AccountingQA Latest Questions

Manvi
Manvi
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  2. Ayushi Curious Pursuing CA

    Let the business in our example be X Trading. The 15 transactions are as follows: 1st April - X Trading started its business with Rs. 10,000 cash and furniture of Rs. 5,000. 5th April - Purchased 1,000 units of goods for Rs. 1,000 in cash from Ram. 10th April – Bought stationery for Rs. 100 in cash.Read more

    Let the business in our example be X Trading. The 15 transactions are as follows:

    1. 1st April – X Trading started its business with Rs. 10,000 cash and furniture of Rs. 5,000.
    2. 5th April – Purchased 1,000 units of goods for Rs. 1,000 in cash from Ram.
    3. 10th April – Bought stationery for Rs. 100 in cash.
    4. 25Th April – Sold 500 goods for Rs. 750 in cash.
    5. 1st May – Paid a rent of Rs. 1200 ( 1st April to 31st March)
    6. 1st June – Took a loan of Rs. 15,000 from the bank at interest@10%.
    7. 15Th June – Sold 400 goods for Rs. 600 to Shyam in credit.
    8. 1st August – Bought a computer for Rs. 10,000 in from ABC Computers in credit.
    9. 15th October – Received Rs. 300 from Shyam in cash.
    10. 1st November – Purchased 2,000 units of goods for 2,000 from Ram in credit.
    11. 15th November – Paid Rs. 5,000 to ABC Computers through cheque.
    12. 1st December – Sold 1,000 units of goods for Rs. 1,500. Received cheque as payment.
    13. 1st January – Obtained Trade license (valid for 5 years) by paying fees of Rs. 1000 through online bank transfer.
    14. 15Th February – Paid Rs. 1,500 to Ram. Through cheque.
    15. 15Th March – Drawings made of Rs. 2000 in cash.

    We will prepare the journal, ledgers and the trial balance from the above transactions.

    Journal

    Journal is known as the book of primary entry or book of original entry. It is because every transaction is recorded in form of journal entries in the journal. Every journal entry affects at least two accounts (dual effect). A transaction has to be a monetary transaction otherwise it cannot be recorded as a journal entry.

    The procedure of recording transactions as journal entries is simple if we follow the modern rules of accounting.

    So first we have to identify which and what type of account does a transaction affect. The types of accounts are:

    1. Asset – Debit in case of increase Credit in case of decrease.
    2. Liabilities – Debit in case of decrease Credit in case of increase.
    3. Capital – Debit in case of decrease Credit in case of increase.
    4. Expense – Debit in case of increase Credit in case of decrease.
    5. Income – Debit in case of decrease Credit in case of increase.

    Ledger

    Ledgers are known as the books of principal entry or book of final entry. All the journal entries recorded in the journal are posted to the ledgers. A Ledger is where the entries related to a particular account are recorded. For example, all the transactions related to salary will be recorded in the salary account ledger.

    It is very important to prepare the ledger to arrive at the balance of each account in the books of concern so that it can prepare its trial balance.

    The procedure of posting journal entries in the ledger account is done is as follows:

    The ledgers are as follows:

     

     

    Trial Balance

    The trial balance is not a part of the books of accounts. It is just a statement prepared to check the arithmetical accuracy of the books of the accounts. It also helps to know about the omission and posting mistakes. It is prepared after the ledger accounts have been drawn and their balances have been ascertained.

    The balance of all the ledger accounts is posted on either side of the trial balance. Debit balance of the account on the debit side and credit balance of the account on the credit side.

    Also, the closing stock from the financial statements of the previous year is posted on the debit side of the trial balance as opening stock to account for the stock with the business at the beginning of the financial year.

    Following is the trial balance of X trading:

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Ayushi
AyushiCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and othRead more

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and other stakeholders are secured.

    MAXIMUM REMUNERATION

    As per section 197 of the Companies Act, the Company has certain limits on paying maximum remuneration, depending on whether he is working full-time or part-time. If the company has only one whole-time manager, he is entitled to a maximum remuneration of 5% of net profits. If there is more than one whole time manager, then the percentage increases to 10%.

    For part-time directors, the remuneration allowed is 1% of net profits (if there is a whole-time director present) and if no whole-time manager is present, then remuneration for a part-time director is 3%.

    Therefore, a company can only pay a maximum remuneration of 11% of net profits.

    A public company is allowed to pay remuneration in excess of 11% by :

    • Passing a special resolution approved by the shareholders
    • Subject to compliance with Schedule V conditions

    Remuneration can be paid to such managers who do not have any direct interest in the company and also possesses special knowledge and expertise along with a graduate-level qualification.

    PENALTY

    Any person who fails to comply with the provisions of managerial remuneration shall be punishable with a fine that can vary from Rs. 1 Lakh to a maximum of Rs. 5 Lakhs.

