Interviews can appear daunting. But don't worry we are here for you. Here is a comprehensive list of journal entries and other technical and behavioral questions mostly asked in interviews. Journal entries for the following situations are most frequently asked: A cashier is absconding with cash wortRead more
Interviews can appear daunting. But don’t worry we are here for you. Here is a comprehensive list of journal entries and other technical and behavioral questions mostly asked in interviews.
Journal entries for the following situations are most frequently asked:
A cashier is absconding with cash worth 10,000.
Bad debts worth ₹10,000 have been recovered.
The Head Office received ₹ 5,000 from its Branch.
Issue of bonus shares worth 5,00,000
Depreciation on land
Contra Entries
Inventory used for personal purposes
Personal car transferred to inventory
Besides these, there are certain general questions that are almost always asked. You must be well prepared for these questions. For example,
Introduce yourself
Why do you want to join this company?
Why do you not want to join our competitors? ( prepare one or two specific competitors)
Why do you think you are fit for this role?
Behavioral Questions
Behavioral questions seek to evaluate your personality and access how you would act or react in certain situations.
Here are some of the most frequently asked behavioral questions:
Tell me about an experience where you faced stress and how you handled it.
How do you react when team members do not agree with you?
How do you react when you do not agree with the team leader?
What is the biggest challenge that you have ever faced in your life and how did you handle it?
Tell me about a time when you had to take a leadership role.
Tell me about a time when you took initiative.
Tell me about a time when you failed and how you handled it.
Tell me about a time when you used your problem-solving skills
Tell me about the biggest mistake you have committed in life.
Tell me about your strengths and weaknesses.
Have you ever worked with a team before?
Where do you see yourself in 5 years?
Tell me about the biggest mistake you committed in your life.
Technical questions
Technical questions are those that test your academic knowledge of accounting. They intend to assess your conceptual understanding and clarity of the subject. Here’s a list of technical questions related to accounting most frequently asked in interviews:
What is working capital?
What is AS 1? ( Prepare all AS)
What is the P/E ratio?
A company takes a loan of ₹5,00,000 to buy an asset. State the impact on the cash flow statement and balance sheet.
A company issues debentures worth ₹10,00,000. State the impact on the cash flow statement and balance sheet.
What is the difference between a trial balance and a balance sheet?
Differentiate between dormant and inactive accounts.
What is Acid-Test Ratio?
How can we estimate bad debts?
How can a company improve its market capitalization?
What is GAAP?
Why do we need AS?
What are fictitious assets?
What is the difference between provision and reserve?
Bad debts mean the money owed by customers who have gone bankrupt or the likelihood of who's ever returning the money is significantly low. Bad debt is a nominal account. A nominal account is an account that records the business transactions belonging to a certain category of income, expense, profitRead more
Bad debts mean the money owed by customers who have gone bankrupt or the likelihood of who’s ever returning the money is significantly low. Bad debt is a nominal account.
A nominal account is an account that records the business transactions belonging to a certain category of income, expense, profit or loss. The balances on nominal accounts are normally written off at the end of each financial year. For example, sales A/c, purchases A/c, interest income, loss from the sale of assets etc.
Why are bad debts A/c classified as a nominal account?
First of all, let us understand the other two types of accounts – personal accounts and real accounts.
Personal accounts deal with the records of the business’ transactions with a particular person or entity. For example Mukesh A/c, Mahesh A/c, Reliance A/c, Suresh and Co. A/c etc.
Real accounts deal with transactions and records related to assets. The balance in these accounts is normally carried forward from one period to another. For example “Furniture A/c “, ” Building A/c ” etc.
Now that we have understood the basic definitions of all three types of accounts, we can discuss the reason behind the classification of bad debts as nominal accounts.
A bad debt is a loss that the company has incurred. It may be due to bankruptcy of customers, customer fraud etc. The company isn’t going to receive that money. The bad debts are written off at the end of the year by transferring them to profit and loss A/c.
