AccountingQA Latest Questions

Jayesh Gupta
Jayesh GuptaCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    20 Journal Entries Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries. Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is creditedRead more

    20 Journal Entries

    Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries.

    Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is credited.

    In the case of compound journal entries, one set of accounts is debited and one set of accounts is credited.

    The amount of debit and credit always remains the same.

    For example, when cash is introduced into a business, it affects two accounts: Cash A/c and Capital A/c. The accounts are debited and. credited as per the golden rules of accounting.

    The journal entries which I have provided are based on the following transactions and events:

    1. The business started with Rs. 1,00,000 
    2. Bought machinery for Rs. 15,000 and furniture for Rs. 10,000
    3. Purchased goods of Rs. 20,000 with cash 
    4. Bought Stationery for Rs. 500 
    5. Cash deposited into bank Rs. 40,000 
    6. Goods sold to Matt for Rs. 15,000 
    7. Purchased goods from Uday of Rs. 30,000 
    8. Being Rs. 5,000 rent paid for premises 
    9. Cheque received from Matt of Rs. 15,000 
    10. Defective goods returned to Uday returned of Rs. 2,000 
    11. Cash sales of Rs. 25,000 
    12. Carriage Inward paid Rs. 700
    13. Cash withdrawn from bank Rs. 15,000 
    14. Full payment made to Uday in cash. Discount received from Uday Rs. 1000.
    15. Refreshments given to customers of Rs. 200
    16. Goods sold to Shyam for Rs. 7,500 
    17. Goods purchased from Ram of Rs. 50,000 
    18. Salaries paid to employees by bank Rs. 5,000 
    19. Good sold to Suri for Rs. 25,000 
    20. Insurance premium paid of Rs. 1,500 by the bank.

    Journal Entries

    The journal entries based on the above are as follows:

     

    Ledgers

    Ledger is known as the book of final entry. It is the book where the transactions related to a specific account are posted. This posting of transactions is done from journal entries.

    The posting of journal entries into the ledger is performed in the following way:

    The journal entry of cash sales is :

    Cash A/c                                                           Dr.            Amt
          To Sales A/c            Amt

    Here, Cash A/c is debited to Sales A/c. So, in the Cash A/c ledger, posting will be made on the debit side as “To Sales A/c”

    In the Sales A/c ledger, the posting will be made on the credit as “By Cash A/c” because Sales A/c is credited to Cash A/c

    For creating ledgers, journal entries are a prerequisite.

    Now, the ledgers to be created as per the journal entries made above are as follows:

    1. Cash A/c
    2. Bank A/c
    3. Capital A/c
    4. Furniture A/c
    5. Machinery A/c
    6. Purchase a/c
    7. Sales A/c
    8. Matt A/c (Debtor)
    9. Uday A/c (Creditor)
    10. Rent A/c
    11. Purchase Return A/c
    12. Stationery A/c
    13. Carriage Inward A/c
    14. Refreshment A/c
    15. Shyam A/c (Debtor)
    16. Ram A/c (Creditor)
    17. Suri A/c (Debtor)
    18. Refreshment A/c
    19. Discount Received A/c

    The account ledgers are as follows:

    Trial Balance

    A trial balance is a statement that is prepared to check the arithmetical accuracy of books of accounts.

    In this statement, the total of all accounts having debit balance and the total of all accounts having credit balance is computed. If the total of debit and credit matches, then it can be said that the books of accounts are arithmetically accurate.

    Here also we have prepared the trial balance by computing the total of accounts  having debit balances and the total of  accounts having credit balances

    The debit column total and credit column total are matching. Hence, we can say that the books of accounts we have prepared are arithmetically accurate.

    Note: Matt A/c and Uday A/c have not appeared in the trial balance because they do not have any carrying balance.

     

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Astha
AsthaLeader
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  2. GautamSaxena Curious .
    This answer was edited.

    Current Assets & Examples Current Assets are those assets that are bought by the company for a short duration and are expected to be converted into cash, consumed, or written off within one accounting year. They are also called short-term assets. These short-term assets are typically called currRead more

    Current Assets & Examples

    Current Assets are those assets that are bought by the company for a short duration and are expected to be converted into cash, consumed, or written off within one accounting year. They are also called short-term assets.

    These short-term assets are typically called current assets by the accountants and have no long-term future in the business. Current assets may be held by a company for a duration of a complete accounting year, 12 months, or maybe less. A major reason for the conversion of current assets into cash within a very short amount of time is to pay off the current liabilities.

    Examples

    Some of the major examples of current assets are – cash in hand, cash at the bank, bills receivables, sundry debtors, prepaid expenses, stock or inventory, other liquid assets, etc.

    • All of these assets are converted into cash within one accounting year.
    • Liquid assets are a part of current assets. Although they are easier to be converted into cash than current assets.
    • Current assets (along with current liabilities) help in the calculation of the current ratio. And they’re also referred to as circulating/floating assets.
    • Current assets are shown on the balance sheet (on the asset side) under the heading, current assets.

