AccountingQA Latest Questions

A_Team
A_Team
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  2. Vijay Curious M.Com
    This answer was edited.

    Fictitious assets are not actually assets. They are expenses/losses not written off in the year in which they are incurred. They do not have any physical presence. Their expense is spread over more than one accounting period. A part of the expense is amortized/written off every year against the compRead more

    Fictitious assets are not actually assets. They are expenses/losses not written off in the year in which they are incurred. They do not have any physical presence. Their expense is spread over more than one accounting period.

    A part of the expense is amortized/written off every year against the company’s earnings. The remaining part (which is yet to be written off) is shown as an asset in the balance sheet. They are shown as assets because these expenses are expected to give returns to the company over a period of time.

    Here are some examples of fictitious assets:

    • Preliminary expenses.
    • Promotional expenses.
    • Loss incurred on the issue of debentures.
    • Underwriting commission.
    • Discount on issue of shares.

     

    To make it simple I’ll explain the accounting treatment of preliminary expenses with an example.

    The promoters of KL Ltd. paid 50,000 as consultation fees for incorporating the company. The consultation fee is a preliminary expense as they are incurred for the formation of the company. The company agreed to write off this expense over a period of 5 years.

    At the end of every year, the company will write off 10,000 (50,000/5) as an expense in the Profit & Loss A/c.

    The remaining portion i.e. 40,000 (50,000 – 10,000) will be shown on the Assets side of the Balance Sheet under the head Non – Current Assets and sub-head Other Non – Current Assets. 

    Here are the financial statements of KL Ltd.,

    Note: As per AS 26 preliminary expenses are fully written off in the year they are incurred. This is because such expenses do not meet the definition of assets and must be written off in the year of incurring.

    Source: Some fictitious assets examples are from Accountingcapital.com & others from Wikipedia.

     

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Naina@123
Naina@123
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  2. prashant06 B.com, CMA pursuing

    A cash discount is a discount allowed to customers when they make payments for the items they purchased. This type of discount is generally based on time. The early the payment is made by the debtors, the more discount they earn. To be more precise cash discount is given to simulate or encourage earRead more

    A cash discount is a discount allowed to customers when they make payments for the items they purchased. This type of discount is generally based on time. The early the payment is made by the debtors, the more discount they earn. To be more precise cash discount is given to simulate or encourage early payment by the debtors.

    Trade discount is a discount allowed by traders on the list price of the goods to the customer at specified rate. Unlike cash discount, trade discount is based on number of sale i.e, more the sale more the discount earned. This is mainly given on bulk orders by the customers.

    To understand trade discount and cash discount let me give you simple example

    Mr. X purchased goods from Mr. Y of list price Rs 10,000. Mr. Y allowed a 10% discount to Mr.X on the list price for purchasing goods in bulk quantity. Further, he was provided with cash discount of Rs 500 for making an immediate payment. Therefore the entry for the above transaction in the books of Mr. X would be

    Purchase A/c                                                        ……Dr 9,000
               To Cash A/c 8,500
               To Discount received 500
    (Being goods purchased from Mr. Y worth Rs. 10,000@ 10% trade discount and cash discount of Rs. 500)
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Karan
Karan
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Let’s understand what a cashbook is: A petty cash book is a cash book maintained to record petty expenses. By petty expenses, we mean small or minute expenses for which the payment is made in coins or a few notes like tea or coffee expense, bus or taxi fare, stationery expense etc. Such expenses areRead more

    Let’s understand what a cashbook is:

    • A petty cash book is a cash book maintained to record petty expenses.
    • By petty expenses, we mean small or minute expenses for which the payment is made in coins or a few notes like tea or coffee expense, bus or taxi fare, stationery expense etc.
    • Such expenses are numerous in a day for a business and to account for such small expenses along with major bank and cash transactions may create an extra hassle for the chief cashier of a business.
    • So, the cash is allocated for petty expenses and a petty cashier is appointed and the task of recording the petty expenses in the petty cashbook is delegated to him.