Thus, bad debts relate to loss and are normally not carried forward from one period to another. Hence, they are classified as nominal accounts.
Treatment of Bad Debts
Bad debts are written off at the end of each year by debiting them to the profit and loss A/c. The amount of bad debts is reduced from the amount of debtors that the company has.
A company may also choose to create a provision for bad debts for the balance amount of debtors that the company has after adjusting for bad debts. This provision represents a rough estimate of the amount due to debtors that the business expects to not receive. In other words, it is an estimate of customer bankruptcy that the business expects.
Conclusion
We can conclude that
There are primarily three types of accounts – real, personal and nominal.
Bad debts are a nominal account.
Bad debts is a loss that the business has incurred
It may be due to bankruptcy of customers, fraud etc
Bad debts are written off each year by transferring them to the income statement
Accrued expenses are those expenses that have already been incurred but not paid. The business has already received the benefit of these goods or services but is yet to pay for them. For example, X Ltd took an insurance policy on 30th September 20XX. The premium is to be paid annually on 30th SeptemRead more
Accrued expenses are those expenses that have already been incurred but not paid. The business has already received the benefit of these goods or services but is yet to pay for them.
For example,
X Ltd took an insurance policy on 30th September 20XX. The premium is to be paid annually on 30th September every year for the next 20 years.
While preparing the financial statements for the year 20XX – 20XX+1, the business will recognize insurance premiums for the period 30th September, 20XX to 31st March 20XX+1 as an accrued expense. The premium would be actually paid on September 20XX+1.
As we can see, the company has already incurred the insurance premium for the period 30th September, 20XX to 31st March 20XX+1.
Thus, it has to recognize the same as an expense of that period only even though it will be actually paid in the next accounting period.
Why does the concept of accrued expenses arise in accounting?
The concept of accrued expenses arises in accounting because accounting records transactions on an accrual and not cash basis.
Accounting on an accrual basis implies recording transactions as and when they are incurred while recording transactions on a cash basis means recording them as and when cash is actually paid for receiving those services.
For example,
X Ltd ordered 5 televisions from LG. It received the delivery of all 5 televisions on 1st March, 20XX. However, it received the invoice for those televisions on 31st April, 20XX.
Now, the question arises as to whether while preparing the financial statements on 31st March, 20XX, X Ltd will recognize the cost of those 5 televisions as a purchase expenditure.
If X Ltd were recording transactions on a cash basis, they would not have recognized the cost of those 5 televisions as a purchase expenditure in the financial statements prepared on 31st March 20XX as the payment had been made in the next financial year.
Thus, in that case, that purchase would be recorded in the financial statements of the next year.
However, accounting is done on an accrual basis. As per accrual basis, as the event of purchase has occurred during the financial year ending 31st March 20XX, it must be recorded in financial statements for that period only.
Thus, due to the accrual basis, X Ltd will record that expenditure in the financial statements prepared on 31st March 20XX even though cash has been paid in the next financial year.
Treatment of Accrued Expenses
Accrued expenses are classified as current liabilities. That is because the business has a short-term obligation to pay these expenses. The other party has a legal right to receive the amount due. In other words, accrued expenses become payable in the near term.
As current liabilities, accrued expenses are carried in the balance sheet on the liabilities side. They are also recognized in the income statement as an expense as per the concept of accrual basis of accounting.
Conclusion
Accrued expenses are the expenses for which the business has already received the benefit of goods or services but which are payable in an accounting period other than the one in which such benefit is received.
As per the accrual basis of accounting, they are recognized in the year in which the expense is incurred. The expense is carried forward as a current liability until the period in which it is actually paid.
Definition Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable. For example loans from banks are declared as bad debt, sales made on credit and amounts not received from customRead more
Definition
Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable.
For example loans from banks are declared as bad debt, sales made on credit and amounts not received from customers, etc.
Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business.
For example, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.
Current liabilities are defined as liabilities that are payable normally within 12 months from the end of the accounting period or in other words which fall due for payment in a relatively short period.
