AccountingQA Latest Questions

Simerpreet
SimerpreetHelpful
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  2. Vijay Curious M.Com
    This answer was edited.

    Sometimes a business may earn an income by delivering the goods/services within the stipulated time. But the business may not have issued an invoice to the customer. Such a scenario is what is called unbilled revenue. Note that as per the accrual concept of accounting, sales are recognized on the daRead more

    Sometimes a business may earn an income by delivering the goods/services within the stipulated time. But the business may not have issued an invoice to the customer. Such a scenario is what is called unbilled revenue.

    Note that as per the accrual concept of accounting, sales are recognized on the day it was made, irrespective of whether the business receives cash or not.

    The business records unbilled revenue by passing the following journal entry:

    Unbilled Revenue is treated as an asset because it is yet to be fully recognized as an income. Therefore it is debited. Revenue A/c is credited as there is an increase in income.

    Once the bill/invoice has been issued to the customer, the following entry is passed to close the Unbilled Revenue A/c.

    Let me explain this concept with an example,

    Luca Traders, a business dealing in stationery and office supplies receives an order on August 5th for 1,000 pens worth 10 each. On August 8th they deliver the pens but they are yet to issue an invoice to the customer. They issue the invoice only on August 13th.

    So the sales revenue of 10,000 (1,000*10) will be treated as an unbilled revenue for the period of August 8th – August 12th. On August 8th the following entry is made to record unbilled revenue.

    Unbilled Revenue A/c  10,000
       To Revenue A/c  10,000
    (Being entry for recording unbilled revenue worth 10,000)

    When the invoice is sent to the customer on August 13th, the following journal entry is posted to close the unbilled revenue A/c.

    Bills Receivable A/c  10,000
       To Unbilled Revenue A/c  10,000
    (Being invoice issued against unbilled revenue)
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Jayesh Gupta
Jayesh GuptaCurious
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  2. Ayushi Curious Pursuing CA

    External liabilities are the amounts which a business is obliged to pay to the outsiders (who are not owners of the business). Here is the list of external liabilities:- Accounts payable ( trade creditors and bills payables) Loan taken from outsiders Loan from bank Debentures Public deposits accepteRead more

    External liabilities are the amounts which a business is obliged to pay to the outsiders (who are not owners of the business).

    Here is the list of external liabilities:-

    1. Accounts payable ( trade creditors and bills payables)
    2. Loan taken from outsiders
    • Loan from bank
    • Debentures
    • Public deposits accepted
    1. Outstanding expenses
    • Outstanding salary
    • Outstanding rent
    • Outstanding tax
    1. Interest due on loans taken from outsiders

    The list is not exhaustive.

    Just for more understanding, internal liabilities are those liabilities which a business is supposed to pay back to its owners.  Such as capital balance, profit surplus etc.

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Nistha
Nistha
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Journal Entry
  2. Radhika
    This answer was edited.

    When a company earns profit, it distributes a proportion of its income to its shareholders, and such distribution is called the dividend. The dividend is allocated as a fixed amount per share and shareholders receive dividends proportional to their shareholdings. However, a company can only pay diviRead more

    When a company earns profit, it distributes a proportion of its income to its shareholders, and such distribution is called the dividend. The dividend is allocated as a fixed amount per share and shareholders receive dividends proportional to their shareholdings.

    However, a company can only pay dividends out of its current year profits or retained earnings (profits of the company that are not distributed as dividend and retained in the business is called retained earnings) of previous years but not out of capital.

    Dividends can be paid to shareholders in the form of

    • Cash
    • dividend re-investing plan of the company
    • future shares
    • share repurchase.

    For companies, payment of regular dividends boosts the morale of the shareholders, investors trust the companies more and it reflects positively on the share price of the company.

    For example, Nestle in India paid an interim dividend of 1100.00% to its shareholders in 2021.

    The journal entry for dividend paid is

    Particulars Debit Credit
    Retained Earnings A/c                                                          Dr. Amt  
    To Cash A/c   Amt

     

    According to the golden rules of accounting-

    • Retained earnings is a credit account by nature and since dividends are paid from retained earnings resulting in a deduction of the account, we debit
    • Cash is credited because the account is debit in nature and since dividends are paid in cash it’s credited to present the deduction in the account.

