    • Gains on Sale of Furniture– Gain on Sale of Furniture means that the amount received from the sale of furniture is more than the amount of furniture. So the difference between the amount received from the sale and the cost of furniture is called a gain on the sale of furniture.

    So after seeing all the above points we can conclude that the credit balance includes all the income in the P&L account and all the liabilities in the Balance sheet. So its balance increases when there is an increase in its account.

     

    Debit Balance

    Debit balance means excess of credit side over debit side.

    For Example- At begining of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end there will be a debit balance of 6,000 of trade receivables at the end

    A Debit balance basically signifies all expenses and losses and all positive balances of assets. The debit balance increases when any asset increases and decreases when any asset decreases.

     

    Asset

    • Cash and Bank Balance
    • Account Receivables
    • Property, Plant, and Equipment
    • Inventory
    • Investments
    • Bill Receivables
    • Intangible Assets

     

    Expenses and Loses

    • Rent
    • Depreciation
    • General Expenses
    • Loss on Sale of asset
    • Printing and stationery
    • Audit fees
    • Outstanding fees
    • Salaries and Wages
    • Insurance
    • Advertising
    • Promotional expenses
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Simerpreet
SimerpreetHelpful
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances. A trial balance is prepared on a particular date and not on a particular period. What does trial balRead more

    Definition

    The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances.

    A trial balance is prepared on a particular date and not on a particular period.

    What does trial balance include?

    As in each double-entry system, each account has two aspects debit and credit.

    Hence the following trial balance includes:
    • Debit or credit of the reporting period.
    • The amount which is to be debited or credited to each account.
    • The account numbers.
    • The dates of the reporting period.
    • The totaled sums of debits and credits entered during that time.

    When we prepare a trial balance from the given list of ledger balances, these need to be included which are as follows :

    The balance of all
    • Assets accounts
    • Expenses accounts
    • Losses
    • Drawings
    • Cash and bank balances
    Are placed in the debit column of the trial balance.

    • The balances of
    • liabilities accounts
    • income accounts
    • profits
    • capital
    Are placed in the credit column of the trial balance.

    Importance

    As the trial balance is prepared at the end of the year so it is important for the preparation of financial statements like balance sheets or profit and loss.

    The purpose of the trial balance is as follows:

    • To verify the arithmetical accuracy of the ledger accounts
    This means trial balance indicates that equal debits and credits have been recorded in the ledger accounts.
    It enables one to establish whether the posting and other accounting processes have been carried out without any arithmetical errors.

    • To help in locating errors
    There can be some errors if the trial balance is untallied therefore to get error-free financial statements trial balance is prepared.

    • To facilitate the preparation of financial statements
    A trial balance helps us to directly prepare the financial statements and then which gives us the right to not look or no need to refer to the ledger accounts.

    Structure of trial balance

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

    Bad Debt is the amount that is irrecoverable from the debtors. It is the portion of the receivables. It includes two accounts “Bad Debts A/c” and “Debtors A/c or Accounts Receivable A/c”. The amount cannot be recovered by the debtor for reasons like the debtor is no longer in the position to pay offRead more

    Bad Debt is the amount that is irrecoverable from the debtors. It is the portion of the receivables. It includes two accounts “Bad Debts A/c” and “Debtors A/c or Accounts Receivable A/c”.

    The amount cannot be recovered by the debtor for reasons like the debtor is no longer in the position to pay off the debt or has become insolvent.

    There are two methods to write off bad debts:

    1. Direct Method
    2. Allowance for Doubtful Debts

     

    1. Direct Method: In this method, the amount of bad debts is directly deducted from the total receivables and the second effect is transferred to the debit side of Profit and Loss A/c as an expense.

    The journal entry for bad debts as per modern rules of accounting is as follows:

    Bad Debts A/c Debit Increase in expenses
          To Accounts Receivable A/c Credit Decrease in assets
    (Being bad debts written off )

     

    Journal entry for transferring bad debts to profit and loss account:

    Profit and Loss A/c Debit
          To Bad Debts A/c Credit
    (Being bad debts transferred to profit and loss a/c )

     

    For example, A Ltd had a total receivable of Rs.2,50,000 and bad debts for the period amounted to Rs.10,000.

    Here, the journal entries will be:

    Bad Debts A/c Debit 10,000
          To Accounts Receivable A/c Credit 10,000
    (Being bad debts written off )

     

    Profit and Loss A/c Debit 10,000
          To Bad Debts A/c Credit 10,000
    (Being bad debts transferred to profit and loss a/c )

     

     2. Allowance for Doubtful Debts:  In this method allowance is the estimation of the debts which is doubtful to be paid. The company creates a reserve for such debts which are uncollectible.

    Firstly, the company will create a reserve which will be based on the accounts receivable. The journal entry will be:

    Bad Debts A/c Debit
          To Allowance for Doubtful Debts A/c Credit
    (Being allowance for doubtful debts created)

     

    When a specific receivable is uncollectible it will be charged as an expense, and Allowance for Doubtful Debts will be “Debited” and Accounts Receivable will be “Credited”.