    However, Sec 197 applies to only public companies and hence private companies are free to pay managerial remuneration with no upper limit.

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Bonnie
BonnieCurious
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    A revaluation Account is an account created to record the changes in the value of assets and liabilities during: Change in profit sharing ratio Admission of a partner Retirement of a partner Death of a partner The realization Account is prepared to sell assets and pay liabilities in the event of theRead more

    A revaluation Account is an account created to record the changes in the value of assets and liabilities during:

    • Change in profit sharing ratio
    • Admission of a partner
    • Retirement of a partner
    • Death of a partner

    The realization Account is prepared to sell assets and pay liabilities in the event of the dissolution of the firm.

    Revaluation Account is prepared for dissolution of the partnership while Realization Account is prepared for dissolution of the partnership firm.

    The increase or decrease in the value of assets and liabilities is transferred to the Realisation Account and the gain or loss thereof is transferred to the old partner’s capital account.

    • A decrease in Assets and an Increase in Liabilities is debited since it is a loss for the firm and all the losses are debited.
    • An increase in Assets and a Decrease in Liabilities is credited since it is gained for the firm and all the profits are credited.

    Format of Revaluation Account will be:

     

    Format of Realization Account will be:

     

    The difference between Realisation and Revaluation Account is:

    Revaluation Account Realization Account
    Prepared to record changes in assets and liabilities Prepared to record sale of assets and payment of liabilities
    Prepared at the time of dissolution of the partnership Prepared at the time of dissolution of partnership firm
    Assets and liabilities still exist in the books only their values change Assets and liabilities do not exist in the books of the firm
    This account contains only those assets and liabilities that are to be revalued. This account contains all the assets and liabilities of the firm.
    A revaluation Account can be prepared any number of times during the lifetime of the firm. The realization Account is only made once during the dissolution of the firm.
    The gain or loss during revaluation is transferred to the old partner’s capital accounts. The gain or loss during realization is transferred to the capital account of all the partners.

     

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Jasmeet_Sethi
Jasmeet_SethiCurious
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  2. GautamSaxena Curious .
    This answer was edited.

    Sundry Debtors in Trial Balance The debtor is a company's asset, and assets are always debited in the trial balance. The trial balance is a statement maintained at the end of an accounting period, listing the ending balances in each general ledger account. There are two sides to this account, debit,Read more

    Sundry Debtors in Trial Balance

    The debtor is a company’s asset, and assets are always debited in the trial balance.

    • The trial balance is a statement maintained at the end of an accounting period, listing the ending balances in each general ledger account.
    • There are two sides to this account, debit, and credit and they include all the transactions done in the business over a particular accounting period.

     

    As we know, assets, expenses, and drawings are always debited. That applies not only in journals but here as well, hence, all of your assets are to be debited.

    Trial Balance Statement

     

    As we can see here, the sundry debtors (on the 4th) are debited like all the other assets, expenses, and losses. In the end, if the basic accounting equation i.e. assets=capital+liability is violated, a mismatch arises which in the balancing figure is shown under the name of suspense account. Such errors must not be found and corrected to avoid any mismatch in the balance sheet of the company.

    Total Assets = Capital + Other Liabilities.

    Therefore, this is how the sundry debtors are treated in the Trial Balance.

     

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Ayushi
AyushiCurious
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  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.

     

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Simerpreet
SimerpreetHelpful
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  2. Saurav
    This answer was edited.

    Debit balance means excess of credit side over debit side. For Example- At the beginning 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 therRead more

    Debit balance means excess of credit side over debit side.

    For Example- At the beginning 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.

    Assets

    All the assets that appear in the balance sheet always have a debit balance. The debit balance under it will increase as it debits. Some of these assets can be illustrated below -:

    •  Cash and Bank Balance: Cash and Bank Balance means the amount that is held by a person in physical form or in a current/savings account.
    • Property, Plant, and Equipment-  Property Plant, and Equipment means assets that are used for the production of goods and services.
    • Account Receivables– Account Receivables means the amount that is due from debtors to whom goods were sold at credit for a specified time period.
    • Inventory – Inventory means goods that are used in the normal course of business.
    • Investments– Investments are the amount invested in other companies from which they were expecting returns in future periods.

     

    Expenses and Losses

    All expenses that appear on the debit side of the P&L account have a debit balance in their accounts.

    For eg-: A rent of 10,000 is given to the landlord under which the work has been done by the entity.

    For eg-: A depreciation of 10% is there on an asset of 12,000 will result in a debit balance under depreciation in the P&L Account.