    According to modern rules of accounting-

    • Since cash is decreasing, we credit
    • Since retained earnings are decreasing and it is a part of capital it should be

    For example-

    A company paid a dividend of 25 crores to its shareholders in cash, the journal entry according to golden rules will be-

    Particulars Debit

    (in crores)

    		 Credit

    (in crores)
    Retained Earnings A/c  (Dr.) 25  
    To Cash A/c   25

     

     

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Rahul_Jose
Rahul_Jose
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  2. Pooja_Parikh Aspiring Chartered Accountant

    Statutory Liquidity ratio is the minimum percentage of reserves of liquid assets that the commercial bank should maintain. These liquid assets are in the form of gold, cash, and other securities. These reserves are kept with the bank itself and not with the Reserve Bank of India. The bank holds variRead more

    Statutory Liquidity ratio is the minimum percentage of reserves of liquid assets that the commercial bank should maintain. These liquid assets are in the form of gold, cash, and other securities. These reserves are kept with the bank itself and not with the Reserve Bank of India.

    The bank holds various demand and time deposits of the public, the total of which is called Net Demand and Time Liabilities (NDTL). This includes demand deposits that have to be paid on demand. Various other deposits like time deposits, fixed deposits, demand drafts, etc. are also included.

    Every bank must keep a portion of its NDTL in the form of cash, gold, or other liquid assets. Therefore, the Statutory Liquidity Ratio is the ratio of these liquid assets to the total demand and time liabilities. The authority to determine the ratio lies with the RBI, who can increase it to the extent of 40%.

    FORMULA

    PURPOSE OF SLR

    RBI controls the flow of cash in the economy by means of monetary policy measures through financial instruments like Statutory Liquidity Ratio. At the time of inflation, RBI increases SLR to reduce the flow of cash whereas, at the time of deflation, they reduce SLR to increase the flow of cash. Maintaining SLR also helps ensure the solvency of the commercial banks.

    If the banks do not maintain the necessary level of SLR, they would be liable to pay a penalty to RBI at 3% per annum above the bank rate, on the shortfall amount of that day.

     

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Simerpreet
SimerpreetHelpful
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Introduction Ind AS 110 stands for Indian Accounting Standard 110. It deals with principles of preparation and presentation of consolidated financial statements when an entity controls one or more other entities. It is often seen that an entity owns and controls one or more entities. Like a parent cRead more

    Introduction

    Ind AS 110 stands for Indian Accounting Standard 110. It deals with principles of preparation and presentation of consolidated financial statements when an entity controls one or more other entities.

    It is often seen that an entity owns and controls one or more entities. Like a parent company have many subsidiaries. For example, Alphabet is the parent company of Google. The parent and its subsidiaries prepare their financial statements separately to present to the true and fair view of their business.

    Consolidated financial statements are the financial statements of the whole group i.e. taking the parent and its subsidiaries together. It reports the assets, liabilities, equity, income and expenses of the whole group as a single economic entity.

    It helps the stakeholders to know the overall performance and positions of assets and liabilities of the whole group.

    When to prepare Consolidated Financial Statements(CFS)

    The requirement for the preparation of CFS depends on the control model provided by Ind AS 110. As per this model, an investor controls an investee when:

    • the investor is exposed to or has rights to, variable returns from its involvement with the investee and
    • it has the ability to affect those returns through its power over the investee.

    If both the conditions are fulfilled, then it can be said that the investor controls the investee and the investor has to prepare the consolidated financial statements with its investee. Every type of investor-investee relationship is judged as per Ind AS 110.

    Exposure or right to variable returns

    Variable returns mean no fixed returns and can vary as per the performance of the investee. Such returns can be both positive and negative.  These returns include not only return on investment but also the benefits or expenses to which the investor is entitled to or has to bear respectively. Such returns are:

    1. Dividends
    2. Changes in the value of the investee.
    3. Fee for servicing investee’s assets and liabilities
    4. Tax benefits
    5. Access to proprietary knowledge
    6. Sourcing scare products
    7. Goodwill generation

    It is not required by Ind AS 110 for an investor to be exposed or have the right to all such variable returns, but there should be significant exposure or right.