    The manner in which entries are made

    When cash is given to the petty cashier, entry is made on the debit side and in the petty cashbook and credit entry in the general cashbook.

    Entries for all the expenses are made on the credit side.

    Generally, the petty cashbook is prepared as per the Imprest system. As per the Imprest system, the petty expenses for a period (month or week) are estimated and a fixed amount is given to the petty cashier to spend for that period.

    At the end of the period, the petty cashier sends the details to the chief cashier and he is reimbursed the amount spent. In this way, the debit balance of the petty cashbook always remains the same.

    Format and items which appear in the petty cashbook

    The format of the petty cashbook depends upon the type of petty cash book is prepared and the items appearing in it are nothing but petty expenses. Let’s see an example:-

    A business incurred the following petty expenses for the month of April:-

    1. Stamp – Rs. 10
    2. Postage – Rs. 50
    3. Cartage- Rs. 100
    4. Telephone expense – Rs. 500
    5. Refreshments – Rs. 250

    Now we will prepare two types of cashbooks:

    • Ordinary Petty Cashbook:

    Here, the Petty cash book is of the same format as the general cash book.

    The cash allocated for petty expenses is recorded on the debit side of the petty cash book and on the credit side of the general cash book.

    • Analytical Petty Cashbook

    Here, there are separate amount columns for each type of expense. As the name suggests, this type of petty cashbook helps to analyse the petty cash spending on basis of the type of expense.

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Ayushi
AyushiCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    Under Activity-Based Costing, overheads are accurately assigned to different activities and their costs are determined through costing methods. Activities are those events that incur costs whereas overheads are expenditures that cannot be traced to any particular cost unit. A Cost driver refers to tRead more

    Under Activity-Based Costing, overheads are accurately assigned to different activities and their costs are determined through costing methods. Activities are those events that incur costs whereas overheads are expenditures that cannot be traced to any particular cost unit.

    A Cost driver refers to the factor that causes a change in the cost of an activity. Activity-Based Costing is done to establish a link between the activities and the product. The cost drivers are those links between the activities and the product.

    Cost drivers are divided into four categories:

    • Resource Cost Driver – It is a measure of the number of resources used by an activity. It assigns the cost of a resource to an activity.
    • Activity Cost Driver – It is a measure of the frequency and intensity of demand, placed on activities by cost objects. It assigns activity costs to cost objects.
    • Structural Cost Driver – It results from the economic and technological structure of the industry.
    • Executional Cost Driver – It reflects the firm’s ability to plan and operate its production operations effectively.

    A Cost Centre refers to a department in a business where costs can be allocated. These departments run various processes and incur costs. They can be related to the production of goods or the provision of services. Different centres are allocated different budgets and hence it enables the business to run efficiently by tracking its incomes and expenses easily.

    Proper management of cost centres can help the company cut additional costs from each department. It also helps in more accurate forecasts depending on future changes.

    Cost centres and Cost Drivers are both important factors while following Activity-Based Costing. Some examples of cost drivers and cost centres are as follows :

     

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Astha
AsthaLeader
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The receipt of cash is recorded by debiting the cash account to the account from which the cash is received. This source account may be the sales account, account receivable account or any other account from which cash is received. The journal entry is: An entity may receive cash in the following evRead more

    The receipt of cash is recorded by debiting the cash account to the account from which the cash is received. This source account may be the sales account, account receivable account or any other account from which cash is received.

    The journal entry is:

    An entity may receive cash in the following events:

    • Sales of goods or provision of services
    • Payment from account receivables
    • Sale of assets.
    • Withdrawal of cash from the bank
    • Introduction of additional capital in the business
    • Subscription or donation received in case of non-profit oriented concerns.
    • Other income in cash

    This list is not exhaustive. There may be many such events. However, the cash account will be always debited.