For example bills payable, short-term loans, etc.
Accounting treatment
Now let me try to explain to you the accounting treatment for bad debts which is as follows :
Balance sheet
In the balance sheet either it can be shown on the asset side under head current assets by reducing from that specific assets.
For example, if credit sales are made to a customer who says it’s not recoverable or is partially recoverable then the amount is bad debt. It’s a loss for the business and credited to the personal account of debtors or we can say reduced from debtor those are current assets of the balance sheet.
Profit and loss account
Bad debts are treated as an expense and debited to the profit and loss account.
For example same as above which I have explained but before transferring to the balance sheet bad debt will be debited to the profit and loss account as an expense.
Conclusion
Therefore I can conclude that bad debts will be treated in the following ways :
On the debit side of the profit and loss account.
In the current assets side of the balance sheet, these are deducted from sundry debtors.
Reasons for bad debts
There are several reasons why businesses may have bad debts some of them are as follows:-
Offered credit to customers who were unable to pay them back, or they may have been the victim of fraud.
When there is conflicts or dispute arise with respect to product size, color, quality, delivery, credit term, price, etc therefore debts becomes bad.
Debtors have poor financial management or they are not able to pay debts on time.
Debtors’ unwillingness to pay is also a reason for debts to become bad.
Or there can be more cases where debtors are unable to collect debts and debts turns out to be bad.
Accounting methods
There are two methods for accounting for bad debts which are mentioned below:-
First, is the direct written-off method which states that bad debts will be directly treated as expenses and expensed to the income statement or which is called the profit and loss account.
Second, is the allowance method which means we create provisions for doubtful debtsaccounts and the debtor’s account remains as it is since the debtor’s account and provision for doubtful debts account are two separate accounts.
Debts that are doubtful of recovery are provided estimating the debts that may not be recovered .amount debited to the profit and loss account reduces the current year’s profit and the amount of provision is carried forward to the next year.
Next year, when debts actually become bad debts and are written off, the amount of bad debts is transferred ( debited ) to the provision for doubtful debts account.
The amount of bad debts is not debited to the profit and loss account since it was already debited in earlier years.
Provision for doubtful debts is shown in the debit side of profit and loss account as well as shown as a deduction from sundry debtors in the assets side of the balance sheet.
Related terms
So there are a few related terms whose meanings you should know
Further bad debts :
It means the amount of sundry debtors in the trial balance is before the deduction of bad debts. in this situation, entry for further bad debts is also passed into the books of account.
That is bad debts are debited and the debtor’s account is credited. And the accounting treatment for them is the same as bad debts which I have shown you above.
Bad debts recovered :
It may happen that the amount written off as bad debts are recovered fully or partially.
In that case, the amount is not credited to the debtor’s (personal) account but is credited to the bad debts recovered account because the amount recovered had been earlier written off as a loss.
Thus amount recovered is a ‘gain’ and is credited to the profit and loss account.
No, forensic accounting and auditing are not the same thing. Forensic accounting is a much more detailed task that is normally done when fraud or other illegal activity is suspected. The evidence collected by forensic accountants is used in the court of law. Forensic accounting is mostly done when aRead more
No, forensic accounting and auditing are not the same thing. Forensic accounting is a much more detailed task that is normally done when fraud or other illegal activity is suspected.
The evidence collected by forensic accountants is used in the court of law. Forensic accounting is mostly done when a suit has already been filed or is likely to be filed.
How Forensic Accounting Differs from Auditing?
Auditing means an inspection of financial statements done by experts with a view to obtaining reasonable assurance as to whether or not the financial statements correctly state the financial position and financial performance of the entity during the period under audit.
Forensic accounting is the use of accounting skills to detect any fraud, embezzlement or other illegal activity that may have occurred within the entity.
This is how forensic accounting differs from auditing:
Forensic accounting is different from auditing in that forensic accounting is done with an intention to identify and uncover frauds while auditing is normally done to provide the users of financial statements reasonable assurance that the statements are correct and true.
