AccountingQA Latest Questions

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  2. ShreyaSharma none
    This answer was edited.

    Prepaid Payable Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future. A prepaid expense is an asset on the balance sheet. The number of prRead more

    Prepaid Payable

    Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future.

    A prepaid expense is an asset on the balance sheet. The number of prepaid expenses that will be used up within one year is reported on a company’s balance sheet as a current asset. According to generally accepted accounting principles (GAAP), expenses should be recorded in the same accounting period as the benefit generated from the related asset.

    Example

    ABC Ltd. purchases insurance for the warehouse. It was ₹2,000 per month. The company pays ₹24,000 in cash upfront for a 12-month insurance policy for the warehouse. Each month an adjusting journal entry will be passed, adjusting the amount of insurance used from the prepaid insurance.

    Journal Entry-

    Prepaid Expenses in Balance Sheet-

    Prepaid expenses are shown in the balance sheet under the current assets heading as it’s a short-term asset and to be consumed within one accounting year.

    Balance Sheet (for the year ending…)

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  2. GautamSaxena Curious .
    This answer was edited.

    Non-debt capital receipts As we're aware, there are two main sources of the government’s income — revenue receipts and capital receipts. Revenue receipts are all those receipts that neither create any liability nor cause any reduction in assets for the government, whereas, capital receipts are thoseRead more

    Non-debt capital receipts

    As we’re aware, there are two main sources of the government’s income — revenue receipts and capital receipts. Revenue receipts are all those receipts that neither create any liability nor cause any reduction in assets for the government, whereas, capital receipts are those money receipts of the government that either create a liability for a government or cause a reduction in assets.

    Revenue receipts comprise both tax and non-tax revenues while capital receipts consist of capital receipts and non-debt capital receipts. Non-debt capital receipt is a part of capital receipt.

    Definition

    Non-debt capital receipts, also known as NDCR, are the taxes and duties levied by the government forming the biggest source of its income. Those receipts of the government lead to a decrease in assets, and not an increase in liabilities. It accounts for just 3% of the central government’s total receipts.

    The union government usually lists non-debt capital receipts in two categories:

    • Recovery of loans – Recovery of loans means the amount recovered when a loan defaults.
    • Other receipts – Other receipts basically mean disinvestment proceeds from the sale of the government’s share in public-sector companies.
    • Money accrued to the union government from the listing of central government companies and the issue of bonus shares.

     

    For Example – Disinvestment and recovery of loans are non-debt creating capital receipts.

     

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Cash Stock in trade Furniture Advance Payment

  2. GautamSaxena Curious .
    This answer was edited.

    The correct option is 3.) The term current assets do not include furniture. Explanation A current asset is any asset that can reasonably be expected to be sold, consumed, or exhausted through the normal operations of a business within one accounting year. Thus, current assets don't have life for morRead more

    The correct option is 3.)

    The term current assets do not include furniture.

    Explanation

    A current asset is any asset that can reasonably be expected to be sold, consumed, or exhausted through the normal operations of a business within one accounting year. Thus, current assets don’t have life for more than a year.

    Example: Cash and cash equivalent, stock, liquid assets, etc.

    Furniture is expected to have a useful life for more than a year and they are bought for a long term by a company.

    Cash is a more liquid asset of a company making it a more “current” asset. It requires no conversion and is spendable as it is. Thus, making it a vital current asset.

    Stock in trade is a current asset because it can be converted into cash within one year and all the stock in trade of a company is expected to be sold within one accounting period and should not stick for a longer period.

    Advance payment, on the other hand, is an amount paid to an employee, essentially a short-term loan by the employer. It’s recorded on the asset side of the balance sheet and as these assets are used, they are expended and recorded on the income statement for the period in which they are incurred, making it a short-term asset ending within an accounting year.

    Thus, on the asset side of the balance sheet, we can clearly see which current assets are and which are not included in the current asset

    Balance Sheet (As at…..)

    Therefore, (3) Furniture, won’t be included in current assets.

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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Journal entry for goods purchased by cheque The journal entry for goods purchased by cheque is as follows: In this journal entry, purchase account and bank account are involved. The explanation is given below. Explanation Purchase Whenever there is a purchase of goods, the purchase account is debiteRead more

    Journal entry for goods purchased by cheque

    The journal entry for goods purchased by cheque is as follows:

    In this journal entry, purchase account and bank account are involved. The explanation is given below.

    Explanation

    Purchase

    Whenever there is a purchase of goods, the purchase account is debited.

    Goods refer to the items which an enterprise manufactures or purchases and sells to generate its business revenue.

    If there is a purchase of any other item which does not satisfy the above definition of goods, then the purchase account is not involved.

