AccountingQA Latest Questions

Naina@123
Naina@123
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    Revenue also called income is nothing but the income generated by individuals or businesses from the sale of goods or investing capital or assets. Some examples of revenue are as follows:- Sales revenue Dividend received Interest earned Rent received Commission    1. SALES REVENUE Sales revenueRead more

    Revenue also called income is nothing but the income generated by individuals or businesses from the sale of goods or investing capital or assets. Some examples of revenue are as follows:-

    1. Sales revenue
    2. Dividend received
    3. Interest earned
    4. Rent received
    5. Commission

     

     1. SALES REVENUE

    Sales revenue is the income received by the individual or business by selling its product or provision of services. the words “sale” and “revenue” are used interchangeably to mean the same thing. It is to be noted that revenue does not necessarily mean it has been received in cash, it can be partly in cash or partly on credit also.

    How to calculate sales revenue?

    SALES REVENUE = NO. OF UNITS SOLD * AVERAGE PRICE PER UNIT

    For example:- Amazon sold 4000 units of shirts @ 500 each. Therefore sales revenue for amazon is

    Sales revenue = 4000 * 500

    = 20,00,000

    Treatment of sales revenue in the financial statement, since sales are part of a trading account and appear on the credit side of the trading account.

    2. DIVIDEND RECEIVED

    Naina, this can be explained in simple terms. Suppose you own shares of a company which declares dividend so the dividend received is income for you. Since it does not reduce the assets of a company nor creates a liability it is shown as income and posted on the credit side of profit & loss A/c.

    Let me give you a short example of a dividend received, suppose you own 1000 shares of ABC.ltd. the company at the quarter-end calculate its earnings and decides to declare a dividend of Rs 5 per share. Therefore you would receive 1000* 5 i.e Rs 5000 as dividend income.

    3. INTEREST INCOME EARNED

    Interest income is the earnings the entity receives on any investments made. To be more precise it is money earned by an individual or business for lending their fund either by putting them as deposit in the bank. It is shown on the credit side of the profit & loss A/c.

    A very simple example for interest earned is when a business or an individual deposits money in the bank as savings and decided not to touch it for the coming years then such a depositor will gain interest on such savings by the bank. such type of income so received is treated as interest received and shown as income in the profit & loss A/c.

    3. RENT RECEIVED

    When money is received by the business for exchange of use of assets of the business by the other person, then it will be called rent received. Rent can be received by the business firm in respect of land, building, machinery, etc. As rent received is income for the business firm, it is shown on the credit side of profit & loss A/c.

    For example, X. ltd received Rs 20,000 via cash on one of its properties to Mr. Z. Then rent so received shall be treated as income in the books of ABC. ltd and same shall be treated as income and shown in the profit & loss statement.

    Summarised extract of profit & loss account is shown below for dividend received, Rent received and interest earned.

     

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

    Provisional financial statements are prepared on the basis of past data i.e. for the period which is already over. For example, the bank requested for Q4 financial statement but there were still 15 days left for the quarter to get over. In this case, the business/company will prepare a provisional fRead more

    Provisional financial statements are prepared on the basis of past data i.e. for the period which is already over. For example, the bank requested for Q4 financial statement but there were still 15 days left for the quarter to get over. In this case, the business/company will prepare a provisional financial statement.

    Provisional financial statements can be requested by banks, investors, and large vendors while making decisions regarding business and want current financial statements which can be obtained easily.

    It is prepared with the help of past actual figures on a particular date or before the end of a financial statement. The main purpose of preparing is to show the company’s financial position on a particular date. Items of the provisional financial statement are assets, liabilities, and equity/capital.

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

    Discount received is the reduction in the price of the goods and services which is received by the buyer from the seller. It is an income for the buyer and is credited to the discount received account and credited to the seller/supplier’s account. Journal entry for discount received as per modern ruRead more

    Discount received is the reduction in the price of the goods and services which is received by the buyer from the seller. It is an income for the buyer and is credited to the discount received account and credited to the seller/supplier’s account.

