AccountingQA Latest Questions

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

    No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two : Let’s take an example. Following is the balance sheet of X Ltd: Hence, as per the following information, Current Ratio = CuRead more

    No, they are not the same. They are both used to measure the short term liquidity of a business but their approach is different. Following are the differences between the two :

    Let’s take an example.

    Following is the balance sheet of X Ltd:

    Hence, as per the following information,

    Current Ratio = Current Assets / Current Liabilities

      = Inventories + Trade debtors + Bills receivables + Cash  and bank + Prepaid Expenses / Trade Creditors + Bills Payables + Outstanding Salaries

    = ₹85,000 + ₹2,50,000+ ₹95,000 + ₹1,50,000 + ₹10,000/ ₹2,00,000 + ₹75,000 + ₹25,000

    = ₹6,00,000 / ₹3,00,000

    = 2/1 or 2:1

    Quick Ratio = Quick Assets / Current Liabilities

     = Trade debtors + Bills receivables + Cash and bank / Trade Creditors + Bills Payables + Outstanding Salaries

    = ₹2,50,000+ ₹95,000 + ₹1,50,000 / ₹2,00,000 + ₹75,000 + ₹25,000

    = ₹5,05,000/ ₹3,00,000

    = 41 / 25 or 1.68 : 1

    Let’s discuss both ratios in detail.

    1. Current ratio:

    The current ratio represents the relationship between current assets and current liabilities

    Current ratio =  Current Assets/Current Liabilities

    It measures the adequacy of the current assets to current liabilities. The main question this ratio tries to answer is: – “Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets?”

    The generally acceptable current ratio is 2:1.  But it depends on the characteristics of the assets of a business to judge whether a specific ratio is satisfactory or not.

    2. Quick Ratio: Quick ratio is the ratio between quick assets and current liabilities. It is also known as the Acid Test Ratio. By quick assets, we mean cash or the assets that can be quickly converted into cash ( near cash assets)

    Quick Assets = Current Assets – Inventories – Prepaid assets

     Quick ratio =  Quick Assets/Current Liabilities

    Inventories are not considered near cash assets.

    The quick ratio is a more conservative approach than the current ratio to measure the short term liquidity of a firm.

    It answers the question, “If sales revenues disappear, could my business meet its current obligations with the readily convertible quick funds on hands?”

    1:1 is considered satisfactory unless the majority of the quick asset are accounts receivable and the receivables turnover ratio is low.

     

     

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Karan
Karan
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Accumulated profit is the amount of profit left after the payment of dividends to the shareholders. It is also known as retained earnings. It is the profit that is not distributed as dividends to shareholders, hence called retained earnings. This accumulated profit is an important source of internalRead more

    Accumulated profit is the amount of profit left after the payment of dividends to the shareholders. It is also known as retained earnings. It is the profit that is not distributed as dividends to shareholders, hence called retained earnings. This accumulated profit is an important source of internal finance for a company. Accumulated profit or retained earnings can be ascertained using the following formula:

    Accumulated profit = Opening balance of accumulated profit + Net Profit/Loss (loss being in the negative figure) – Dividend paid

    Accumulated profit can be put to the following uses:

    • To reinvest into the business in form of capital assets or working capital.
    • To repay the debt of the company.
    • To pay dividends in future.
    • To set off the net loss made by the company.

    Accumulated profit and reserves are often considered the same. But in substance, they are not. The reserves are actually part of the accumulated profit, but the converse is not true. They are created by transferring amounts from the accumulated profit. While reserves are created for purpose of strengthening the financial foundation of a firm, the accumulated profit’s main purpose is to make reinvest in the business to increase its growth.

    The amount of accumulated profits depends upon the retention ratio and dividend payout ratio of a company.  The retention ratio is the opposite of the dividend payout ratio.

    The formula of dividend pay-out ratio = Dividend payable/Net Income

    And retention ratio = 1 – (Dividend payable/Net Income)

    If the retention ratio is more than the dividend payout ratio, the accumulated profit remains positive.

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Aadil
AadilCurious
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  2. Karan B.com and Pursuing ACCA

    In accounting, sales returns are the goods returned by the customer to the seller. This can be due to goods delivered is damaged or defective. A return can also be due to late delivery, or the wrong items being sent to the buyer. Sales return is a subsidiary book in which all the details are recordeRead more

    In accounting, sales returns are the goods returned by the customer to the seller. This can be due to goods delivered is damaged or defective. A return can also be due to late delivery, or the wrong items being sent to the buyer.

    Sales return is a subsidiary book in which all the details are recorded for the goods returned which were sold on credit. It is also known as return inwards.

    Accounting for Sales Return

    Whenever there is a sale return, the seller will debit the sales return account and credit the debtor’s account. The total amount of sales returns is deducted from the gross sales for the period giving the figure for net sales. Debtor’s account is credited because the amount receivable from debtors will reduce.

    The sales return is a contra account to the sales.

    Format of sales return book:

    In the above format, a credit note is a statement prepared by the seller and sent to the buyer. In this statement, all the details are mentioned in respect of the goods sent by the buyer and are an indication that the buyer’s account is credited in respect of the goods received.

    For example, Mr. A sold goods to Mr. B costing Rs 50,000 on 1 December. On 5 December, goods amounting to Rs 15,000 were found defective and were returned immediately to Mr. A.

    Mr. A will account for this in the following way:

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Rahul_Jose
Rahul_Jose
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  2. Pooja_Parikh Aspiring Chartered Accountant

    Any person, company, or organization that owes us money is a debtor. The amount that is owed to us is called debt. When you are unsure if a debtor is going to pay back the amount owed to you, then a provision for doubtful debts is created. Here, the debtor may or may not pay back the amount owed. WhRead more

    Any person, company, or organization that owes us money is a debtor. The amount that is owed to us is called debt. When you are unsure if a debtor is going to pay back the amount owed to you, then a provision for doubtful debts is created. Here, the debtor may or may not pay back the amount owed. When the debts owed to us is irrecoverable, it is termed as bad debts.