Auditing usually identifies only those misstatements that are material. Materiality is the one of the main concerns of auditors. However, in forensic auditing every type of misstatement is scrutinized as material. The forensic accountants try to identify fraud in every misstatement.
Forensic accounting is usually done only when fraud and other illegal activities are suspected and some suit has been filed or is likely to be filed while auditing of annual financial statements is mandatory for firms meeting certain threshold limits of turnover/gross receipt/revenue.
Importance of Forensic Accounting
Forensic accounting is used to detect frauds, forgery, misappropriation of assets and other illegal activities.
The evidence collected during forensic accounting can be used in a court of law. Often, those conducting forensic accounting are also called upon to testify as experts in a court.
Forensic accounting identifies loopholes in the internal controls of an entity that has been or may be exploited for conducting frauds and other illegal activities.
Forensic accountants suggest different measures that an entity can take to make it’s internal controls more effective and prevent illegal activities in the future.
Conclusion
Forensic accounting and auditing are very different from each other. While auditing is done to identify only material misstatement, forensic accounting is done with an objective of detecting possible fraud or other illegal activity. Auditing of financial statements is mandatory for firms exceeding certain threshold limits of turnover/gross receipts/revenue while financial accounting is usually done when a suit for fraud, embezzlement etc has been filed or is likely to be filed.
Definition Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable. Sometimes debtors are unable to pay the amount due either partially or fully. the amount that is not receivableRead more
Definition
Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable.
Sometimes debtors are unable to pay the amount due either partially or fully. the amount that is not receivable is a loss and is called bad debt.
Bad debts are neitherassets nor liabilities they are expenses that are debited to the profit and loss account and reduced from debtors in the balance sheet.
For example loans from banks are declared as bad debt, sales made on credit and amounts not received from customers, etc.
Related terms
So there are a few related terms whose meanings you should know
Further bad debts :
It means the amount of sundry debtors in the trial balance is before the deduction of bad debts. in this situation, entry for further bad debts is also passed into the books of account.
That is bad debts are debited and the debtor’s account is credited. And the accounting treatment for them is the same as bad debts which I have shown you above.
Bad debts recovered :
It may happen that the amount written off as bad debts are recovered fully or partially.
In that case, the amount is not credited to the debtor’s (personal) account but is credited to the bad debts recovered account because the amount recovered had been earlier written off as a loss.
Thus amount recovered is a ‘gain’ and is credited to the profit and loss account.
Accounting methods
There are two methods for accounting for bad debts which are mentioned below:-
First, is the direct written-off method which states that bad debts will be directly treated as expenses and expensed to the income statement, which is called the profit and loss account.
Second, is the allowance method which means we create provisions for doubtful debtsaccounts and the debtor’s account remains as it is since the debtor’s account and provision for doubtful debts account are two separate accounts.
Debts that are doubtful of recovery are provided estimating the debts that may not be recovered .amount debited to the profit and loss account reduces the current year’s profit and the amount of provision is carried forward to the next year.
Next year, when debts actually become bad debts and are written off, the amount of bad debts is transferred ( debited ) to the provision for doubtful debts account.
The amount of bad debts is not debited to the profit and loss account since it was already debited in earlier years.
Provision for doubtful debts is shown in the debit side of the profit and loss account as well as shown as a deduction from sundry debtors in the assets side of the balance sheet.
Accounting treatment
Now let me try to explain to you the accounting treatment for bad debts which is as follows :
Balance sheet
In the balance sheet either it can be shown on the asset side under the head, current assets by reducing from that specific assets.
For example, if credit sales are made to a customer who says it’s not recoverable or is partially recoverable then the amount is bad debt. It’s a loss for the business and credited to the personal account of debtors or we can say reduced from debtor those are current assets of the balance sheet.
Profit and loss account
Bad debts are treated as expenses and debited to the profit and loss account.
For example, as I have explained above, before transferring to the balance sheet, bad debt will be debited to the profit and loss account as an expense.
