AccountingQA Latest Questions

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

    The profit and loss appropriation account is an account created in addition to the Trading & Profit and loss account in the case of partnership firms. It is a nominal account. The net profit or loss from the Profit and loss account is transferred to the Capital A/c when we do the accounting of sRead more

    The profit and loss appropriation account is an account created in addition to the Trading & Profit and loss account in the case of partnership firms. It is a nominal account.

    The net profit or loss from the Profit and loss account is transferred to the Capital A/c when we do the accounting of sole proprietors.

    But, while doing the accounting of partnership, there is a need to appropriate this profit or loss as there are two or more partners’ capital accounts. So, for this purpose, the Profit and loss appropriation account is created.

    The net profit or loss is appropriated among the partner’s capital after adjustment the items like partner’s salary, commission, interest on capital, interest on drawing etc. It consists of items related to the partner’s claim.

    The format of the profit and loss appropriation account is as below:

    Let solve a problem to sharpen our concept:

    A and B are partners in firm sharing profits and losses in the ratio of 4:1. On 1st January 2019, their capitals were ₹ 20,000 and ₹ 10,000 respectively. The partnership deed specifies the following:

    1. Interest on capital is to be allowed at 5% per annum.
    2. Interest on drawings charged to A and B are ₹ 200 and ₹ 300 respectively.
    3. The net profit of the firm before considering interest on capital and interest on drawings amounted to ₹ 18,000.
    4. A is to be paid an annual salary of ₹2000

    Prepare Profit and loss appropriation account for the year ending 31st December 2019.

    Solution:

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Radhika
    This answer was edited.

    Capital maintenance is a principle that states profit should not be recorded until its cost or capital has been maintained. In other words, profit should not be recognized unless net assets have been maintained. Capital maintenance states that profit recognized is the increase in the value of net asRead more

    Capital maintenance is a principle that states profit should not be recorded until its cost or capital has been maintained. In other words, profit should not be recognized unless net assets have been maintained.

    Capital maintenance states that profit recognized is the increase in the value of net assets. However, there are two exceptions to it:

    • Cash increased because of sale of stock to shareholders
    • Cash decreased because of dividend payout to its shareholders

    It is important because:

    • It protects the interest of shareholders
    • It protects the interest of creditors
    • Accurately analyzing the performance of the company

    Capital maintenance is of two types:

    • Financial Capital Maintenance

    It is measured by the value of assets at the beginning and end of the financial year.

    • Physical Capital Maintenance

    It is measured by the production capacity at the beginning and end of the financial year.

    Capital maintenance is concerned with keeping proper account balances of assets and not the physical assets.

    Inflation is the increase in the economic value of goods due to the lower purchasing power and not an actual increase in the value of assets. So, if the value of an asset is increased due to inflation it does not depict the right picture for the company.

    Hence, if the value of assets increases due to inflation, companies need to adjust the value of assets to assess if capital maintenance has occurred. 

     

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

    Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement. It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by theRead more

    Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement.

    It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by the customer or any other manufacturing default.

    Sales allowances arise when any customer accepts the product at a lower price than the original price or, in other words, a reduction in the price charged by a seller, due to any problem related to the sold product like a quality issue, an incorrect price charged or shipment issue.

    Sales allowances are created before the final billing is paid by the buyer.

    Journal entry for sales return and allowances:

    Dr. Sales return and allowances Amt  
    Cr. Accounts receivable   Amt
    • Sales Return Account is debited because it is reverse of Sales Account which is credited at the time of sale.
    • Account Receivable Account is credited to reverse the debtors debited at the time of sale.
    • Hence Sales Return entry is just reverse of the entry recorded at the time of sale.

     

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

    Meaning A valuation account is a balance sheet account that is paired with another balance sheet account to report the carrying amount of the paired account at a reduced value. The purpose of a valuation account is to reduce the balance of the concerned asset or liability without affecting the mainRead more

    Meaning

    A valuation account is a balance sheet account that is paired with another balance sheet account to report the carrying amount of the paired account at a reduced value.