    Allowance for Doubtful Debts A/c Debit
                  To Accounts Receivable A/c Credit
    (Being bad debts written off)

    For example, Mr.B sold goods worth Rs.15,000 to Mr.D. He creates an allowance of Rs.15,000 in case Mr.D fails to pay the amount. At the end of the period, Mr.D defaults and does not pay the debt.

    In this case, Mr.B will first record the journal entry for allowance and then will write off Mr.D’s account.

    Bad Debts A/c 15,000
          To Allowance for Doubtful Debts A/c 15,000
    (Being allowance of Rs.10,000 created for doubtful debts)

     

    Allowance for Doubtful Debts A/c 15,000
                  To Mr.D’s A/c 15,000
    (Being Mr.D’s account written off)
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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning A valuation account is a balance sheet account that is paired with another balance sheet account to report the carrying amount of the paired account at a reduced value. The purpose of a valuation account is to reduce the balance of the concerned asset or liability without affecting the mainRead more

    Meaning

    A valuation account is a balance sheet account that is paired with another balance sheet account to report the carrying amount of the paired account at a reduced value.

    The purpose of a valuation account is to reduce the balance of the concerned asset or liability without affecting the main ledger account.  This is a conservative approach to use valuation accounts to present the value of the concerned asset or liability at a reduced value.

    The most common example of a valuation account is the ‘Provision for doubtful debts account’. It appears in the balance sheet as a reduction from the debtors’ accounts. Also when the amount is transferred to this provision, it appears in the statement of profit and loss account. But it doesn’t appear in the debtors’ account ledger.

    Treatment

    A valuation account appears only in the balance sheet. Sometimes, it also appears in the profit and loss account when any amount is transferred to it.

    Valuation accounts are only used in accrual accounting. They cannot be used in cash-based accounting as there is no flow of cash related to valuation accounts.

    They have a balance opposite of their paired accounts i.e. if their paired account is an asset then they will have a credit balance and if it is a liability then they will have a debit balance.

    Other Examples of valuation accounts are as follows:

    1. Provision for doubtful debts (offsets the account receivables or debtors’ account)
    2. Accumulated depreciation (report the assets net of depreciation)
    3. Discount on bonds payable (reduces the reporting balance of bond payable account)
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Radha
Radha
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  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:

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Simerpreet
SimerpreetHelpful
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A. Furniture B. Capital C. Sales D. Commission earned

  2. Ishika Pandey Curious ca aspirant

    Definition Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “ A furniture account that is an asset has a debit balance. Debit balance may arise due to timing differences in which case income wilRead more

    Definition

    Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “

    A furniture account that is an asset has a debit balance.

    Debit balance may arise due to timing differences in which case income will be accrued at the year’s end to offset the debit.

    The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits.

    The account which has debit balances are as follows:

    • Assets accounts

    Land, furniture, building machinery, etc

    • Expenses accounts

    Salary, rent, insurance, etc

    • Losses

    Bad debts, loss by fire, etc

    • Drawings

    Personal drawings of cash or assets

    • Cash and bank balances

    Balances of these accounts

    The account has credit balances as follows:

    • Liabilities accounts

    Creditors, bills payable, etc

    • Income accounts

    Salary received, interest received, etc

    • Profits

    Dividends, interest, etc

    • Capital

    Partners Capital

     

    Here are some examples showing the debit balances and credit balances of the accounts :

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

    Fictitious assets On seeing or hearing ‘fictitious’, the words which come to our mind are ‘not true, ‘fake’ or ‘fantasy’. So, fictitious assets are those items that appear on the assets side of the balance sheet but are actually not assets. In substance, fictitious assets are the expenses and lossesRead more

    Fictitious assets

    On seeing or hearing ‘fictitious’, the words which come to our mind are ‘not true, ‘fake’ or ‘fantasy’. So, fictitious assets are those items that appear on the assets side of the balance sheet but are actually not assets.

    In substance, fictitious assets are the expenses and losses that are not completely written off in a financial year and are required to be carried forward to the next financial year.

    The examples of fictitious assets are as follows:

    1. Deferred Advertisement expense
    2. Loss on the issue of debentures.
    3. Debit balance of Profit and Loss account ( Net loss )*
    4. Preliminary expenses.

    Fictitious assets appear on the asset side of the balance sheet as expenses and losses have a debit balance.

    *when the balance sheet is prepared as per Schedule III of Companies Act, the Net loss is shown as a negative figure under the head Reserve and Surplus.

    Intangible Assets

    Intangible assets mean the assets which don’t have any physical existence. They cannot be seen or touched but are assets because they do provide future economic benefits to the business. Like tangible assets (like machinery and building), they can be also created, purchased or sold.

    Like tangible assets are depreciated, intangible assets are gradually written over by amortization over their useful lifespan to account for the economic benefits provided by them.

    Following are the examples of intangible assets:

    1. Goodwill
    2. Brand name
    3. Trademark
    4. Patents
    5. Copyrights

    Intangible assets which are created by the business-like goodwill or brand recognition do not appear in the balance sheet.

    Only acquired intangible assets can be shown in the balance sheet. Like purchased goodwill, patents, trademarks etc.

    Intangible assets also face impairment if their fair value is less than their carrying value after deducting amortization expense. The difference between carrying value and fair value is shown in the Profit and loss A/c as impairment charge and the asset is valued at fair value in the balance sheet.

     

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