    For example, if stationery is purchased and the enterprise does not trade in stationery items, then the purchase account will not appear in the journal entry.

    Payment by cheque

    Payment by cheque means the payment amount will be deducted from the bank account balance. Hence, in the given journal entry, the bank account is involved.

    The logic behind the debit and credit

    The golden rules of accounting

    Purchase is an expense hence it is a nominal account. The golden rule for nominal accounts is “Debit all expense and loss and credit all incomes and gains”

    Hence, the purchase account is debited.

    Bank is a real account and the golden rule of accounting for real accounts is, “Debit what comes in, credit what goes out”.

    Hence, the bank account is credited as money is going out of the bank.

    Modern rules of accounting

    Purchase is an expense account, and expenses are debited when increased and credited when decreased.

    Hence, the purchase account is debited here.

    A bank account is an asset account. Asset accounts are debited in case of an increase and credited in case of a decrease. Hence, the bank account is credited here.

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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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  2. GautamSaxena Curious .
    This answer was edited.

    There are three types of businesses that can be commenced, they are sole proprietorship, partnership, and joint-stock company. As we all know, to start any business a certain sum of money has to be invested by the owner which is known as the capital of the business in terms of accounting. In companiRead more

    There are three types of businesses that can be commenced, they are sole proprietorship, partnership, and joint-stock company. As we all know, to start any business a certain sum of money has to be invested by the owner which is known as the capital of the business in terms of accounting.

    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 the journal entry, “Started business with Cash”

    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.

    Therefore, the entry we’ll be passing is-

     

     

     

     

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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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  2. AishwaryaMunot
    This answer was edited.

    Meaning New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit. Thus, New pRead more

    Meaning

    New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit.

    Thus, New profit-sharing ratio can be stated as ratio in which all the partners, Old and New will share profits and losses of the partnership in future. The new profit-sharing ratio can be calculated as follows.

     

    Formula

    Sacrifice ratio is the ratio in which old/existing partners agrees to give away their share in profits for the new partner.

    For better understanding let’s see how calculation of New profit-sharing ratio can be done:

    Example : There are two partners in a partnership firm, Mr. Anil & Mr. Mukesh. Their profit-sharing ratio is 2:3. They wants to admit Mr. Nikhil as their third partner for 1/3rd share.

    In such case, Calculation of New profit-sharing ratio would be as follows:

    Total profit = 1

    Mr. Nikhil’s Share = 1/3

    Remaining Profit = 1 – 1/3 = 2/3

    So, this remaining share of 2/3 is shared among the old partners in their old ratio of 2:3.

    Mr. Anil’s Share = 2/3 x 2/5 = 4/15

    Mr. Mukesh’s Share = 2/3 x 3/5 = 6/15

    Mr. Nikhil’s Share = 1/3 x 5/5 =5/15

    So, New ratio would be 4/15: 6/15: 5/15 i.e., 6:4:5

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  2. GautamSaxena Curious .
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    Income and Expenditure A/c of Charitable Trust Income and Expenditure A/c is like the Profit and Loss A/c in the Balance Sheet of the Charitable Trust. All the income and expenses are, therefore, recorded in this. It is used to determine the surplus or deficit of income over expenditures over a specRead more

    Income and Expenditure A/c of Charitable Trust

    Income and Expenditure A/c is like the Profit and Loss A/c in the Balance Sheet of the Charitable Trust. All the income and expenses are, therefore, recorded in this. It is used to determine the surplus or deficit of income over expenditures over a specific accounting period.

    It shows the summary of all the income and expenditures done by the charitable trust over an accounting year. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side, and incomes and gains on the income side of the account.

     

    • Therefore, as you can see here, how a charitable trust may use MS Excel for making their Income and Expenditure A/c, the Surplus and Deficit are the balancing figures used for balancing both the debit and credit sides.

    Later on, they are even used in the Balance Sheet. As follows-

    On the Assets Side 

     

    On the Liability Side

     

     

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  2. Ayushi Curious Pursuing CA

    In trial balance, the treatment of the general reserve is that it is presented on the credit side. A trial balance is a statement prepared to check the arithmetical accuracy of the books of accounts. It features the closing balances of all the assets, liabilities and equity of a business. General reRead more

    In trial balance, the treatment of the general reserve is that it is presented on the credit side.

    A trial balance is a statement prepared to check the arithmetical accuracy of the books of accounts. It features the closing balances of all the assets, liabilities and equity of a business.

    General reserve is a free reserve created out of revenue profits of a business to meet future needs and uncertainties. By free reserve, we mean dividends can be freely declared and distributed out of it.

    Since the general reserve is an internal liability i.e. liability to the owner or owners or the business, it has a credit balance and is hence shown on the credit side of the trial balance.

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