AccountingQA Latest Questions

Aadil
AadilCurious
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  2. Manvi Pursuing ACCA
    This answer was edited.

    The sole proprietorship is a business that is unincorporated and owned by a single person. The owner of the business invests capital in the business in the form of cash, any asset or stock, or in any other form. In, sole proprietorship owner and business are inseparable. Interest on capital is the aRead more

    The sole proprietorship is a business that is unincorporated and owned by a single person. The owner of the business invests capital in the business in the form of cash, any asset or stock, or in any other form. In, sole proprietorship owner and business are inseparable.

    Interest on capital is the amount paid by the entity/business to the owners. It is an expense to the business and income for the proprietor, and interest is adjusted in the owner’s capital account. It is calculated on an agreed percentage and for a certain period. It is paid before calculating net profit.

    If there is a loss, no interest will be paid on capital.

    Journal Entry for Interest on Capital in Sole Proprietorship:

    1. Interest on capital entry
    Interest on Capital A/c Debit Debit the increase in expense.
        To Owner’s Capital A/c Credit Credit the increase in income.

     

    2. Closing interest on capital account

    Profit and Loss A/c Debit Debit the increase in expense.
        To Interest on Capital A/c Credit Credit the increase in income.

    In sole proprietor’s Profit and Loss A/c interest will be recorded as an expense on the debit side and will be added to the owner’s capital in the Balance Sheet is considered as an adjustment to the capital account.

    For example, A invested Rs 1,00,000 in a business. He wants to adjust 5% interest on his capital, then the entry will be:

    1. Interest on capital entry
    Interest on Capital A/c 5,000
        To Owner’s Capital A/c 5,000

     

    2. Closing interest on capital account

    Profit and Loss A/c 5,000
        To Interest on Capital A/c 5,000

    In the case of a partnership, the treatment is the same as done in a sole proprietorship. The interest rate is agreed upon by the partners and is mentioned in the partnership deed. No interest is provided on the capitals of the partners if not mentioned in the deed.

    If in a particular period, the partnership firm incurs a loss, then no interest will be provided to the partners.

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The term ‘bad debt’ and ‘write off’ are often used together in a sentence but they have different meanings. First, we will discuss them in brief to understand the differences between them. Bad debts We know, debtors for a business are their assets because the business has the right to receive moneyRead more

    The term ‘bad debt’ and ‘write off’ are often used together in a sentence but they have different meanings. First, we will discuss them in brief to understand the differences between them.

    Bad debts

    We know, debtors for a business are their assets because the business has the right to receive money from the debtors due to the goods supplied to them.

    But if due to circumstances, there appears no probability that the amount due to one or more debtors will be realised to the business, then such debts are categorised as bad debts.

    In short, bad debts refer to the amount of money that will not be received from some debtors of the business due to some circumstances like insolvency of debtor etc.

    Bad debt is deducted from debtors account by the following journal entry:

    Bad debts A/c Dr. Amt
    To Debtors A/c Cr. Amt
    (Being bad debts written off from debtors)

    As bad debts are losses to a business, it is ultimately written off from the profit and loss account.

    Profit and loss A/c Dr. Amt
    To Bad debts A/c Cr. Amt
    (Being bad debts written off to profit and loss account)

    Write off

    In layman terms, write off means to deduct something out from something. In accounting, write off means to deduct or reduce value of assets by crediting it to a liability account which is usually a reserve account or the profit and loss account.

    It also refers to the elimination of an item from the books of accounts particularly losses and expenses.

    Generally, writing off is associated with the following:

    1. Bad debts.
    2. Damaged Inventories.
    3. Loss on issue or redemption of debentures.
    4. Preliminary expenses.
    5. Bad loans and advances.

    Write off can be done in one of the following methods:

    1. Direct write-off: The write off is directly done by crediting asset account or loss account and debiting the reserve or P/L account.
    2. Indirect write-off: Here, an intermediate account is involved between the asset account and liabilities account. A common example is writing off of bad debts where the bad debts account is the intermediate account.

    Hence, the following differences can be observed between bad debts and write off or writing off:

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Anushka Lalwani
Anushka Lalwani
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  2. GautamSaxena Curious .
    This answer was edited.

