Subsidiary Books Introduction & Definition In large business organizations, it is practically impossible to keep a record of every single business affair, while neglecting them and not recording them wouldn't be an ideal choice, this is where subsidiary books come into the role. As we were introRead more
Subsidiary Books
Introduction & Definition
In large business organizations, it is practically impossible to keep a record of every single business affair, while neglecting them and not recording them wouldn’t be an ideal choice, this is where subsidiary books come into the role. As we were introduced to the basics of accounting in the 11th standard, we learned about different elements like journals, ledgers, trial balances, etc. It is practically impossible for a business to keep track of every single affair just through only those elements. Thus, the Subsidiary book is the next step here.
Subsidiary books are the books of original entry. They are a dedicated form of books that maintains an analysis of a specific account. It records financial transactions of a similar nature. They are sub-division of a journal.
In big business organizations, it’s very hard for a bookkeeper or accountant to record all the transactions in one journal and post them into various accounts. This is where special purpose books or subsidiary books may be required for more efficient bookkeeping. They are a subdivision of journals and for every type of transaction, there is a separate book.
Types of Subsidiary Books
There are eight types of subsidiary books that are required for recording transactions. The list of various subsidiary books is as follows:
Cash Book
Purchase Book
Sales Book
Purchase Return Book
Sales Return Book
Journal Proper
Bills Receivable Book
Bills Payable Book
Types of Subsidiary Books
Now, we’ll be taking a closer look at each and every subsidiary book.
Cash Book
The cash book is the most important subsidiary book, it’s a book of a prime entry recording all the cash spent or received by the business, either in cash form or from the bank. In simple words, recording all the transactions made by the business.
It is of three types i.e single-column cash book, double-column cash book, and triple-column cash book. As the name indicates, the column of cash, bank, and discount increases/decreases as per the column of the cash book stated.
Format
Note: this is a triple-column cash book format, for the double-column cash book format, we remove the discount column from both sides, and for the single column, we may remove the bank column as well.
Purchase Book
A purchase book is a subsidiary book that records all the transactions related to the credit purchase in a business. Thereby, the normal purchasing of assets is never recorded in the purchase book.
The credit purchases are directly recorded in the purchase book from the journals or the source documents. The source document indicates bills payable, invoices, etc.
Format
Sales Book
A sales book, similar to a purchase book, is a special book where all the credit sales are recorded. The sales book doesn’t record the transactions related to the normal sale of assets and hence, is a special type of book, just like the purchase book.
Format
Purchase Return Book
The purchase return book, also known as the return outwards book, is that book that records the goods that were returned by us to the supplier. Thereby, called purchase return book.
When the goods are returned, a debit note is issued against every return and hence, recorded in the purchase return book.
Format
Sales Return Book
The sales return book, also known as the return inwards book, refers to that subsidiary book that records the goods which were returned to us by the customer.
For every good returned to us, a credit note is issued to the customer. And thus, it is recorded in the sales return book.
Format
Journal Proper
Just like we recently learned in class 11th about what a journal entry is and how it is made, it’s a little different from the journal proper. Journal proper is a subsidiary book that records all the transactions which are not recorded in other subsidiary books.
A journal is an original book of entries that records all the business transactions, while a journal proper is a subsidiary book in which all types of miscellaneous credit business transactions are recorded that do not fit anywhere in the other subsidiary books. Its format is the same as the journal entries’ format. Therefore, it’s also known as a miscellaneous journal.
Format
Bills Receivable Book
The bills receivable book is the book that draws the bills favorable to the business i.e when the goods or services are provided to any customer on credit, they become a debtor, and bills receivable is a written note received from the customer indicating that they formally agree to pay the sum of money owed.
Therefore, it helps in recording these types of transactions. The sum total of the bills receivable book is posted to the bills receivable account.
Format
Bills Payable Book
The bills payable book is the subsidiary book that records all the bills that are drawn on the company. The bills payable is drawn on the company when we buy a good/service on credit and agrees to pay the amount to the supplier by signing a written note with the date we agree to pay.
