AccountingQA Latest Questions

Ayushi
AyushiCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Introduction Income tax means the tax charged on the income of a person which the person has earned during a financial year. As per the Income-tax act, 1961, the income tax on income earned during a financial year is assessed in the following financial year and tax is to be paid on the assessed incoRead more

    Introduction

    Income tax means the tax charged on the income of a person which the person has earned during a financial year. As per the Income-tax act, 1961, the income tax on income earned during a financial year is assessed in the following financial year and tax is to be paid on the assessed income if payable.

    The year in which the income is earned is called the Previous Year and the following year in which the previous year’s income is assessed is known as the Assessment Year

    Steps involved in the computation of Income-tax of a person:

    1. Determination of residential status of the person
    2. Classification and computation of income under the five heads of income
    3. Clubbing of income of spouse, minor child etc
    4. Set-off or carry forward of losses
    5. Computation of Gross Total Income
    6. Deductions from Gross Total Income to arrive at Total Income
    7. Application of the rates of taxes on total income
    8.  Advance tax and tax deducted at source
    9. Arrival  at Tax payable/ Tax refundable
    10. Determination of residential status of the person

    Determination of residential status of the person

    The residential status of a person is of great significance for ascertaining the taxability of a person’s income as per the Income-tax act, 1961. As per the act, a person can fall into one of the following criteria:-

    1. Resident and Ordinarily Resident in India
    2. Resident but Not Ordinarily Resident in India
    3. Non-Resident

    Classification and computation of income under the five heads of income

    Now, a person’s income can be from various sources. As per section 14 of the Income-tax act, there are five main heads of income for computation of income tax:

    1. Income from Salary
    2. Income from House Property
    3. Profits and Gains from Business or Profession
    4. Capital Gains
    5. Income from other sources

    Income under each head is to be computed as per provisions of the Income-tax Act, 1961.

    Clubbing of income of spouse, minor child etc

    Some individual taxpayers divert some portion of their income to their spouses and minor child in order to reduce their tax liability as the slab rate of income tax for individuals is progressive.

    Such diverted income is to be clubbed with the income of the assessee as per the provisions of the Income-tax act.

    Set-off and carry forward of losses

    Losses suffered under the heads of the income like ‘Profit and Gains from Business and Profession’, ‘Income from House property’ can be set off against the income earned under other heads as per provision of the act.

    If set off is not possible in the current assessment year then the loss can be carried forward to the next assessment year.

    Computation of Gross Total Income

    Gross Total Income is arrived at by computing the total of income under all five heads of income after giving necessary deductions as applicable under each head of income.

    Deductions from Gross Total Income to arrive at Total Income

    Income tax act, 1961 allows specific deduction from the Gross Total Income under sections 80C to 80U. These deductions are provided to encourage certain kinds of investments like life insurance premiums etc and provide relief on certain spending like medical expenses, interest expenses on home loans etc which leads to the overall welfare of the people.

    After allowing the deductions from Gross Total Income, we arrive at Total Income.

    Application of the rates of taxes on total income

    Tax is calculated at a rate on the total income. The rate and calculation of income tax depend on the type of assessees.

    Individuals and HUFs

    For individuals who are below the age of 60 years and HUFs:

    For individuals over 60 years and 80 years of age, the basic exemption limit is ₹3,00,000 and ₹5,00,000 respectively.

    Also, as per section 115BAC, individuals and HUFs have the option to choose an alternative slab rate of tax as per which the income tax is charged at concessional rates. But, the various exemptions and deductions like housing rent allowance, leave travel concession, standard deduction on salary income cannot be availed. This slab rate system was introduced recently to reduce the complexity of filling IT returns by small taxpayers.

    Rates of tax related to other types of assessees is not provided for sake of simplicity.

    Advance tax and tax deducted at source

    After calculating the tax on total income as per specified rates, the income tax amount is to be reduced by the advance tax and tax deducted at the source.

    Tax payable/ Tax refundable

    After performing all the steps above, we arrive at Income tax payable or tax refundable.

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A_Team
A_Team
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  2. GautamSaxena Curious .
    This answer was edited.

    Goods purchased for cash The purchasing of goods for cash is a business transaction and a vital business operation that is supposed to be recorded in the journal in order to keep a track of the business stock. A journal is a detailed account that records all the financial transactions in a businessRead more

    Goods purchased for cash

    The purchasing of goods for cash is a business transaction and a vital business operation that is supposed to be recorded in the journal in order to keep a track of the business stock.

    A journal is a detailed account that records all the financial transactions in a business chronologically. It is used to keep a record of all the financial transactions occurring in a business and one of its primary motives is that it helps in the preparation of the ledger and trial balance statement.

    Journal entry for goods purchased for cash

    In the entry, goods purchased for cash, the cash a/c is credited and the purchases a/c is debited. It’s because of that golden rule in accounting, Dr. what comes in and Cr. what goes out.

    Imagine, goods were purchased for cash on 1-Jan-2021. Then we’ll be passing the entry below:

     

     

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Ayushi
AyushiCurious
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  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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Simerpreet
SimerpreetHelpful
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  2. Razeen_Nakhwa

    Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs vs. when payment is received or made.  The most common accrual accounting examples are sales on credit, purchases on credit, rent paid, electricity expense, depreciation, audit fees, and otherRead more

    Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs vs. when payment is received or made.  The most common accrual accounting examples are sales on credit, purchases on credit, rent paid, electricity expense, depreciation, audit fees, and other such things.

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Simerpreet
SimerpreetHelpful
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  2. Karishma
    This answer was edited.