    The purpose of a valuation account is to reduce the balance of the concerned asset or liability without affecting the main ledger account.  This is a conservative approach to use valuation accounts to present the value of the concerned asset or liability at a reduced value.

    The most common example of a valuation account is the ‘Provision for doubtful debts account’. It appears in the balance sheet as a reduction from the debtors’ accounts. Also when the amount is transferred to this provision, it appears in the statement of profit and loss account. But it doesn’t appear in the debtors’ account ledger.

    Treatment

    A valuation account appears only in the balance sheet. Sometimes, it also appears in the profit and loss account when any amount is transferred to it.

    Valuation accounts are only used in accrual accounting. They cannot be used in cash-based accounting as there is no flow of cash related to valuation accounts.

    They have a balance opposite of their paired accounts i.e. if their paired account is an asset then they will have a credit balance and if it is a liability then they will have a debit balance.

    Other Examples of valuation accounts are as follows:

    1. Provision for doubtful debts (offsets the account receivables or debtors’ account)
    2. Accumulated depreciation (report the assets net of depreciation)
    3. Discount on bonds payable (reduces the reporting balance of bond payable account)
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Simerpreet
SimerpreetHelpful
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  2. GautamSaxena Curious .
    This answer was edited.

    Ledger posting The process of entering all transactions from journal to ledger is called ledger posting. Each ledger account contains an individual asset, person, revenue, or expense. As we're aware the journal records all the transactions of the business. Posting to the ledger account not only helpRead more

    Ledger posting

    The process of entering all transactions from journal to ledger is called ledger posting. Each ledger account contains an individual asset, person, revenue, or expense. As we’re aware the journal records all the transactions of the business.

    Posting to the ledger account not only helps the proper maintenance of the ledger book but also helps in reflecting a permanent summary of all the journal accounts. In the end, all the accounts that are entered and operated in the ledger are closed, totaled, and balanced.

    Balancing the ledger means finding the difference between the debit and credit amounts of a particular account, it’s done on the day of closing of the accounting year. Sometimes journal entries are made and maintained monthly. Therefore, the balancing of the ledger’s date depends on the business’ closing date and the way a business maintains its books of accounts.

    Example

    Mr. Jack Sparrow decided to start a new clothing business. On 1st April 2021, He started the business with a total sum of $100,000 cash. He purchased furniture, including desks and shelves for $25,000. Mr. Sparrow then decided to start with women’s clothing and purchased a complete range of clothes from the wholesale market for $50,000. On the next day, he sold all the stock for $75,000. He also hired a worker for $5,000.

    We need to journalize these transactions and post them into the ledger account.

     

    Journal Entries

     

    Ledger Accounts

    Cash A/c

     

    Capital A/c

     

    Purchases A/c

     

    Sales A/c

     

    Salary A/c

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Simerpreet
SimerpreetHelpful
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  2. Mitika

    Straight Line Depreciation Journal Entry Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets. The salvage value or Residual value of an asset means the estimated valueRead more

    Straight Line Depreciation Journal Entry

    Straight-line depreciation refers to the diminishing value of assets over the life of the asset. In other words, the cost of the asset spreads evenly over the useful life of the assets.

    The salvage value or Residual value of an asset means the estimated value of the asset at the end of its useful life.

    The depreciation can also be charged with another method like Written Down Value (WDV) Method.

     

    Formula

    Depreciation per annum = ( Cost of asset – Salvage Value) / Useful Life

     

    The journal entry for the depreciation is:

    JOURNAL ENTRIES

    		  
    Depreciation on Asset A/C                               DR.
                                To Asset A/C
    (Being depreciation charged on asset)

     

    Now let us understand this with an example, suppose XYZ Ltd. has an asset of value 90,000 with a useful life of 3 years. The company uses the straight-line method of depreciation to depreciate the asset in its book.

