AccountingQA Latest Questions

Karan
Karan
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    The debts that have a higher chance of not being paid are called doubtful debts. They are a part of the regular dealing of the company and may arise due to disputes or treachery on the part of debtors. Bad debts refer to the doubtful debts that no longer seem to be recoverable from the business. WriRead more

    The debts that have a higher chance of not being paid are called doubtful debts. They are a part of the regular dealing of the company and may arise due to disputes or treachery on the part of debtors.

    Bad debts refer to the doubtful debts that no longer seem to be recoverable from the business.

    Written off means an expense, income, asset, liability is no more recorded in the books of accounts because they no longer hold relevance for the business.

    When doubtful debts turn into bad debt, they are written off from the books after a stipulated time as they no longer seem recoverable.

    If any cash is received against such bad debts that were written off, it is known as cash received against bad debts written off. Cash is received against bad debts usually when the debtor is declared insolvent and money is recovered from its estate.

    Bad debts recovered are considered an income for the company as they were previously written off as a loss and any cash received against it is considered as income.

    Journal entry for such situation is:

    Cash or Bank A/c (Dr.)

    To Bad Debts Recovered A/c

    We debit the increase in assets, and since cash is coming into the business it is debited.

    We credit the income, and since bad debts recovered is an income to the business it is credited.

     

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Aadil
AadilCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant

    A contra account is a general ledger account that is used to reduce the value of the account related to it. Basically, a contra account is the opposite of its associated account. If the associated account has a debit balance, then the contra account would have a credit balance. They are used to mainRead more

    A contra account is a general ledger account that is used to reduce the value of the account related to it. Basically, a contra account is the opposite of its associated account. If the associated account has a debit balance, then the contra account would have a credit balance. They are used to maintain the historical value of the main account while all the deductions are recorded in the contra account, which when clubbed together show the net book value.

    For example

    if the cost of machinery was Rs. 50,000 and the company wants to preserve its original cost, then the accumulated depreciation of such machinery is recorded separately. Let’s say Rs 10,000 was the accumulated depreciation. Then such amount is recorded in the contra account named accumulated depreciation account. This makes the net value of the machinery Rs 40,000.

    Types

    There are various types of contra accounts such as contra asset, contra equity, contra revenue, and contra liability.

    • Contra asset: these accounts have credit balances and are used to reduce the balance of an asset. Eg, Accumulated depreciation.
    • Contra Liability: These accounts have debit balances and are used to reduce the balance of liabilities. Eg, discount on notes.
    • Contra equity: These accounts have a credit balance and are used to reduce the number of shares outstanding which in turn reduces equity. Eg treasury stock.
    • Contra revenue: These accounts have a debit balance. They reduce gross revenue which results in net revenue. Eg sales return.

    Accountants make use of contra accounts instead of reducing the value of the actual account to keep the financial statements clean.

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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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Anushka Lalwani
Anushka Lalwani
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Changing a Ledger name in Tally is an easy process. The requirement of changing the name of a ledger may arise in three situations: Situation 1: When we need to change a ledger's name, right after its creation while being in the ledger creation menu Situation 2: When we realize the need to change aRead more

    Changing a Ledger name in Tally is an easy process. The requirement of changing the name of a ledger may arise in three situations:

    • Situation 1: When we need to change a ledger’s name, right after its creation while being in the ledger creation menu
    • Situation 2: When we realize the need to change a ledger’s name during passing an entry in any voucher.
    • Situation 3: Other situations where we are not on the Voucher Creation window or ledger creation window.

     

    In Tally, there are plenty of shortcut keys that can ease the way we work on it. My methods will be based on such shortcuts on Tally ERP 9.0.

    Situation 1

     Often just after ledger creation, we realize that we have made mistake in entering the name of the ledger.

     Many opt to choose this long path to alter the ledger’s name.

    Exiting Voucher creation menu → Gateway of Tally menu → Accounts Info → Ledger option → Alter option → Select the ledger → Ledger alteration window opens.

    Instead of it, you can choose to use Page Up key while on the ledger creation window. Press the Page-up key till you reach that ledger. Then you can edit its name or any other details.

    Pressing the page up key automatically opens the ledger alteration mode and lets the user scroll through the ledgers available.

    The ledger alteration window looks like this:

    Situation 2

     Sometimes, while performing entries into vouchers, we feel the need to alter a ledger’s name.

    This can be done by pressing Ctrl + Enter key with the cursor on the ledger’s name in the voucher creation menu.

    On pressing Ctrl + Enter Key, the ledger alteration window will open, from where the user can alter the ledger name or any other details.

    Situation 3

    When the user is not either on the voucher creation menu or on the ledger creation menu, then the ledger’s name has to be altered by going through the following steps:

    Gateway of Tally menu → Accounts Info → Ledger option → Alter option → Select the required ledger → ledger alteration window opens.

    That’s it. These are different approaches to changing a ledger’s name.

    One thing that is common among all approaches is the opening of the Ledger alteration window at the end. Hence, it is only through the Ledger alteration window we can change a ledger’s details including its name.

     

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Anushka Lalwani
Anushka Lalwani
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  2. Akash Kumar AK
    This answer was edited.

    Depreciation is an accounting process of allocating the value of an asset over its estimated useful life. When a company purchases an asset, depreciation will be calculated at the end of every financial year on the asset. The company records the amount of depreciation in a separate ledger, i.e., AccRead more

    Depreciation is an accounting process of allocating the value of an asset over its estimated useful life.

    When a company purchases an asset, depreciation will be calculated at the end of every financial year on the asset. The company records the amount of depreciation in a separate ledger, i.e., Accumulated Depreciation. This expense will be debited instead of depreciation in the Asset ledger.