    Journal entry for commission earned but not received Commission earned but not received is called accrued income. As we know there are two types of accounting, cash basis of accounting, in which the transaction is recorded only when cash is received or paid, and accrual basis of accounting, in whichRead more

    Journal entry for commission earned but not received

    Commission earned but not received is called accrued income. As we know there are two types of accounting, cash basis of accounting, in which the transaction is recorded only when cash is received or paid, and accrual basis of accounting, in which even if money is yet to be accepted or paid, the transactions are still recorded.

    E.g of accrual income- rent earned but not collected, interest on the investment earned but not received, etc.

    Journal entry

    • The commission that is to be received is debited, indicating the increase in assets whereas, the commission account (which will be giving you the commission) is credited.
      • Later on, upon receiving the cash an entry is passed crediting the commission receivable as shown below:

     

    • These are adjusted while making the final accounts for the business.

    Simplifying with an example

    If the rent earned was $1,000 and it’s yet to be received, we’ll be passing this entry-

    When it’s received, this entry is passed

     

     

     

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. ShreyaSharma none
    This answer was edited.

    Land in the balance sheet The land is an asset and hence it is shown on the asset side of the balance sheet. On the asset side of the balance sheet, the land is stated under the heading long-term assets. Balance Sheet (for the year…) Explanation The land is a fixed asset and is supposed not to be caRead more

    Land in the balance sheet

    The land is an asset and hence it is shown on the asset side of the balance sheet.

    On the asset side of the balance sheet, the land is stated under the heading long-term assets.

    Balance Sheet (for the year…)

    Explanation

    The land is a fixed asset and is supposed not to be cashed, consumed, last, sold, or written off within one accounting year and is purchased for long-term use. The fixed assets are also called non-current assets and the reason behind it is that current assets are easily converted into cash within one year and they are not.

    • The sole purpose of buying fixed assets like the land is that they are planned to be used for the long term in order to generate income.
    • Examples of fixed assets – Land, buildings, furniture, plants & equipment, etc.
    • Also called non-current assets and capital assets.

     

    Why is it shown on the asset side?

    The land is an asset, although it is not depreciable it is still considered to be an asset because just like other assets the business spends its own money to acquire it, and it gives them a long-term benefit while reselling it.

    Therefore, the land is shown on the asset side under the fixed asset heading.

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A_Team
A_Team
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Wages Outstanding Wages and Salaries Director’s Remuneration Advance Payment of Wages All of the Above

  2. SidharthBadlani CA Inter Student
    This answer was edited.

    The correct answer is option B. Wages and salaries are debited to the trading account. The trading account helps us to determine the Gross Profit Or Loss that a company earns or incurs by carrying on its core manufacturing or trading activities. Let us discuss the above items and their treatments inRead more

    The correct answer is option B. Wages and salaries are debited to the trading account.

    The trading account helps us to determine the Gross Profit Or Loss that a company earns or incurs by carrying on its core manufacturing or trading activities.

    Let us discuss the above items and their treatments in the final accounts one at a time:

    Wages Outstanding

    Firstly, “wages outstanding” is not debited into the trading account. It is a liability that is shown in the balance sheet.

    Outstanding wages imply remuneration due to be paid to the workers for the services they have already rendered to the business.

    Since the company has already received the service, it becomes a legal obligation for it to pay the wages to the workers for those services. Hence, outstanding wages are a liability.

    Wages and Salaries

    Wages and Salaries are debited to the trading account.

    Wages Vs Salaries

    Let us understand the difference between wages and salaries. Wages are the regular payments that are made daily, weekly or fortnightly. Such payments are mostly made to factory workers.

    Salaries, on the other hand, are assumed to imply the remuneration paid to office workers and sales staff.

    Wages are debited to the trading account, while salaries are debited to the Profit and Loss account.

    Director’s Remuneration

    No, the director’s remuneration is not debited to the trading account. This is because director’s generation is a business expense. It is a kind of salary provided to the director for the services rendered by him to the company.

    Directors’ remuneration refers to compensation the company gives to its directors for the services rendered. It is debited to the Profit and Loss Account.

    Advance Payment of Wages

    No, advance payment of wages is not debited to a trading account. It is shown by reducing it to wages. Advance payment of wages implying paying remuneration to the workers before the commencement of the period for which the wages relate to.