    Provision for doubtful debts may become a bad debt at some point. Usually, companies keep a small portion of their debtors as a provision for doubtful debts in accordance with the prudence concept that tells us to account for all possible losses. Provision for doubtful debts is a liability whereas bad debts are recorded as an expense.

    Journal entries for Doubtful debts and bad debts are as follows:

    EXAMPLE

    If the balance in the debtors’ account shows an amount of Rs 20,000 and 5% of debtors are treated as doubtful, then Rs 1,000 is recorded as a provision for doubtful debts. This amount is deducted from debtors in the balance sheet.

    Now if Rs 400 was recorded as actual bad debts, then it is deducted from the provision for doubtful debts instead of debtors. Further another 400 is added back to provision for doubtful debts to maintain the percentage.

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Anushka Lalwani
Anushka Lalwani
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Meaning of Workmen's Compensation Reserve Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on thRead more

    Meaning of Workmen’s Compensation Reserve

    Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on the premises of the firm, then they will be compensated from the money kept aside in the workmen’s compensation reserve.

    Workmen’s compensation reserve is created using the profits of a business. The journal entry for the creation of workmen compensation reserve is as follows:

    When a claim arises, the claim amount is transferred to Provision for workmen compensation claim A/c

    Treatment of workmen compensation reserve in revaluation account

    At the time of admission, retirement or death of partner or change in profit sharing ratio, the reserve is distributed among the old or existing partners or kept intact.

    Workmen’s compensation reserve is also distributed among the old or existing partners subject to the claim arising on the reserve.

    Here are the three situations:

     

    The revaluation account comes into the picture only when the claim is more than the amount available in the reserve. For example, the claim is Rs. 20,000 but the amount in the reserve is only Rs. 15,000.

    In such a case, the excess claim will be met by debiting the revaluation account.

    The journal will as  given below:

    Since the revaluation account is debited, it is a loss and this loss will be written from old or existing partners’ capital in the old profit sharing ratio. The journal entry is given below:

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Astha
AsthaLeader
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Deleting a company in Tally Prime Tally prime is the latest version of Tally ERP software. In its functionality, it is slightly different from its previous version Tally ERP 9.  Hence, the process of deleting a company in Tally Prime is different from that in Tally ERP 9. To delete a company in TallRead more

    Deleting a company in Tally Prime

    Tally prime is the latest version of Tally ERP software. In its functionality, it is slightly different from its previous version Tally ERP 9.  Hence, the process of deleting a company in Tally Prime is different from that in Tally ERP 9.

    To delete a company in Tally Prime, you need to be in the Gateway of Tally window which looks the following:

    On the right-hand side, there is a menu where is an option named ‘F3: Company’. You can either click on it or simply press F3.

    After clicking on the option, the Company menu where a list of names of the companies created in the Tally is there, along with some options above the company name list.

    You have to select the option named, ‘Shut Company’. After clicking the option, the screen will display a ‘Shut Company’ menu.

    From there, you have to select the company you want to delete. Like in the example given, I have selected the company named Rain Ltd.

    After selecting the name of the company you want to delete, a confirmation dialog box will appear.

    You have to click OK and the company will be shut down or deleted.

    In short, the steps to delete a company in Tally Prime are as follows:

    Gateway of Tally –> Press F3 –> Select ‘Shut Company’ option –> Select the name of the company –> Confirm and press OK

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Ayushi
AyushiCurious
In: >

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

    Tally ERP does not have a voucher for recording closing stock journal entries. It automatically calculates closing stock and reports it in the Profit and Loss account and Balance sheet. However, Tally do have vouchers through which you can adjust the closing stock to be shown at the end of the year.Read more

    Tally ERP does not have a voucher for recording closing stock journal entries. It automatically calculates closing stock and reports it in the Profit and Loss account and Balance sheet.

    However, Tally do have vouchers through which you can adjust the closing stock to be shown at the end of the year.

    Explanation

    Tally, as we know is an ERP which can automate many aspects of accounting like calculation of ledger balance, creation of trial balance, financial statements and other reports. Only the data entry in vouchers is done manually.

    Tally also calculates closing stock automatically because it already has the required data to do so.

    Closing stock = Opening stock + Purchase – Cost of goods sold.

    Using the above formula, Tally automatically calculates the closing stock.

    But it may happen that the closing stock as per Tally and closing stock as per physical verification of stock do not match.

    This may be due to damaged caused to some items of inventory or even theft of inventory items which is usually discovered when stock is physically checked and counted at the end of the financial year.

    In that case, we can use the Physical Stock voucher to correct our closing stock in Tally.

    Physical Stock Voucher

    A physical Stock voucher is an inventory voucher which is used to adjust the amount of closing stock as per the physical stock verified at the end of the year.

    Suppose, if the closing stock for Bricks is 500pcs. Like in my stock summary, the item ‘Bricks’ is shown in the image below:

    But after physical verification, it was found that there around there are only 450pcs of whole bricks are there. The rest of the bricks were broken.

    To rectify this, we will open a Physical Stock voucher.

    The steps to open a Physical stock voucher are as follows:

    In Tally ERP 9 : Gateway of Tally → Accounting Vouchers → Press Alt + F10 

    In the physical stock voucher, we will select the stock item and enter the correct quantity, which is 450pcs. 

    After entering the details above, accept the voucher and open the stock summary again from Gateway of Tally. It will show the Bricks at 450pcs.

    Hence, this is how we can adjust our closing stock in Tally.

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