    A profit and loss account is a financial statement which shows the net profit or net loss of an enterprise for an accounting period.  It reports all the indirect expenses and indirect income including gross profit or loss derived from trading accounts for an accounting period. When the total revenueRead more

    A profit and loss account is a financial statement which shows the net profit or net loss of an enterprise for an accounting period.  It reports all the indirect expenses and indirect income including gross profit or loss derived from trading accounts for an accounting period.

    When the total revenue i.e. credit side of profit and loss a/c is more than the total of expenses i.e. the debit side of profit and loss a/c, it results in net profit whereas when the total revenue is less than the total of expenses, it results in a net loss.

    The debit balance of the profit and loss account is the net loss incurred during the accounting period by an enterprise. It is transferred to a capital account thereby reducing the capital or can be shown as a debit balance on the asset side.

    Accounting entry for loss transferred is as follows :

    Capital A/c   …Dr.

    To Profit & Loss A/c

    (being net loss transferred to capital account)

     

    Example

    A Business has a total income of $50,000 in an accounting year and has expenses amounting to $60,000 in that particular year. The profit and loss account will show a net loss of $10,000 ($60,000-50,000). Net loss will be transferred to capital A/c. Capital of the business will be reduced by $10,000. This loss can also be shown on the asset side of the balance sheet.

    Extract of a Profit and loss a/c showing net loss is as under:

    Profit and loss A/c for the year ended …..

    Particulars Amount (Dr.) Particulars Amount (Cr.)
    To gross loss b/d xxx By gross profit b/d xxx
    To salaries xxx By bank interest xxx
    To office rent xxx By commission received xxx
    To printing and stationery xxx By rent received xxx
    To insurance xxx By dividend xxx
    To audit fees xxx By profit on sale of asset xxx
    To electricity chares xxx By Net Loss xxx
    To depreciation xxx
    To bad debts xxx
    To bank charges xxx
    To miscellaneous expenditure xxx
    To interest on loans xxx
    Total xxx

    The debit balance for a non-corporate entity is shown as a reduction from the capital account

    Extract of the Balance sheet showing the debit balance of Profit & Loss A/c is as under :

    Balance Sheet as on…

    Liabilities Amount
    Equity and liabilities
    Capital

    Less: Profit & Loss A/c

    While the Debit balance of profit and Loss A/c of a corporate entity is shown as a reduction in Reserves and surplus. If the business doesn’t have reserves then the debit balance is shown on the asset side.

    Extract of the Balance sheet showing the debit balance of Profit & Loss A/c is as under :

    Balance Sheet as on..

    Liabilities Amount
    Equity and liabilities
    Reserves And Surplus

    Less: Profit & Loss A/c

    Conclusion:  Debit balance of profit and loss a/c represents that expenses are more than the income of a business in an accounting period. Debit balance of profit and loss a/c indicates that company need to increase its income or cut down on unnecessary expenses.

    The business needs to find out the reason of excessive expenses because accumulated losses are not good for the health of the company.

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Bonnie
BonnieCurious
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Balance SheetCalls in Advance
  2. Radha M.Com, NET
    This answer was edited.

    Let us begin with a short explanation of what Calls-in-Advance is: Whenever a company accepts money from its shareholders for calls not yet made, then we call it calls-in-advance. To put it in even simpler terms, it is the amount not yet called up by the company but paid by the shareholder. An imporRead more

    Let us begin with a short explanation of what Calls-in-Advance is:

    Whenever a company accepts money from its shareholders for calls not yet made, then we call it calls-in-advance. To put it in even simpler terms, it is the amount not yet called up by the company but paid by the shareholder. An important thing to note here is that a company can accept calls-in-advance from its shareholders only when authorized by its Articles of Association.

    Calls-in-advance is treated as the company’s liability because it has received the money in advance, which has not yet become due. Till the amount becomes due, it will be treated as a current liability of the company.

    The journal entry for recording calls-in-advance is as follows:

    The money received from the shareholder is an asset for the company and therefore Bank A/c is debited with the amount received as calls-in-advance. The calls-in-advance A/c is credited because it is a liability for the company.

    Since Calls-in-Advance is a liability, it is shown in the Equities and Liabilities part of the Balance Sheet under the head Current Liabilities and sub-head Other Current Liabilities.

    For better understanding, we will take an example,

    ABC Ltd. made the first call of 3 per share on its 10,00,000 equity shares on 1st May. Max, a shareholder, holding 5,000 shares paid the final call amount 2 along with the first call money. Now let me show the journal entry to record calls-in-advance.

    In the Balance Sheet, I will show calls-in-advance in the following manner,

    The calls-in-advance of 10,000 is shown under the Equities and Liabilities side of the balance sheet under the head current liabilities and sub-head other current liabilities. It will be shown as a liability till the final call money becomes due. The amount received by the company from Max is shown on the Assets side of the balance sheet under head current assets and under the sub-head cash and cash equivalents.

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Simerpreet
SimerpreetHelpful
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  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act: As of 2021 Nature of Asset Useful LifeRead more

    Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act:

    As of 2021

    Nature of Asset Useful Life Depreciation
    WDV SLM
    Servers and networks 6 years 39.30% 15.83%
    End-user devices such as desktops, laptops, etc. 3 years 63.16% 31.67%

    For example, XYZ Ltd purchased a new accounting software on 1 October for Rs.50,000. As per the Companies Act, the useful life of software is 3 years. Hence, the software will be amortized for 3 years and the company amortizes on the straight-line method.

    Amortization amount = 50,000*31.67%

    For full year = Rs.15,835

    As the software was purchased on 1 October hence it will be amortized for 6 months.

    For 6 months = 15,835*6/12

    = Rs.7,917.50

    Amortization is the same as depreciation. Hence, treatment will also be the same. The amortization amount will be transferred to the Profit & Loss A/c on the debit side as a non-cash expense.

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