It’s a liability of the business and the total of the bills payable book is posted on the credit side of the bills payable account.
Capitalize in Accounting The term 'capitalized' in accounting means to record an expenditure as an asset on the balance sheet. Capitalization takes place when a business buys an asset that has a useful life. The cost of the relevant asset is then allocated to expense over its useful life i.e charginRead more
Capitalize in Accounting
The term ‘capitalized’ in accounting means to record an expenditure as an asset on the balance sheet. Capitalization takes place when a business buys an asset that has a useful life. The cost of the relevant asset is then allocated to expense over its useful life i.e charging depreciation, etc. This means that the relevant expenditure will appear on the balance sheet instead of the income statement. The capitalizing of the expenses is a benefit for the company as the assets bought by them for the long-term are subjected to depreciation and capitalizing expenses can amortize or depreciate the costs. This process is called capitalization.
In order to capitalize any expense, we’ll have to make sure it meets the criteria stated below.
The assets exceeding the capitalization limit
The companies set a capitalization limit, below which the expenses are considered too immaterial to be capitalized. Therefore, the limit is supposed to be followed and considered as it controls the capitalization of the expenses. Generally, the capitalization limit is $1,000.
The assets have a useful life
The companies also seek to generate revenues for a long period of time. Thus, the asset should have a long and useful life at least a year or more. Thereby, the business can record it as an asset and depreciate it over its valuable life.
Most of the important principles of capitalization in accounting are from the matching principle.
Matching Principle
The matching principle states that the expenses in the accounting should be recorded when they are incurred and not when the payment is made. This helps the business identify the amounts spent to generate revenue.
For e.g, the company bought machinery for manufacturing goods with more efficiency. It is supposed to have a useful life for a period of over 10 years. Instead of expensing the entire cost of the machinery, the company will write off (depreciated) the cost of the asset over its useful life i.e 10 years. Therefore, the asset will be written off as it is used and these types of assets are automatically used as capitalized assets.
Benefits of Capitalization
Capitalization is of course recording expenses as an asset but this indeed has benefits.
This reduces the fluctuation of income over time as the fixed assets (long-term) are costly. For the small business owners or the small firms, it’s even greater.
The capitalization of expenditures increases the company’s asset balance, without changing the company’s liability balance. This improves the financial ratios like the current ratio.
Small businesses have a provision for tax benefits related to the depreciation of capitalized assets. Section 179 of depreciation allows those business owners to depreciate certain assets quicker than others are allowed.
The land is a fixed asset and is treated as a long-term asset account. Explanation The land is a fixed asset which is also referred to as a long-term asset. The fixed assets are those assets that are not expected to be cashed, consumed, last, sold, or written off within one accounting year and areRead more
The land is a fixed asset and is treated as a long-term asset account.
Explanation
The land is a fixed asset which is also referred to as a long-term asset.
The fixed assets are those assets that are not expected to be cashed, consumed, last, sold, or written off within one accounting year and are purchased for long-term use. The fixed assets are also called non-current assets and the reason behind it is that current assets are easily converted into cash within one year and they are not.
Fixed assets are planned by the company to be used for the long term in order to generate income.
Example- Land, building, furniture, plants & equipment, etc.
Why is land an asset?
Although the land is not depreciated, it is still considered to be an asset because just like other assets the business spends its own money to acquire it.
It can also be used by the business for different operations and it doesn’t create any liability for the business. Instead, reselling the land after a few years can help the company earn a huge margin of profit.
Land in the balance sheet
On the asset side of the balance sheet, the land is stated under the heading long-term assets.
Balance Sheet (for the year…)
Therefore, the land is a fixed asset and is treated as a long-term asset account.
Current Assets & Examples Current Assets are those assets that are bought by the company for a short duration and are expected to be converted into cash, consumed, or written off within one accounting year. They are also called short-term assets. These short-term assets are typically called currRead more
Current Assets & Examples
Current Assets are those assets that are bought by the company for a short duration and are expected to be converted into cash, consumed, or written off within one accounting year. They are also called short-term assets.