     

    So, the depreciation per annum would be calculated as:-

    = 90,000/3

    = 30,000

     

    In Year 1, the depreciation will be charged as 30,000 for this year. It will be debited to the  depreciation account and credited to the asset account. Thus, the value of the asset at the end of year 1 will be 60,000 (90,000-30,000).

    JOURNAL ENTRIES

    		  
      DR CR
    Depreciation on Asset A/C                                                   30,000
              To Asset A/C                                                                                                              30,000
    (being depreciation charged on asset)

     

    In Year 2, the depreciation will be charged as  30,000. The entry would be the same as the previous year. The value of the asset at the end of year 2 will be 30,000 (60,000-30,000).

    JOURNAL ENTRIES  
      DR CR
    Depreciation on Asset A/C                                                   30,000
              To Asset A/C                                                                                                                  30,000
    (being depreciation charged on asset)

     

    At last in Year 3, the depreciation will be charged 30,000. The entry would be the same. The value of the asset at the end of year 3 will be Nil (30,000- 30,000).

    JOURNAL ENTRIES

    		  
      DR

    CR
    Depreciation on Asset A/C                                                30,000
              To Asset A/C                                                                                                            30,000
    (being depreciation charged on asset)

     

    The depreciation will be charged to the profit and loss account for the year as it is an expense for the company.

     

    The entries will be posted into depreciation account as mentioned:

    DEPRECIATION A/C  
    Date Particulars Amount Date Particulars Amount
    Year 1 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               
    Year 2 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               
    Year 3 To Asset A/C 30,000   By Profit and Loss A/C 30,000
        30,000     30,000
               

     

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Ishika Pandey
Ishika PandeyCurious
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Yes, the account receivable is a sub ledger account. It is an account that is used to record the payment history of each and every customer to whom the business has sold goods or provided services on credit. Accounts receivable represent the amount that the customers owe to the business with respectRead more

    Yes, the account receivable is a sub ledger account. It is an account that is used to record the payment history of each and every customer to whom the business has sold goods or provided services on credit.

    Accounts receivable represent the amount that the customers owe to the business with respect to the goods sold or services provided to them on credit. They are also known as trade receivable or debtors.

    The accounts receivable subledger shows various details of every transaction like the invoice number, amount due, date of payment, discount allowed etc. The subledger accounts are also known as the subsidiary accounts.

     

    Difference between general ledger and subledger accounts

    Here is a list of the major differences between sub-ledgers and the general ledger:

    • The subsidiary accounts or the sub ledger are a subset of the general ledger. In other words we can say that subsidiary accounts are a part of the general ledger.
    • The trial balance is prepared with the help of the general ledger and not with the help of subsidiary accounts.
    • The trial balance is prepared with the help of the general ledger and not with the help of subsidiary accounts.
    • The subledger accounts help us to store large volumes of data. They provide us with detailed and comprehensive analysis of each item of financial statements. On the other hand, a general ledger provides us with superficial information about every item in one place.

    Importance/ use of Subsidiary Account

    The usefulness of an accounts receivable sub ledger account lies in the fact that it provides detailed information about the money different customers owe to the business.

    For example, the general ledger account may show that the total balance of trade receivable is 1 lakh without indicating the individual amount that each customer owes to the business. The subsidiary account can help us by showing that customer A owes 50000 rupees, customer B owes 30000 rupees while customer C owes 20000 rupees.

    In short, the subsidiary accounts provide detailed information about each and every transaction. They help us to find useful information quickly and easily. They help us analyze the business policies and take corrective actions.

    Thus, we can conclude that accounts receivable is a subledger account that provides us detailed information about the various credit transactions and the amount that each customer owes to the business. It helps us analyze our credit policies and take corrective actions. It helps us identify and classify bad debts as such on

     

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