    Power to affect the variable returns from investee

    An investor has power over an investee if it has existing rights that give it direct ability to affect the relevant activities of the investee

    An investor generally has many rights over the investee. These rights are of two types:

    1. Protective Rights: These are the rights to protect the self-interest of the investor from any risk arising from investment in the investee. Such right only protects the investor but it does not give him power over the investee. Hence, with protective rights, an investor cannot control the investee.
    2. Substantive Rights: These are rights with which an investor can have power over the investee. Such rights are generally the voting rights that are derived from the holding equity shares. Also having potential voting rights which are significant enough to control the investee qualify as substantive rights.

    However, the investor may other substantive rights like power to appoint or remove the board of directors etc.

    These rights should not only exist with investors but the investor should also have the ability to exercise such rights.

    Scope of Ind AS 110

    The investee can be any type of entity, the structure of the investee does not matter whether it is a partnership firm, LLP, company or any Special Purpose Entity (SPE).

    If any investor control one or more other entities it will be called parent entity and it will present the consolidated financial statements.

    Exemptions

    If any parent entity fulfils any of these conditions, then the presentation of consolidated financial statements is not necessary:

    • It is an investment entity.
    • Its debt or equity securities are not listed on any recognized stock exchange or any other public market.
    • It is a wholly-owned or partially owned subsidiary of another entity and all of its owners have been informed about and do not have any objections to the parent not preparing the consolidated financial statements.
    • Its ultimate or any intermediate parent entity has prepared consolidated financial statements for the whole group.
    • It did not file or is in process of filing its financial statement with the concerned securities commission or any other regulatory body for issuing its securities in the public market.
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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning of lease A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments. There are two parties in a lease agreRead more

    Meaning of lease

    A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments.

    There are two parties in a lease agreement:

    • Lessor: The party who gives the right to use its asset in return for a series of payments or a single payment.
    • Lessee: The party who receives the right to use the asset from the Lessor.

    This is similar to a rent agreement or contract. The only difference between lease and rent is duration. A rent agreement is generally for less than 12 months while a lease agreement is for more than 12 months like 5 years or 10 years, sometimes even for like 99years.

     

    Type of lease

    There are two types of lease:

    • Operating lease
    • Finance Lease

     

    Operating lease

    • An operating lease is a type of lease in which the possession of the leased asset is transferred back from the lessee to the lessor at the end of the lease period.
    • Here, all the risk and rewards incident to ownership remains with the lessor, not the lessee.
    • The depreciation on the leased asset in case of operating lease is not charged by the lessee to its profit and loss account as the leased asset is not shown in the balance sheet. A leased asset is an off-balance sheet item in the case of an operating lease.

     

    Finance lease

    • Unlike an operating lease, the ownership of the leased asset is transferred to the lessee at the end of the leased period.
    • Thus, at the inception of the lease agreement, all the risk and rewards incident to ownership is transferred from the lessor to the lessee.
    • The depreciation on the leased asset is charged by the lessee to its profit and loss account as the leased asset is shown in the balance sheet. A leased asset is a balance sheet item in the case of an operating lease.
    • Along with the leased asset, the obligation to pay the future lease payment is also shown in the balance sheet as a non-current liability or current liability as the case may be.

     

    Difference between operating lease and finance lease in tabular format

     

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A_Team
A_Team
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  2. ShreyaSharma none
    This answer was edited.

    Prepaid Payable Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future. A prepaid expense is an asset on the balance sheet. The number of prRead more

    Prepaid Payable

    Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future.

    A prepaid expense is an asset on the balance sheet. The number of prepaid expenses that will be used up within one year is reported on a company’s balance sheet as a current asset. According to generally accepted accounting principles (GAAP), expenses should be recorded in the same accounting period as the benefit generated from the related asset.

    Example

    ABC Ltd. purchases insurance for the warehouse. It was ₹2,000 per month. The company pays ₹24,000 in cash upfront for a 12-month insurance policy for the warehouse. Each month an adjusting journal entry will be passed, adjusting the amount of insurance used from the prepaid insurance.

    Journal Entry-

    Prepaid Expenses in Balance Sheet-

    Prepaid expenses are shown in the balance sheet under the current assets heading as it’s a short-term asset and to be consumed within one accounting year.

    Balance Sheet (for the year ending…)

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