These short-term assets are typically called current assets by the accountants and have no long-term future in the business. Current assets may be held by a company for a duration of a complete accounting year, 12 months, or maybe less. A major reason for the conversion of current assets into cash within a very short amount of time is to pay off the current liabilities.
Examples
Some of the major examples of current assets are – cash in hand, cash at the bank, bills receivables, sundry debtors, prepaid expenses, stock or inventory, other liquid assets, etc.
All of these assets are converted into cash within one accounting year.
Liquid assets are a part of current assets. Although they are easier to be converted into cash than current assets.
Current assets (along with current liabilities) help in the calculation of the current ratio. And they’re also referred to as circulating/floating assets.
Current assets are shown on the balance sheet (on the asset side) under the heading, current assets.
Sundry debtor refers to either a person or an entity that owes money to the business. If someone buys some goods/services from the business and the payment is yet to be received, a group of such individuals or entities is called sundry debtors. Sundry debtors are also referred to as trade receivableRead more
Sundry debtor refers to either a person or an entity that owes money to the business. If someone buys some goods/services from the business and the payment is yet to be received, a group of such individuals or entities is called sundry debtors. Sundry debtors are also referred to as trade receivables or account receivables.
The term ‘Sundry’ means various or several, referring to a collection of miscellaneous items combined under one head. Sundry debtors typically arise from core business activities such as sales of goods or services. The business treats them as an asset.
Example
Suppose you run a business, ABC Ltd. Mr. Y bought goods from you on credit. Therefore, Mr. Y will be recorded as Debtor (current asset) in your books of accounts. Similarly, a collection of such debtors is viewed as sundry debtors from the business’ point of view.
Journal Entry
Rules
As per the golden rules of accounting, we ‘debit the receiver and credit the receiver’. That’s how in this journal entry we’ll be debiting the sundry debtor’s account. Also, ‘debit what comes in and credit what goes out.’ That’s why sales a/c is credited and cash a/c is debited.
As per the modern rules of accounting, ‘debit the increase in asset and credit the decrease in asset’. That’s why we debit sundry debtors and cash a/c. And credit sales a/c when goods are sold and inventory decreases.
Why debtor is an asset?
As we know, a debtor refers to a person or entity who owes money to the business which means, the money is to be received by them in the future, making them an asset. On the other hand, creditors are a liability to the firm as we owe them money and it is to be paid by us in the near future, making it an obligation for the firm.
Sundry Debtors in Balance Sheet
Sundry debtors are shown under the current asset heading on the balance sheet. They are often referred to as account receivables.
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.
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.
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.
Fixed Working Capital Permanent working capital is also known as fixed working capital. Working capital is the excess of the current assets over the current liability and further, it is classified on the basis of periodicity, into two categories, permanent working capital, and variable working capitRead more
Fixed Working Capital
Permanent working capital is also known as fixed working capital.
Working capital is the excess of the current assets over the current liability and further, it is classified on the basis of periodicity, into two categories, permanent working capital, and variable working capital.
Permanent working capital meansthe part of working capital that is permanently locked up in current assets to carry business smoothly and effortlessly. Thus, it’s also known as fixed working capital.
The minimum amount of current assets which is required to conduct a business smoothly during the year is called permanent working capital. The amount of permanent working capital depends upon the nature, growth, and size of the business.
Fixed working capital can further be divided into two categories:
Regular working capital: It is the minimum amount of capital required by a business to fund its day-to-day operations of a business. E.g. payment of wages, salary, overhead expenses, etc.
Reserve margin working capital: Apart from day-to-day activities, additional working capital may also be required for contingencies that may arise at any time like strike, business depression, etc.
Whereas, on the other hand, variable working capital, also known as temporary working capital refers to the level of working capital that is temporary and keeps fluctuating.
Capital Expenditure Capital expenditure refers to the money a business spends to buy, maintain, or improve the quality of its assets. Capital expenditures are the expenses incurred by an organization for long-term benefits, i.e on the long-term assets which help in improving the efficiency or capaciRead more
Capital Expenditure
Capital expenditure refers to the money a business spends to buy, maintain, or improve the quality of its assets. Capital expenditures are the expenses incurred by an organization for long-term benefits, i.e on the long-term assets which help in improving the efficiency or capacity of the company. These expenses are borne by the company to boost its earning capacity.