    Rules of accounting applicable on the cash account

    As per the golden rules of accounting, the cash account is a real account as represents an asset. For real accounts, the rule, “Debit the receiver and credit the giver” applies.

    Hence, when cash is received, cash is debited and the source (giver) is credited.

    As per modern rules of accounting, the cash account is an asset account. Assets accounts are debited when increased and credited when decreased.

    Hence, at receipt of cash, cash is debited as cash is increased.

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

    Introduction As per SA 530, audit sampling refers to the application of auditing procedures to less than 100% of items within a population relevant under audit such that all the sampling units have an equal chance of selection. In simple words, sampling in auditing refers to the practice deriving aRead more

    Introduction

    As per SA 530, audit sampling refers to the application of auditing procedures to less than 100% of items within a population relevant under audit such that all the sampling units have an equal chance of selection.

    In simple words, sampling in auditing refers to the practice deriving a conclusion by the auditor about a population of data by evaluation of only a part or sample of the whole data. Population means a set of data.

    Concept of sampling

    We know, an audit involves inspection of financial information of an entity by an auditor to form an opinion on its financial statements. Now the financial information of a firm usually contains large volumes of data. For example, a firm may have entered into 50,000 purchase transactions in a year.

    Now, checking each and every purchase transaction will cost both time and money. Also, nowadays, almost every enterprise have internal controls and automated accounting systems that are established to ensure accuracy and prevention of errors. Hence, a  full-fledged inspection of each and every transaction is not worth the time and effort.

    Instead, a wise thing to do is to take a sample from the whole volume of transactions or accounts and apply the auditing procedures to the sample. The results derived from the sample are then projected upon the whole volume of data. Samples are often taken using statistical methods to ensure that sample is taken randomly and represents the whole population of data in a true and unbiased manner.

    Consideration regarding the population before audit sampling:

    1. The population is appropriate for the specific audit objective of the auditor
    2. It is from a reliable source to ensure sample reliability
    3. It is complete in terms of coverage of all relevant items throughout the period.

    Irrespective of the method of sampling, the sample must represent the whole population closely.

    Approaches to sampling

    There are two approaches to sampling:

    1. Statistical Approach: It is a scientific way of ensuring that the sample is chosen randomly from data and represents the data in a true and unbiased way. It employs mathematical and statistical tools like the theory of probability and also considers sampling risk characteristics.
    2. Non-Statistical Approach: Under this approach, the auditor employs his personal experience to collect sample from the population. No mathematical tools are used but the personal judgement of the auditor regarding sampling. Sometimes, this approach may give satisfactory results depending upon the capability of the auditor. But in most cases, reliability is less compared to the statistical approach.
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A_Team
A_Team
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  2. GautamSaxena Curious .
    This answer was edited.

    Starting of the business The starting of the business, in accounting terms, is called the commencement of the business. There are three types of businesses that can be commenced, they are, sole proprietorship, partnership, and joint-stock company. In order to start the business, in companies, commenRead more

    Starting of the business

    The starting of the business, in accounting terms, is called the commencement of the business. There are three types of businesses that can be commenced, they are, sole proprietorship, partnership, and joint-stock company.

    In order to start the business, in companies, commencement is a declaration issued by the company’s directors with the registrar stating that the subscribers of the company have paid the amount agreed. In a sole proprietorship, the business can be commenced with the introduction of any asset such as cash, stock, furniture, etc.

    Journal entry

    In this entry, “Started business with cash $60,000”

    As per the golden rules of accounting, the cash a/c is debited because we bring in cash to the business, and as the rule says “debit what comes in, credit what goes out.” Whereas the capital a/c is credited because “debit all expenses and losses, credit all incomes and gains”

    As per modern rules of accounting, cash a/c is debited as cash is a current asset, and assets are debited when they increase. Whereas, on the increment on liabilities, they are credited, therefore, capital a/c is credited.

     

     

     

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