AccountingQA Latest Questions

Astha
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Balance SheetMiscellaneous Expenditure
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Miscellaneous expenditure in the balance sheet The expenses that are written off in the current financial year are shown on the debit side of the profit and loss account. However, those that are not written off during the current financial year are shown in the balance sheet on the Assets Side as MiRead more

    Miscellaneous expenditure in the balance sheet

    The expenses that are written off in the current financial year are shown on the debit side of the profit and loss account. However, those that are not written off during the current financial year are shown in the balance sheet on the Assets Side as Miscellaneous expenditure.

    Miscellaneous expenditure are those expenses that are not categorized as Operating expenses i.e. these are not classified as manufacturing, selling, and administrative expenses.

    For example, BlackRock has spent 5,00,000 which will be written of in 5 consecutive years as an Advertisement expense. During the current financial year, only 1,00,000 will be written off and the rest will be carried to the next year and year thereafter.

    Treatment in the first year:

    • 1,00,000 which is written off during the current financial year will be shown on the debit side of the Profit and Loss account.
    • 4,00,000 which is carried forward will be shown on the assets side of the balance sheet as miscellaneous expenditure because all assets and expenses have a debit balance.

    Treatment in the second year:

    • 1,00,000 which is written off during the current financial year will be shown on the debit side of the Profit and Loss account.
    • 4,00,000 which is carried forward will be shown in the assets side of the balance sheet as a miscellaneous expenditure.

    The same will be done in the third, fourth, and fifth years.

    Conclusion

    Deferred revenue expenditure is also a long-term expenditure the benefit of which cannot be derived within the same year. So the amount that is written off during the current year is shown on the debit side of the profit and loss account and the amount which is not written off during the current financial year is shown on the assets side under the head Miscellaneous expenditure.

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Jasmeet_Sethi
Jasmeet_SethiCurious
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Depletion Amortization Depression

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

    The correct option is 2. Amortization. Depreciation in spirit is similar to Amortization because both depreciation and amortization have the same characteristics except that depreciation is used for tangible assets and amortization for intangible assets. To make it clear, intangible assets are thoseRead more

    The correct option is 2. Amortization.

    Depreciation in spirit is similar to Amortization because both depreciation and amortization have the same characteristics except that depreciation is used for tangible assets and amortization for intangible assets.

    To make it clear, intangible assets are those assets that cannot be touched i.e. they are not physically present. For example, goodwill, patent, trademark, etc. Hence, these assets are amortized over their useful life and not depreciated.

    Example for Amortizing intangible assets: A manufacturing company buys a patent for Rs 80,000 for 8 years. Assuming that the residual value of the patent after 8 years to be zero.

    The depreciation to be written off will be

    Yearly Depreciation = Cost of the patent – Residual value / Expected life of the asset.

    = 80,000 – 0 / 8

    = Rs 10,000 every year.

    Whereas, tangible assets are those assets that can be touched i.e. they are physically present. For example, building, plant & machinery, furniture, etc. Hence, these assets are depreciated over their useful life and not amortized.

    Example of Depreciating tangible asset:  A manufacturing company bought machinery for Rs 8,10,000 and its estimated life is 8 years, scrap value being Rs 10,000.

    The depreciation to be written off will be

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

    = 8,10,000 – 10,000 / 8

    = 8,00,000 / 8

    = Rs 1,00,000 every year.

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Astha
AsthaLeader
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  2. Manvi Pursuing ACCA
    This answer was edited.

    An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads: Non-Current Assets Current Assets   The asset may be sold for several reasons such as: An asset is fully depreciated. It should be sold becaRead more

    An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads:

    1. Non-Current Assets
    2. Current Assets

     

    The asset may be sold for several reasons such as:

    1. An asset is fully depreciated.
    2. It should be sold because it is no longer needed.
    3. It is removed from the books due to unforeseen circumstances.

     

    The journal entry for profit on the sale of assets will be:

    Cash / Bank A/c Debit
             To Asset A/c Credit
             To Profit on Sale of Asset A/c Credit
    (Being sale of an asset made with a gain)

    According to the golden rules of accounting, in the above entry “Cash/Bank A/c” it is a Real Account and the rule says “Debit what comes in” and so is debited.