    Journal entry for discount received as per modern rules:

    Creditor’s A/c Debit Decrease in liability
            To Cash A/c Credit Decrease in asset
            To Discount Received A/c Credit Increase in income
    (Being goods purchased and discount received)

    Discount allowed is the reduction in the price of the goods which is granted by the seller to the buyer on prompt payment of their account. It is an expense for the seller and is debited to the discount allowed account and credited to the buyer’s account.

    Journal entry for discount allowed as per modern rules:

    Cash A/c Debit Increase in asset
    Discount Allowed A/c Debit Increase in expense
        To Debtor’s A/c Credit Decrease in asset
    (Being goods sold and discount allowed)

    For example, A Ltd. offers a 10% discount to the customers who settle their debts within two weeks. Mr.B a customer purchased goods worth Rs.20,000.

    According to modern rules, A Ltd will record this sale as:

    Particulars Amt Amt
    Cash A/c                                    Dr. 8,000
    Discount Allowed A/c             Dr. 2,000
                To Mr.B’s A/c 10,000

     

    Mr.B will record this purchase as:

    Particulars Amt Amt
    A Ltd A/c                                    Dr. 10,000
       To Cash A/c 8,000
       To Discount Received A/c 2,000

    For a business, the discount received is an income, and the discount allowed is an expense. In the above example, A Ltd has granted a discount and B is the receiver of the discount. Hence, for A Ltd discount allowed is an expense and for B discount received is an income.

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Karan
Karan
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Secondary books of accounts are most commonly known as subsidiary books of accounts or day books. They are prepared to record the same type of journals in an ordered manner in a special book. They are nothing, but special journals. Recording all the journals entries in a single journal and these posRead more

    Secondary books of accounts are most commonly known as subsidiary books of accounts or day books. They are prepared to record the same type of journals in an ordered manner in a special book. They are nothing, but special journals.

    Recording all the journals entries in a single journal and these posting them to different ledgers can be very difficult if the number of transactions is huge.

    So, recording the same type of transactions in a special journal proves to be useful in efficient book-keeping and also information retrieval.

    There are eight subsidiary books:

    1. Cashbook – It is three types. (a) Single column cash book – It records only cash receipts and cash payments. (b) Double column cash book – Apart from cash receipts and cash payments, it also records bank receipts and bank payments. (c) Triple column cash book – It additionally records the discount allowed and discount received.
    2. Purchase book – It records all the credit purchases except the purchase of assets.
    3. Sales book – It records all the credit sales except the sale of assets.
    4. Purchase return book – It records all the transactions related to the return of purchased goods.
    5. Sale return book – It records all the transactions related to the return of goods from customers.
    6. Bills receivable book – It records the particulars of all the bills drawn in favour of the business.
    7. Bills payable book – It records the particulars of all the bills drawn in the name of the business.
    8. Journal proper – It records those transactions which cannot be recorded in any of the above-mentioned books. For example, entry related to depreciation charged on assets.

     

    Also, there are a few more things to know:-

    1. Subsidiary books may look like ledger accounts but they are not ledgers. Ledgers are books of final entry and subsidiary books can be said to be the book of intermediate entry and are not but special journals.
    2. Once transactions are recorded in the subsidiary books, they are then posted to the ledgers.
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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Radhika
    This answer was edited.

    Capital maintenance is a principle that states profit should not be recorded until its cost or capital has been maintained. In other words, profit should not be recognized unless net assets have been maintained. Capital maintenance states that profit recognized is the increase in the value of net asRead more

    Capital maintenance is a principle that states profit should not be recorded until its cost or capital has been maintained. In other words, profit should not be recognized unless net assets have been maintained.

    Capital maintenance states that profit recognized is the increase in the value of net assets. However, there are two exceptions to it:

    • Cash increased because of sale of stock to shareholders
    • Cash decreased because of dividend payout to its shareholders

    It is important because:

    • It protects the interest of shareholders
    • It protects the interest of creditors
    • Accurately analyzing the performance of the company

    Capital maintenance is of two types:

    • Financial Capital Maintenance

    It is measured by the value of assets at the beginning and end of the financial year.

    • Physical Capital Maintenance

    It is measured by the production capacity at the beginning and end of the financial year.

    Capital maintenance is concerned with keeping proper account balances of assets and not the physical assets.