Now let me show you the extract of the profit and loss account and balance sheet showing baddebts and bad debts recovered which are as follows:-
Definition Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business. Or in other words, we can say that the expected realization period is less than the operating cRead more
Definition
Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business.
Or in other words, we can say that the expected realization period is less than the operating cycle period although it is more than the period of 12 months from the date of the balance sheet.
For example, goods are purchased with the purpose to resell and earn a profit, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.
List of current assets
The list of current assets is as follows:-
Cash in hand
Cash equivalents
Bills receivables
Sundry debtors
Prepaid expenses
Accrued income
Closing stock
Short-term investments ( marketable securities )
Other liquid assets
Now here are a few definitions for the above list of current assets which are as follows:-
Cash in hand
Cash comprises cash on hand and demand deposits with banks.
Cash equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
Bills receivables
It means a bill of exchange accepted by the debtor, the amount of which will be received on the specific date.
Sundry debtors
A debtor is a person or entity who owes an amount to an enterprise against credit sales of goods and/or services rendered.
Prepaid expenses
Expense that has been paid in advance and benefit of which will be available in the following years or year.
Accrued income
Income that has been earned in the accounting period but in respect of which no enforceable claim has become due in that period by the enterprise.
Closing stock
Stock or inventory at the end of the accounting period which is shown in the balance sheet and which is valued on the basis of the “ cost or net realizable value, whichever is lower “ principle is called closing stock.
Short term investment
Investments that are also known as marketable securities and are held for a temporary period of time i.e, for less than 12 months, and can be easily converted into cash are called short-term investments.
Criteria for classification
Now let us see the classification of assets in the case of companies as per Schedule III of the Companies act 2013.
An asset is a current asset if it satisfies any one of the following criteria which are as follows:-
It is held primarily for the purpose of being traded.
It is expected to be realized in or is intended for sale or consumption in the company’s normal operating cycle.
It is expected to be realized within 12 months from the reporting date.
It is cash and cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date.
Here is an extract of the balance sheet showing current assets
What are some journal entries for interview?
Interviews can appear daunting. But don't worry we are here for you. Here is a comprehensive list of journal entries and other technical and behavioral questions mostly asked in interviews. Journal entries for the following situations are most frequently asked: A cashier is absconding with cash wortRead more
Interviews can appear daunting. But don’t worry we are here for you. Here is a comprehensive list of journal entries and other technical and behavioral questions mostly asked in interviews.
Journal entries for the following situations are most frequently asked:
Besides these, there are certain general questions that are almost always asked. You must be well prepared for these questions. For example,
Behavioral Questions
Behavioral questions seek to evaluate your personality and access how you would act or react in certain situations.
Here are some of the most frequently asked behavioral questions:
Technical questions
Technical questions are those that test your academic knowledge of accounting. They intend to assess your conceptual understanding and clarity of the subject. Here’s a list of technical questions related to accounting most frequently asked in interviews:
- What is working capital?
- What is AS 1? ( Prepare all AS)
- What is the P/E ratio?
- A company takes a loan of ₹5,00,000 to buy an asset. State the impact on the cash flow statement and balance sheet.
- A company issues debentures worth ₹10,00,000. State the impact on the cash flow statement and balance sheet.
- What is the difference between a trial balance and a balance sheet?
- Differentiate between dormant and inactive accounts.
- What is Acid-Test Ratio?
- How can we estimate bad debts?
- How can a company improve its market capitalization?
- What is GAAP?
- Why do we need AS?
- What are fictitious assets?
- What is the difference between provision and reserve?
See lessIs bad debt a nominal account?
Bad debts mean the money owed by customers who have gone bankrupt or the likelihood of who's ever returning the money is significantly low. Bad debt is a nominal account. A nominal account is an account that records the business transactions belonging to a certain category of income, expense, profitRead more
Bad debts mean the money owed by customers who have gone bankrupt or the likelihood of who’s ever returning the money is significantly low. Bad debt is a nominal account.