    “Asset A/c” is a real account and the rule says “Credit what goes out” and so is credited. Any Gain on sale of an asset goes to the Nominal account and according to the rule “Credit, all incomes and gains” and so is credited.

     

    The journal entry for loss on sale of the asset will be:

    Cash / Bank A/c Debit
    Loss on Sale of Asset A/c Debit
             To Asset A/c Credit
    (Being sale of an asset made and loss incurred)

    In the above entry, “Loss on Sale of Asset” is debited because according to Nominal account rules “Debit all losses and expenses” and so is debited.

    According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenue, and decreases assets and expenses.

    Cash / Bank A/c Debit Increases Asset
    Loss on Sale of Asset A/c Debit Increases Expenses
             To Asset A/c Credit Decreases Asset
             To Profit on Sale of Asset A/c Credit Increases Expenses

     

    For example, Mr. A sold furniture for $2,500 and incurred a loss on the sale which amounted to $2,500.

    According to modern rules, the journal entry will be:

    Particulars Amt Amt  
    Cash / Bank A/c 2,500 Increase in asset
    Loss on Sale of Asset A/c 2,500 Increase in expenses
             To Asset A/c 5,000 Decrease in asset
    (Being sale of an asset made and loss incurred)
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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method. It is a general practice for non-corporates to charge depreciation at rates slRead more

    The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method.

    It is a general practice for non-corporates to charge depreciation at rates slightly lower than the rate provided by the Income Tax Act, 1961. But one cannot charge depreciation more than it.

    In the case of corporate, the rates for charging depreciation are provided by the Companies Act 2013, which is

    • 20.58% WDV and 7.31% SLM for cameras to be used for the production of cinematography and motion pictures.
    • 25.89% WDV and 9.50% SLM for cameras which is part of electrical installations and equipment (CCTV cameras).

    Let’s take an example:

    Mr X is a jewellery shop owner and has installed CCTV cameras on 1st April 2021, costing ₹ 40,000 at various points in his shop to ensure safety and security. Keeping in mind the Income-tax rates, his accountant decided to charge depreciation @ 30% p.a. on the CCTV cameras.

    Following is the journal entry:

    The balance sheet will look like this:

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Spriha Sparsh
Spriha Sparsh
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  2. Radhika
    This answer was edited.

    Working Capital is the capital used in the daily operations of the business. It is calculated as the difference between current assets and current liabilities. Gross working capital means current assets and net working capital means the difference between current assets and current liabilities. WorkRead more

    Working Capital is the capital used in the daily operations of the business. It is calculated as the difference between current assets and current liabilities. Gross working capital means current assets and net working capital means the difference between current assets and current liabilities.

    Working Capital indicates the short-term liquidity of its business. It means the ability of a company to meet its daily requirements through short-term financing.

    Working Capital can be;

    • Positive
    • Zero, or
    • Negative

    Positive or negative working capital follows a simple rule of math. If current assets are more than current liabilities, working capital is positive and if current assets are less than current liabilities, working capital is negative. When current assets are equal to current liabilities, working capital is zero.

    Negative working capital for a short period means that the company has made a big payment to its vendors, or a significant increase in the creditor’s account because of credit purchases.

    However, if working capital is negative for a longer period it indicates that the company is struggling with its operating requirements or that it has to finance its daily operations through long-term borrowings.

    The current ratio for a company is calculated as: 

    Current Assets divided by Current Liabilities.

    Working Capital and Current Ratio are interrelated. If the Current Ratio is more than 1, it means current assets exceed current liabilities and Working Capital is positive. However, if the Current Ratio is less than 1, it means current liabilities exceed current assets and Working Capital is negative.

    For example-

    If Current Assets are Rs 50,000 and Current Liabilities are Rs 70,000 then

    Working Capital= Current Assets – Current Liabilities

    WC           =        Rs 70,000   –     Rs 50,000

    WC           =                   Rs. 20,000

    Current Ratio = Current Assets / Current Liabilities

    CR        =         Rs.50,000/ Rs. 70,000

    CR        =                           0.71< 1

     

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Aadil
AadilCurious
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  2. Radhika
    This answer was edited.