    Inflation is the increase in the economic value of goods due to the lower purchasing power and not an actual increase in the value of assets. So, if the value of an asset is increased due to inflation it does not depict the right picture for the company.

    Hence, if the value of assets increases due to inflation, companies need to adjust the value of assets to assess if capital maintenance has occurred. 

     

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Rahul_Jose
Rahul_Jose
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  2. Radhika
    This answer was edited.

    An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits. A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are: Plant and Machinery InveRead more

    An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits.

    A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are:

    • Plant and Machinery
    • Investments
    • Inventory
    • Cash and Cash Equivalents, etc.

    Assets can be broadly divided into two categories based on their physical existence:

    • Tangible Assets
    • Intangible Assets

    Tangible Assets can be further divided into two categories based on their life and role in the operating cycle:

    • Non-Current Assets
    • Current Assets

    Since the company derives benefit from the asset, an asset account is debit in nature. If an asset account has a credit balance, it would fundamentally make it a liability. However, there are certain exceptions to it.

    In the case of Bank Overdraft, which means a company withdraws more from the bank than it has deposited in its account, Bank Account can also be shown having a credit balance.

    Contra Assets Accounts are the accounts that are contrary to the basic nature of an assets account, that is it is contrary to the debit nature of the assets account and hence are credit in nature.

    Examples of Contra Assets Account are:

    Accumulated Depreciation Account which is essentially Plant Assets Account also has a credit balance as it is used to depreciate the asset, or in other words, reduce the value of the assets, hence it also has a credit balance.

    When there are balances in the Account Receivables Account that are not paid to the company or have a very low probability of being paid, they are recorded in a separate account called Bad Debts Account, which is also credit in nature.

     

     

     

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Bonnie
BonnieCurious
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  2. AishwaryaMunot

    Before we jump in the concept of valuation of Goodwill, let us first understand the meaning of term “Goodwill”. Goodwill is an Intangible asset of the business. As the definition of Intangible asset, Goodwill cannot be seen or felt. In simple words it is business’s worth or its reputation earned oveRead more

    Before we jump in the concept of valuation of Goodwill, let us first understand the meaning of term “Goodwill”.

    Goodwill is an Intangible asset of the business. As the definition of Intangible asset, Goodwill cannot be seen or felt. In simple words it is business’s worth or its reputation earned over a period of time.

    Calculation of value of the goodwill in monetary terms is done at the time of merger or acquisition of the business. Goodwill is often applied to businesses which are earning large number of profits, have crucial corporate links and large customer/client base.

    Self-earned goodwill is never shown in monetary terms in business’s own balance sheet while goodwill which is purchased is shown in the asset side of the balance sheet of the buyer business.

    Following are the methods under which goodwill can be valued:

    1. Average Profit Method – In this method, Goodwill is calculated by average profits multiplied by the number of years purchased. Typically, last 5-6 years profit figures are taken ignoring any abnormal gains or loss during the year. Formula for the same would be as follows:

               Goodwill = Average Profit x No. of Years Purchase

    1. Weighted Average Method – This method is updated method of average profit method, Profits of the previous years are calculated by specific number of weights. This method is useful when there is a lot of fluctuations in the profits and importance has to be given to current year’s profit. Formula for the same would be as follows:

              Goodwill = Weighted Average Profit x No. of Years Purchase

    Where,

    Weighted Average Profit = Sum of Profits multiplied by weights / Sum of Weights

    1. Super Profit Method – Super profit is additional profit generated by the business over normal profit. Further for the calculation, Super profit is capitalized by the normal rate of return and resulting figure is value of Goodwill.

    Formula for the same would be as follows:

             Goodwill = Super Profits x (100/Normal Rate of Return)

    1. Annuity Method – In this method, Discounted amount of the super profits is calculated by taking into consideration the current value of the annuity at rate of return.

    Formula for the same would be as follows:

             Goodwill = Super Profit x Discounting Factor

    1. Capitalization Method – In this method, existing capital employed is deducted from capitalized number of average profits or super profits. The resulting figure is Goodwill.