    However, one must note that if both wages and prepaid wages appear within the trial balance, then only the figure written against wages would appear in the trading account. There would be no treatment for prepaid wages.

    Let us consider a scenario where wages of amount 5,000 is appearing inside trial balance. Outside the trial balance, the following information is provided

    • Wages prepaid for the current financial year = 1,000
    • Wages prepaid for the next financial year = 2,000

    In the above case, the total wages to be debited to the trading account would be 5,000 + 1,000 – 2,000 = 4,000

    Significance of the Final Accounts

    • It helps in determining the net profit or loss of the entity for the current financial year.
    • It is a major source of guidance for investors. Shareholders decide whether or not to invest in a company on the basis of final accounts.
    • It allows banks and investors to see your business’s total income, debt load a,nd financial stability.

     

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Atreya
AtreyaCurious
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  2. Ishika Pandey Curious ca aspirant

    Definition Section 43 of the companies act 2013 prescribes that the share capital of a company broadly can be of two types or classes : Preference shares Equity shares Preference shares Preference shares are the shares that carry the following  two preferential rights : Preferential rights to receivRead more

    Definition

    Section 43 of the companies act 2013 prescribes that the share capital of a company broadly can be of two types or classes :

    1. Preference shares
    2. Equity shares

    Preference shares

    Preference shares are the shares that carry the following  two preferential rights :

    • Preferential rights to receive dividends, to be paid as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income tax before it is paid to equity shareholders, and
    • Return of capital on the winding up of the company before that of equity shares.

     

    Classes of preference shares

    Preference shares are broadly classified as follows :

    • With reference to the dividend
    • Participation in surplus profit
    • Convertibility
    • Redemption

     

    With reference to the dividend

    Cumulative preference shares are those preference shares that carry the right to receive arrears of dividends before the dividend is paid to the equity shareholders.

    Non-cumulative preference shares are those that do not carry the right to receive arrears of dividends.

     

    Participation in surplus profit

    Participating preference shares of the company may provide that after the dividend has been paid to the equity shareholders, the holders of preference shares will also have a right to participate in the remaining profits.

    Non-participating preference shares are those preference shares that do not carry the right to participate in the remaining profits after the equity shareholders have paid the dividend.

     

    Convertibility

    Convertible preference shares are those preference shares that carry the right to be converted into equity shares.

    Non-convertible preference shares are those that do not carry the right to be converted into equity shares.

     

    Redemption

    Redeemable preference shares are those preference shares that are redeemed by the company at the time specified for the repayment or earlier.

    Irredeemable preference shares are preference shares the amount of which can be returned by the company to the holders of such shares when the company is wound up.

     

    Equity shares

    Equity shares are those shares that are not preference shares.

    Equity shares are the most commonly issued class of shares that carry the maximum ‘risk and reward ‘ of the business the risks of losing part or all the value of the shares if the business incurs losses.

    The rewards are the payment of higher dividends and appreciation in the market value.

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Aditi
Aditi
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  2. Mehak
    This answer was edited.

    Revenue and income are two accounting terms that are often used interchangeably. However, it is important to understand that these two terms are different. Let us know the difference between the two through the discussion below: What is Revenue? Revenue is the total amount of a business's sales. ItRead more

    Revenue and income are two accounting terms that are often used interchangeably. However, it is important to understand that these two terms are different. Let us know the difference between the two through the discussion below:

    What is Revenue?

    Revenue is the total amount of a business’s sales. It is the total amount earned by a business before deducting any expenses. Revenue is recognized in accounting as soon as a sale happens, even if the payment hasn’t been received yet.

    For example, XYZ Ltd sold 100 pens at a selling price of 10 per pen. The total revenue of the business is hence 1,000.

    What is Income?

    Income is the amount earned by a business after deducting any direct or indirect expenses. It is the amount that is left after subtracting all expenses, taxes and other costs from Revenue.

    Which is a broader term between the two?

    Revenue is a broader term as it includes the total earnings a business generates before deducting any expenses. It includes all sales of goods or services during a specific period.

    On the other hand, income is calculated after deducting certain expenses like taxes, interest, etc. This makes it more specific and refined than revenue.

    Revenue provides a measure of a company’s ability to generate sales and income reflects the efficiency in managing costs and generating profits.

     

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