     

    Accumulated Depreciation

    Accumulated depreciation is the accumulated reduction in the cost of an asset over time.

    Depreciation is the reduction in the value of an asset over a specific timeframe, whereas accumulated depreciation is the sum of total depreciation on an asset since we bought it.

    we will understand this concept with a simple example.

    suppose machinery depreciates as follows

    Year 1 – Depreciation is 5,000

    Year 2 – Depreciation is 5,000

    Year 3 – Depreciation is 5,000

    Accumulated Depreciation in Year 3 = 5,000 + 5,000 + 5,000

    Therefore, overall 3 years of depreciation are accumulated at the last year-end.

     

    Journal entry for accumulated depreciation

    Example: Excellence Co. has purchased a new motor vehicle which costs $8,000 for their cab business. The motor vehicle is depreciated at @20% per annum. At the end of the year, Excellence Co. will record this accumulated depreciation journal entry.

    Year 1

    Depreciation A/c Dr. – $1600

    To Accumulated depreciation A/c – $1600

    Year 2

    Depreciation A/c Dr. – $1600

    To Accumulated Depreciation A/c – $1600

    Therefore, the Accumulated depreciation for the 2nd year end is $3200.

    At the time of the sale of the motor vehicle, the amount of accumulated depreciation will be reduced from the total value of the asset.

     

    Provision for depreciation

    Provision for depreciation is very similar to accumulated depreciation. Instead of reducing the amount of depreciation from the value of an asset, a separate provision A/C will be created, and the depreciation amount will be credited to the provision account, i.e., Provision for Depreciation account every year, and the asset will be shown the same value without reducing the depreciation from it.

     

    Journal entry for provision for depreciation

    Example: Yesman Co. purchased Machinery worth $40000 at the beginning of the current year for their production. The machinery will be depreciated at @10% per annum. At the end of the year, Yesman Co. will record this provision for depreciation journal entry.

    Year 1

    Depreciation A/c Dr. – $4000

    To Provision for Depreciation A/c – $4,000

    Year 2

    Depreciation A/c Dr. – $4000

    To Provision for Depreciation A/c –  $4000

    Therefore, the Provision for depreciation balance will be $8000 at the 2nd year-end.

    At the time of sale of the machinery, the amount of provision for depreciation created till the date will be reduced from the asset’s value.

     

    Conclusion

     

     

    Provision for depreciation and accumulated depreciation refers to the amount of depreciation accumulated over the useful life of an asset.

    The terms accumulated depreciation and provision for depreciation are different in hearing, but these are similar from the financial perspective.

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A_Team
A_Team
In: >

Goodwill Patents Preliminary Expense A/c Claims Receivable

  2. Karishma
    This answer was edited.

    Fictitious assets are expenses or losses not written off entirely in the profit and loss account during the accounting year in which they occur. Fictitious assets have no realizable value or physical existence. In the above, (C) preliminary expense is a fictitious asset. Preliminary expenses are theRead more

    Fictitious assets are expenses or losses not written off entirely in the profit and loss account during the accounting year in which they occur. Fictitious assets have no realizable value or physical existence.

    In the above, (C) preliminary expense is a fictitious asset. Preliminary expenses are the expenses incurred before the incorporation of a business. The word ‘fictitious’ means fake, these are not actually the assets of a company even though they are represented in the assets of the balance sheet.

    Since the benefit of a fictitious asset is received over a period of time, the whole amount is not charged to the profit and loss account. The amount is amortized over several years. These expenses are non-recurring in nature. These expenses are shown as assets under the head miscellaneous expenditure. Also known as deferred revenue expenditure.

     

    For example: A company incurred $50,000 as promotion costs before the formation of the business. This promotion cost will be deferred over 5 years. In the first year, $10,000 will be charged to the profit and loss account and the remaining $40,000 will be shown as an asset under the heading miscellaneous expenditure. Subsequently, $10000 will be charged to profit and loss for the next 4 years. The amount of $50,000 will be deferred over a span of 5 years.

    Some other examples of fictitious assets :

    • Promotional expenses: Expenses incurred for the promotion of business before the formation of the company such as advertising expenditures are amortized over many years.
    • Loss on the issue of shares or debentures: When a company issues shares or debentures at a discount, the discount is classified as a fictitious asset and is not treated as an expense or loss. It is amortized over several years.
    • Incorporation costs: Costs incurred during the formation of a business are incorporation costs. These include registration costs, licensing fees, legal fees and other costs incurred in setting up the business. These are fictitious assets and are amortized over several years.
    • Loss on Sale of Machinery: When a loss is incurred on the sale of machinery or equipment, that loss is also treated as a fictitious asset and is amortized over several years.

     

    Goodwill

    Goodwill is not a fictitious asset because goodwill has a realizable value and can be sold in the market. Goodwill is an intangible asset which does not have a physical existence but can be traded for monetary value. Goodwill has an indefinite life and is sold when the business is sold. Goodwill can be self-generated or purchased. Goodwill is shown as an intangible asset under the heading fixed asset in the financial statements.

     

    Patents

    Patents are intangible assets which do not have a physical existence but have realizable value and can be sold in the market. So, patents do not come under the category of fictitious assets. Patents are basically intellectual property. The purchase price of the patent is the initial purchase cost which is amortized over the useful life of the asset. Patents are shown as intangible assets under the heading fixed asset in the balance sheet of the company.

     

    Claim receivable

    Claim receivable is an asset if the claim has been authorized by the insurance company. Claim receivable has a monetary value, so does not come under the category of a fictitious asset. If the claim is not yet authorized by an insurance company, it will be shown as a footnote in the financial statements. Authorized claim receivable is shown as a current asset in the financial statement.

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