    Current assets on the balance sheet

    Balance Sheet (for the year…)

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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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Simerpreet
SimerpreetHelpful
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

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

    Definition

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

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

    What does trial balance include?

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

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

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

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

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

    Importance

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

    The purpose of the trial balance is as follows:

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

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

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

    Structure of trial balance

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Aditi
Aditi
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  2. Mehak

    Assets can be classified as Financial or Non-financial assets. One might wonder why this is necessary.  Let us dive into this concept, beginning with understanding what are financial and non-financial assets and why are they classified as such. What are Assets? Assets are things that have a monetaryRead more

    Assets can be classified as Financial or Non-financial assets. One might wonder why this is necessary.  Let us dive into this concept, beginning with understanding what are financial and non-financial assets and why are they classified as such.

    What are Assets?

    Assets are things that have a monetary value and are beneficial for a business. Assets are commonly classified as tangible, intangible, current, fixed, financial, non-financial, etc.

    Plant and machinery, land, buildings, cash, bank balance, patents, etc are some of the examples of assets that a business has.

    What are Financial Assets?

     

     

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Vijay
VijayCurious
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Companies Act
  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use.  It is also called economic lRead more

    Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use.  It is also called economic life or service life

    It is a useful concept in accounting as it is used to work out depreciation. By knowing this useful life of an asset an entity can easily analyze how to allot the initial cost of an asset across the relevant accounting period rather than doing it unfairly manner.

    How do we calculate the useful life of an asset?

    The useful life of an asset is not an accounting policy, but an accounting estimate. calculating useful life is not an exact phenomenon but an estimate that is done because it directly impacts how much an asset is to expense every year.

    Factors affecting “how long an asset is expected to be useful” depends on some stated points as below:

    1. Usage, the more the assets are used, the more quickly it will deteriorate.
    2. Whether the asset is new at the time of purchase or reused model.
    3. Change in technology.

    As per the companies act 2013, some of the useful life of assets are stated below

    To know more about the different categories of assets you can follow the given link useful life of assets.

    POINT TO BE NOTED:- There lies a huge difference in the useful life v/s the physical life of an asset. It is very important to note that amount of time an asset is used in a business is not always be same as an asset’s entire life span.

     

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Bonnie
BonnieCurious
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Receipts Amount Payments Amount To Balance b/d 32,500 By Salaries 31,500 To Subscription By Postage 1,250 2016-17            1,500 By Rent 9,000 2017-18          60,000 By Printing and 2018-19            1,800 63,300 Stationery 14,000 To Donations (Billiards Table) 90,000 By Sports Material 11,500 By Miscellaneous Expenses 3,100 To Entrance Fees 1,100 By Furniture (1.10.2017) 20,000 To Sale of old magazines 450 By 10% investment (1.10.2017) 70,000 By Balance ...

  2. Manvi Pursuing ACCA
    This answer was edited.

    In the books of Youth Ltd. Income & Expenditure A/c for the year ended 31 March 2018 Expenditure Amt (₹) Income Amt (₹) To Salaries 31,500 By Subscription (W.N.1) 75,000 To Postage 1,250 By Entrance fees 1,100 To Rent 9,000 By Sale of old magazines 450 To Printing and Stationery 14,000 By IntereRead more

    In the books of Youth Ltd.

    Income & Expenditure A/c for the year ended 31 March 2018

    Expenditure Amt (₹) Income Amt (₹)
    To Salaries 31,500 By Subscription (W.N.1) 75,000
    To Postage 1,250 By Entrance fees 1,100
    To Rent 9,000 By Sale of old magazines 450
    To Printing and Stationery 14,000 By Interest on investment (W.N.3) 3,500
    To Sports material consumed (W.N.2) 10,000
    To Miscellaneous expenses 3,100
    To Depreciation on furniture (W.N.4) 1,000
    To Surplus 10,200
    80,050 80,050

     

    Working Notes:

    1. Calculation of Subscription:
    Subscription for the year 60,000
    Add: Outstanding subscription 16,200
    Less: Subscription in arrears (1,200)
    75,000
    2. Calculation of sports material consumed:
    Opening stock of Sports Material 3,000
    Add: Purchased during the year 11,500
    Less: Closing stock of Sports material (4,500)
    10,000
    3. Calculation of Interest on investment:
    Investment as on 1.10.2017 = 70,000
    The investment will be calculated for 6 months i.e starting from 1.10.2017 to 31.3.2018
    For 6 months = 70,000 * 10% * 6/12
    = 3,500
    4. Calculation of Depreciation on furniture:
    Furniture as on 1.10.2017 = 20,000
    Depreciation on the furniture will be calculated for 6 months i.e starting from 1.10.2017 to 31.3.2018
    For 6 months = 20,000 * 10% * 6/12
    = 1,000

     

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