    Some of the following expenses can be illustrated below

    • Rent- Rent means a property that an entity takes on lease for business purpose and pay a certain amount to the landlord for such lease.
    • Depreciation– Depreciation means a fall in the value of an asset due to its usage every year
    • Loss on Sale of an asset- Loss on the Sale of an Asset means the sale amount of the asset is less than its WDV
    • Printing and stationery– Printing and Stationery means the paperwork or anything related to stationery used for business purposes
    • Audit fees– Audit fees are the amount which is given to an auditor for auditing the financials of an entity
    • Salaries and Wages– Salaries and Wages are the amount given to employees for the work they have done for the entity
    • Insurance– Insurance means a premium given by an entity for insurance done by them
    • Advertising– Advertising means any promotion that a company does of its product to increase its revenue

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

     

    CREDIT BALANCE

    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 end there will be a credit balance of 6,000 for trade payable at the end

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

    Liabilities

    • Account Payables
    • Bank Overdraft
    • Bonds
    • Income Tax Payables
    • Notes Payable
    • Deferred Tax Liability

     

    Income and Gains

    • Interest Received
    • Dividend Received
    • Rent Received
    • Gains on Sale of Capital Gains

     

     

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Nistha
Nistha
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Journal EntryRentRent Received in Advance
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Before starting with the main discussion, let me give you a brief explanation of what rent received is When a business or an organization rents out its unused property to earn some extra income and receive some amount from it, that amount of money is said to be rent received. Rent can be monthly, quRead more

    Before starting with the main discussion, let me give you a brief explanation of what rent received is

    When a business or an organization rents out its unused property to earn some extra income and receive some amount from it, that amount of money is said to be rent received.

    Rent can be monthly, quarterly, half-yearly, or yearly rent depending upon the organization’s agreement.

    The journal entry for rent received will be

    Here, Cash account is debited due to the increase in assets or because of a real account. Rent account is credited due to the increase in income or because of the nominal account.

    However, Rent received in advance means the amount of rent that is not yet due but is received in advance. It is treated as a current liability because the benefit related is yet to be provided to the tenant.

    The Journal entry for Rent received in advance will be-

    Here, rent is debited due to a decrease in income.

    Rent received in Advance is credited due to an increase in liability.

    For Example, Johnson company rented out a part of its building that was not used to earn some extra income from it. The monthly rent was fixed as 20000. Johnson company follows calendar year as their accounting year. The tenant, therefore, paid 4 months advance rent to Johnson company i.e. the tenant in January gave his advance rent for February, March, April, and May.

    While receiving the rent in the month of January. The journal entry would be

    Now, the adjustment entry of rent received in advance would be

    The rent received in advance will also be posted individually in each month of February, March, April, and May as

    Furthermore, Rent received in advance is deducted from the amount of rent in the income and expenditure account and thereafter the amount received in advance is posted on the liability side of the Balance sheet.

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Astha
AsthaLeader
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Consignment
  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Consignment is "goods sent by its owners to his agent for the purpose of sale". In simple language, the word consignment means to send goods to another person for sale on his behalf without transfer of ownership. In accounting terms, consignment is the process where the owner (consignor) transfers tRead more

    Consignment is “goods sent by its owners to his agent for the purpose of sale”. In simple language, the word consignment means to send goods to another person for sale on his behalf without transfer of ownership.

    In accounting terms, consignment is the process where the owner (consignor) transfers the possession of the goods to the agent (consignee) to make a sale on his behalf while the ownership of goods remains with the owner until the sale is made by the agent. In return, the agent receives an agreed percentage of the sum in the form of commission. 

    Generally, there are two parties involved in consignment, those are as follows:

    1. CONSIGNOR: the person who is the owner and sender of goods.
    2. CONSIGNEE: the person who receives goods for sale/resale from the consignor in exchange for a percentage of the sale or on an agreed sum known as commission.

    The relationship between consignor and consignee is that of principal and agent.

    Let me give you a simple example of how consignment works.

    Mr. John (consignor) sends goods to Mr. Jeh (consignee) worth Rs 20,000 to sell these goods at a cost plus 10%. Mr. Jeh agrees to sell these goods on his behalf for a commission of 1% on the sale. Therefore Mr. Jeh sold these goods at the agreed amount i.e Rs 22,000 [20,000+ 10% of 20,000] and charges Rs 220 [1% of Rs 22,000] as commission made on such sale and remit the remaining balance to the owner Mr. John.

    There is a lot of confusion regarding “is consignment the same as the sale of goods?“. The answer is NO.

    The reason what makes it different from the sale is

    a) In sale the ownership gets transferred from seller to buyer but in case of consignment the ownership remains with the consignor until the sale is made by the agent.

    b) In sale the risk gets transferred with the transfer of goods, whereas in consignment the risk remains with the owner till the sale is made.

    c) Also goods once sold cannot be returned on damages /defaults, but in case of consignment goods that come to be faulty can be returned to the consignor.

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prashant06
prashant06
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  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)
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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.

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