A nominal account is an account that records the business transactions belonging to a certain category of income, expense, profit or loss. The balances on nominal accounts are normally written off at the end of each financial year. For example, sales A/c, purchases A/c, interest income, loss from the sale of assets etc.
Why are bad debts A/c classified as a nominal account?
First of all, let us understand the other two types of accounts – personal accounts and real accounts.
Personal accounts deal with the records of the business’ transactions with a particular person or entity. For example Mukesh A/c, Mahesh A/c, Reliance A/c, Suresh and Co. A/c etc.
Real accounts deal with transactions and records related to assets. The balance in these accounts is normally carried forward from one period to another. For example “Furniture A/c “, ” Building A/c ” etc.
Now that we have understood the basic definitions of all three types of accounts, we can discuss the reason behind the classification of bad debts as nominal accounts.
A bad debt is a loss that the company has incurred. It may be due to bankruptcy of customers, customer fraud etc. The company isn’t going to receive that money. The bad debts are written off at the end of the year by transferring them to profit and loss A/c.
Thus, bad debts relate to loss and are normally not carried forward from one period to another. Hence, they are classified as nominal accounts.
Treatment of Bad Debts
Bad debts are written off at the end of each year by debiting them to the profit and loss A/c. The amount of bad debts is reduced from the amount of debtors that the company has.
A company may also choose to create a provision for bad debts for the balance amount of debtors that the company has after adjusting for bad debts. This provision represents a rough estimate of the amount due to debtors that the business expects to not receive. In other words, it is an estimate of customer bankruptcy that the business expects.
Conclusion
We can conclude that
- There are primarily three types of accounts – real, personal and nominal.
- Bad debts are a nominal account.
- Bad debts is a loss that the business has incurred
- It may be due to bankruptcy of customers, fraud etc
- Bad debts are written off each year by transferring them to the income statement
See lessWhat is the meaning of accrued expenses in accounting?
Accrued expenses are those expenses that have already been incurred but not paid. The business has already received the benefit of these goods or services but is yet to pay for them. For example, X Ltd took an insurance policy on 30th September 20XX. The premium is to be paid annually on 30th SeptemRead more
Accrued expenses are those expenses that have already been incurred but not paid. The business has already received the benefit of these goods or services but is yet to pay for them.
For example,
Why does the concept of accrued expenses arise in accounting?
The concept of accrued expenses arises in accounting because accounting records transactions on an accrual and not cash basis.
Accounting on an accrual basis implies recording transactions as and when they are incurred while recording transactions on a cash basis means recording them as and when cash is actually paid for receiving those services.
For example,
Treatment of Accrued Expenses
Accrued expenses are classified as current liabilities. That is because the business has a short-term obligation to pay these expenses. The other party has a legal right to receive the amount due. In other words, accrued expenses become payable in the near term.
As current liabilities, accrued expenses are carried in the balance sheet on the liabilities side. They are also recognized in the income statement as an expense as per the concept of accrual basis of accounting.
Conclusion
Accrued expenses are the expenses for which the business has already received the benefit of goods or services but which are payable in an accounting period other than the one in which such benefit is received.
As per the accrual basis of accounting, they are recognized in the year in which the expense is incurred. The expense is carried forward as a current liability until the period in which it is actually paid.
See lessWhere does bad debts come in the balance sheet?
Definition Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable. For example loans from banks are declared as bad debt, sales made on credit and amounts not received from customRead more
Definition
Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable.
For example loans from banks are declared as bad debt, sales made on credit and amounts not received from customers, etc.
Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business.
For example, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.
Current liabilities are defined as liabilities that are payable normally within 12 months from the end of the accounting period or in other words which fall due for payment in a relatively short period.
For example bills payable, short-term loans, etc.