    A Capital Account is an account that shows the owner's equity in the firm and a Partner's Capital Account is an account that shows the partner's equity in a partnership firm. Partner’s Capital Account includes transactions between the partners and the firm. Examples of such transactions are: CapitalRead more

    A Capital Account is an account that shows the owner’s equity in the firm and a Partner’s Capital Account is an account that shows the partner’s equity in a partnership firm.

    Partner’s Capital Account includes transactions between the partners and the firm. Examples of such transactions are:

    • Capital introduced in the firm
    • Capital withdrawn
    • Interest on Capital
    • Interest on Drawings
    • Profit or loss in the financial year, etc.

    When partners are given interest on their capital contribution in the firm, it is called on Interest on Capital.

    In case the partnership firm does not have a Partnership Deed, the Partnership Act does not include a provision for Interest on Capital. However, if the partners want they can mutually decide the rate of Interest on Capital.

    Interest on Capital is calculated on the opening capital of the partners and is only allowed when the firm makes a profit, that is, in case a firm incurs losses, it cannot allow Interest on Capital to its partners.

    Example:

    In a partnership firm, there are two partners A and B, and their capital contribution is Rs 10,000 and 20,000 respectively. Interest on capital is @ 10% p.a. The Interest on Capital for both the partners is:

    Partner A- 10,000 * 10/100 = 1,000

    Partner B- 20,000 * 10/100 = 2,000

    The journal entry for Interest on Capital is an adjusting entry and is shown as:

    Interest on Capital A/c                                                          Dr. 3,000
                                         To A’s Capital a/c 1,000
                                         To B’s Capital A/c 2,000
    • Partner’s Capital Account is credited because it is credit in nature and interest on capital is an addition to the account.
    • Interest on Capital Account is debited because it is an expense account.

     

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A_Team
A_Team
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  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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A_Team
A_Team
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  2. GautamSaxena Curious .
    This answer was edited.

    There are three types of businesses that can be commenced, they are sole proprietorship, partnership, and joint-stock company. As we all know, to start any business a certain sum of money has to be invested by the owner which is known as the capital of the business in terms of accounting. In companiRead more

    There are three types of businesses that can be commenced, they are sole proprietorship, partnership, and joint-stock company. As we all know, to start any business a certain sum of money has to be invested by the owner which is known as the capital of the business in terms of accounting.

    In companies, commencement is a declaration issued by the company’s directors with the registrar stating that the subscribers of the company have paid the amount agreed. In a sole proprietorship, the business can be commenced with the introduction of any asset such as cash, stock, furniture, etc.

    Journal entry

    In the journal entry, “Started business with Cash”

    As per the golden rules of accounting, the cash a/c is debited because we bring in cash to the business, and as the rule says “debit what comes in, credit what goes out.” Whereas the capital a/c is credited because “debit all expenses and losses, credit all incomes and gains”

    As per modern rules of accounting, cash a/c is debited as cash is a current asset, and assets are debited when they increase. Whereas, on the increment on liabilities, they are credited, therefore, capital a/c is credited.

    Therefore, the entry we’ll be passing is-

     

     

     

     

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Anushka Lalwani
Anushka Lalwani
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A. Cash Book B. Statement C. Journal D. None of These

  2. Akash Kumar AK
    This answer was edited.

    The correct option is A) Cash book let's understand what is petty cash book: A petty cash book is a cash book maintained to record petty expenses. Petty expenses, mean small or minute expenses for which the payment is made in coins or a few notes or which are smaller denominations like tea or coffeeRead more

    The correct option is A) Cash book

    let’s understand what is petty cash book:

    • A petty cash book is a cash book maintained to record petty expenses.
    • Petty expenses, mean small or minute expenses for which the payment is made in coins or a few notes or which are smaller denominations like tea or coffee expenses, postage, bus or taxi fare, stationery expenses, etc.
    • The person who maintains the petty cash book is known as the petty cashier.
    • It is a simple process that helps organizations by focusing on major transactions as petty cashiers handle all small transactions.