    Formula for the same would be as follows:

               a. Average Profit Capitalization Method –

                 Goodwill = [Average Profit / Normal Rate of Return x 100] – Capital                                                        Employed

               b. Super Profit Capitalization Method –

                Goodwill = Super Profits x (100/ Normal Rate of Return)

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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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A_Team
A_Team
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    The profit earned by an entity is determined through the profit and loss account. All the expenses are recorded on the debit side of the profit and loss account while all the incomes are recorded on the credit side. The profit is shown as the credit balance of profit and loss A/c. When the sum of itRead more

    The profit earned by an entity is determined through the profit and loss account. All the expenses are recorded on the debit side of the profit and loss account while all the incomes are recorded on the credit side.

    The profit is shown as the credit balance of profit and loss A/c. When the sum of items on the debit side of a profit and loss account is less than the sum of those on the credit side, it implies profit while when the sum of the items on the credit side is less than the sum of those on the debit side, it implies a loss for the entity.

    The Reason for Credit

    Profit is recorded as an increase in equity

    To understand the reason why profit is recorded as a credit balance, we must first understand the basic principle of debit and credit.

    The basic principle of debits and credits is that debits increase asset accounts and decrease liability and equity accounts while credits decrease asset accounts and increase liability and equity accounts.

    The revenue that a company earns is credited to the income account and increases equity.

    The expenses that a company incurs to earn that revenue are debited to the expense account and decrease equity.

    The difference between revenue and expenses is the profit, which is recorded as an increase in equity.

    Increase in equity due to revenue – decrease in equity due to expense = profit

    Gross Profit Vs Net Profit

    Revenue is the total income that a business or profession earns. Profit is the excess revenue that remains after reducing all expenses from it.

    Gross profit is the profit that a company earns after reducing the cost of goods sold from sales revenue while net profit is the profit that a business earns after reducing the total of all its direct and indirect expenses from its direct as well as indirect allowable business income.

     

    Conclusion

    The basic principle of debit and credit governs the classification of profit as a debit or credit. Since profit increases our equity, it is a credit.

    In the case of a company, it belongs to the shareholders. It is usually recorded in the retained earnings account. Profit can be reinvested in the business or can be distributed as a dividend. In the case of a sole proprietorship, the profit belongs to the owner and is recorded in the owner’s capital account.

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Atreya
AtreyaCurious
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  2. Ishika Pandey Curious ca aspirant

    Definition A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company. Another important feature of LLP is that each partner is not responsible or liable for another partner’s miscoRead more

    Definition

    A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company.

    Another important feature of LLP is that each partner is not responsible or liable for another partner’s misconduct or negligence.

    LLP as constituted in INDIA:

    The limited liability partnership act, 2008 came into effect on 31st march, 2009. LLP is different from a partnership as it operates like a partnership, but in an LLP each partner is protected from personal liability, except to the extent of his capital contribution in the LLP.

    • LLP is subject to income tax like any other partnership firm.

    • A partner is not liable for independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner‘s wrongful business decisions or misconduct.

    • LLP is a body corporate and legal entity separate from its partners. It has perpetual succession like a limited liability company.

    Indian partnership act 1932 is not applicable to LLPs and also the limit on the number of partners in an LLP is not applicable, unlike an ordinary partnership firm where the maximum number of partners cannot exceed the number specified under SEC 464 of Companies Act 2013, which at present is 50.

    The LLP Act, 2008 specifies that a least one of the partners in the LLP is a citizen of India and an Indian national.

    • The Registrar Of Companies ( ROC) is authorized to register and control LLPs.

     

    Characteristics

    • Separate legal entity :

    Like a company, LLP also has a separate legal entity. Therefore partners and LLP are distinct from each other, like a company where the company has a legal entity separate from its shareholders.

    • Minimum capital :

    LLP is not required to maintain minimum capital. Thus partners in LLP decide how much capital will be contributed by each partner.

    • The Minimum number of members :

    An LLP can be established with at least two members who shall also be the designated partners and shall have Director Identification Number (DIN).

    There is no limit on the maximum number of partners. Members other than designated partners are required to have DIN.

    • Audit is not mandatory :

    All companies, whether private or public, are required to get their accounts audited. However, an audit of LLP‘s books of accounts is not mandatory except :

    • If the contribution of the LLP exceeds Rs 25 lakhs: or
    • If the annual turnover of the LLP exceeds Rs 40 lakhs.

     

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