Accounting treatment
Now let me try to explain to you the accounting treatment for bad debts which is as follows :
Conclusion
Therefore I can conclude that bad debts will be treated in the following ways :
Reasons for bad debts
There are several reasons why businesses may have bad debts some of them are as follows:-
Accounting methods
There are two methods for accounting for bad debts which are mentioned below:-
Related terms
So there are a few related terms whose meanings you should know
See lessIs forensic accounting same as audit?
No, forensic accounting and auditing are not the same thing. Forensic accounting is a much more detailed task that is normally done when fraud or other illegal activity is suspected. The evidence collected by forensic accountants is used in the court of law. Forensic accounting is mostly done when aRead more
No, forensic accounting and auditing are not the same thing. Forensic accounting is a much more detailed task that is normally done when fraud or other illegal activity is suspected.
The evidence collected by forensic accountants is used in the court of law. Forensic accounting is mostly done when a suit has already been filed or is likely to be filed.
How Forensic Accounting Differs from Auditing?
Auditing means an inspection of financial statements done by experts with a view to obtaining reasonable assurance as to whether or not the financial statements correctly state the financial position and financial performance of the entity during the period under audit.
Forensic accounting is the use of accounting skills to detect any fraud, embezzlement or other illegal activity that may have occurred within the entity.
This is how forensic accounting differs from auditing:
Importance of Forensic Accounting
Conclusion
Forensic accounting and auditing are very different from each other. While auditing is done to identify only material misstatement, forensic accounting is done with an objective of detecting possible fraud or other illegal activity. Auditing of financial statements is mandatory for firms exceeding certain threshold limits of turnover/gross receipts/revenue while financial accounting is usually done when a suit for fraud, embezzlement etc has been filed or is likely to be filed.
See lessIs bad debt an asset?
Definition Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable. Sometimes debtors are unable to pay the amount due either partially or fully. the amount that is not receivableRead more
Definition
Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable.
Sometimes debtors are unable to pay the amount due either partially or fully. the amount that is not receivable is a loss and is called bad debt.
Bad debts are neither assets nor liabilities they are expenses that are debited to the profit and loss account and reduced from debtors in the balance sheet.
For example loans from banks are declared as bad debt, sales made on credit and amounts not received from customers, etc.
Related terms
So there are a few related terms whose meanings you should know
Accounting methods
There are two methods for accounting for bad debts which are mentioned below:-
Accounting treatment
Now let me try to explain to you the accounting treatment for bad debts which is as follows :
Now let me show you the extract of the profit and loss account and balance sheet showing bad debts and bad debts recovered which are as follows:-
See lessCan you share a list of current assets?
Definition Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business. Or in other words, we can say that the expected realization period is less than the operating cRead more
Definition
Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business.
Or in other words, we can say that the expected realization period is less than the operating cycle period although it is more than the period of 12 months from the date of the balance sheet.
For example, goods are purchased with the purpose to resell and earn a profit, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.
List of current assets
The list of current assets is as follows:-
Now here are a few definitions for the above list of current assets which are as follows:-
Cash in hand
Cash comprises cash on hand and demand deposits with banks.
Cash equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
Bills receivables
It means a bill of exchange accepted by the debtor, the amount of which will be received on the specific date.
Sundry debtors
A debtor is a person or entity who owes an amount to an enterprise against credit sales of goods and/or services rendered.
Prepaid expenses
Expense that has been paid in advance and benefit of which will be available in the following years or year.
Accrued income
Income that has been earned in the accounting period but in respect of which no enforceable claim has become due in that period by the enterprise.
Closing stock
Stock or inventory at the end of the accounting period which is shown in the balance sheet and which is valued on the basis of the “ cost or net realizable value, whichever is lower “ principle is called closing stock.
Short term investment
Investments that are also known as marketable securities and are held for a temporary period of time i.e, for less than 12 months, and can be easily converted into cash are called short-term investments.
Criteria for classification
Now let us see the classification of assets in the case of companies as per Schedule III of the Companies act 2013.
An asset is a current asset if it satisfies any one of the following criteria which are as follows:-
Here is an extract of the balance sheet showing current assets
See less