     

    Generally, the petty cashbook is prepared as per the Imprest system. As per the Imprest system, the petty expenses for a period (month or week) are estimated and a fixed amount is given to the petty cashier to spend for that period.

    At the end of the period, the petty cashier sends the details to the chief cashier and he is reimbursed the amount spent. In this way, the debit balance of the petty cashbook always remains the same.

     

    The petty cash book has two columns in which

    • Cash received is recorded in the Left column i.e, “Receipts” or “Debit” column.
    • Cash payments are recorded in the Right column i.e, “Payment” or “Credit” column.

     

    Balance of Petty cash book

    The balance of petty cash book is never closed and their balances are carried forward to the next accounting period which is considered one of the most significant qualities of an asset whereas Income doesn’t have any opening balance and their balances get closed at the end of every accounting year.

    A petty cash book is placed under the head current asset in the balance sheet. The Closing Balance of the petty cash book is computed by deducting Total expenditure from the Total cash receipt (as received from the head cashier).

     

    Format for petty cash book

    Only small denominations are recorded in the petty cash book. It varies with the type, quantity, and need of a business. It involves cash and checks.

     

    • Ordinary Petty cash book:

     

    • Analytical Petty cash book:

     

    Conclusion

    A simple petty cash book is a type of cash book because it records the small expenses which involve small transactions in the ordinary daily business.

    A petty cash book is not as important as an income statement, balance sheet, or trail balance it doesn’t measure the accuracy of accounts so it is not treated as a statement.

    No journal entries are made in the books of accounts while spending or purchasing using a petty cash book so, it is not treated as a journal.

     

     

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Bonnie
BonnieCurious
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Net credit sales can be defined as the total sales made by a business on credit over a given period of time less the sales returns and allowances and discounts such as trade discounts. Net Credit Sales = Gross Credit Sales – Returns – Discounts – Allowances. Credit sales can be calculated from the ARead more

    Net credit sales can be defined as the total sales made by a business on credit over a given period of time less the sales returns and allowances and discounts such as trade discounts.

    Net Credit Sales = Gross Credit Sales – Returns – Discounts – Allowances.

    Credit sales can be calculated from the Accounts receivable/ Bills Receivable/ Debtors figure in the Balance Sheet. It will be normally shown under the Current Assets head in the Balance Sheet.

    Credit sales = Closing debtors + Receipts – Opening debtors.

    Alternatively, you may observe the bills receivable ledger account to locate the figure of credit sales.

     

    Net Credit Sales and related terms

    Before we try to understand the concept of net credit sales with an example, let us discuss the term sales return. Sales return means the goods returned by the customer to the seller. It may be due to defects or any other reasons.

    Now let us take an example. John is a retail businessman. He sells smartphones. He buys 100 smartphones from Vivo on credit. The smartphones are worth ₹1.5 lahks. He then returns smartphones worth 20,000 rupees to Vivo. He also gets an allowance of rupees 5,000 from Vivo.

    In the above example, the credit sales of Vivo are of rupees 1.5 lakh. The net credit sales is of

    1.5 lakh – 20,000 – 5, 000 = 1.25 lakh rupees.

    Importance of Net Credit Sales

    • Net Credit Sales figure together with the accounts receivable figure acts as an indicator of the credit policy of the company.
    • It offers insights into the ability of the company to meet short-term cash obligations.
    • The credit policy also affects the total current assets that the company has in the manifestation of Accounts Receivable

    Advantages and Disadvantages of Credit Sales.

    Advantages 

    • Increased Sales – The credit Policy facilitates increased sales for the company. The company can attract more customers with a liberal credit policy. For example, Apple got more customers when it started to sell its products on an EMI basis.
    • Customer Loyalty / Retention- Regular customers can be retained and made to feel honored by offering them more liberal credit terms.

    Disadvantages 

    • Delay in Cash Collection – Credit Sales imply that the company would get cash on a delayed basis. This money could have otherwise been put to use for some other profitable venture or could have borne interest for the company
    • Collection Expenses– The company had to incur additional expenditures for collecting money from debtors.
    • Risk of Bad Debts – With credit sales, there is always the risk that the buyer may become bankrupt and may not be able to pay the money due to the seller.
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