The investment done by the companies on assets is capital in nature and through capital expenditure, the company may use it for acquiring new assets or may use it in the maintenance of previous ones. These expenditures are added to the asset side of the balance sheet.
Example: Purchase of machinery, patents, copyrights, installation of equipment, etc.
Revenue Expenditure
Revenue expenditure refers to the routine expenditures incurred by the business to manage day-to-day expenses. They are incurred for a shorter duration and are mostly limited to an accounting year. These expenses are borne by a company to sustain its profitability. These expenditures are shown in the income statement.
These expenditures do not increase the revenue but stay maintained. These expenses are not capitalized.
They are divided into two sub-categories:
Expenditures for generating revenue for a business- Those expenditures essential for meeting the operational cost of the business are further classified as operating expenses.
Expenditures for maintaining revenue-generating assets- Those expenses incurred by the business for repairing and maintenance of the assets of an organization to keep them in a working state.
Example: Wages, salary, insurance, rent, electricity, taxes, etc.
What are subsidiary books as per 11th?
Subsidiary Books Introduction & Definition In large business organizations, it is practically impossible to keep a record of every single business affair, while neglecting them and not recording them wouldn't be an ideal choice, this is where subsidiary books come into the role. As we were introRead more
Subsidiary Books
Introduction & Definition
In large business organizations, it is practically impossible to keep a record of every single business affair, while neglecting them and not recording them wouldn’t be an ideal choice, this is where subsidiary books come into the role. As we were introduced to the basics of accounting in the 11th standard, we learned about different elements like journals, ledgers, trial balances, etc. It is practically impossible for a business to keep track of every single affair just through only those elements. Thus, the Subsidiary book is the next step here.
Subsidiary books are the books of original entry. They are a dedicated form of books that maintains an analysis of a specific account. It records financial transactions of a similar nature. They are sub-division of a journal.
In big business organizations, it’s very hard for a bookkeeper or accountant to record all the transactions in one journal and post them into various accounts. This is where special purpose books or subsidiary books may be required for more efficient bookkeeping. They are a subdivision of journals and for every type of transaction, there is a separate book.
Types of Subsidiary Books
There are eight types of subsidiary books that are required for recording transactions. The list of various subsidiary books is as follows:
Types of Subsidiary Books
Now, we’ll be taking a closer look at each and every subsidiary book.
Cash Book
The cash book is the most important subsidiary book, it’s a book of a prime entry recording all the cash spent or received by the business, either in cash form or from the bank. In simple words, recording all the transactions made by the business.
It is of three types i.e single-column cash book, double-column cash book, and triple-column cash book. As the name indicates, the column of cash, bank, and discount increases/decreases as per the column of the cash book stated.
Format
Note: this is a triple-column cash book format, for the double-column cash book format, we remove the discount column from both sides, and for the single column, we may remove the bank column as well.
Purchase Book
A purchase book is a subsidiary book that records all the transactions related to the credit purchase in a business. Thereby, the normal purchasing of assets is never recorded in the purchase book.
The credit purchases are directly recorded in the purchase book from the journals or the source documents. The source document indicates bills payable, invoices, etc.
Format
Sales Book
A sales book, similar to a purchase book, is a special book where all the credit sales are recorded. The sales book doesn’t record the transactions related to the normal sale of assets and hence, is a special type of book, just like the purchase book.
Format
Purchase Return Book
The purchase return book, also known as the return outwards book, is that book that records the goods that were returned by us to the supplier. Thereby, called purchase return book.
When the goods are returned, a debit note is issued against every return and hence, recorded in the purchase return book.
Format
Sales Return Book
The sales return book, also known as the return inwards book, refers to that subsidiary book that records the goods which were returned to us by the customer.
For every good returned to us, a credit note is issued to the customer. And thus, it is recorded in the sales return book.
Format
Journal Proper
Just like we recently learned in class 11th about what a journal entry is and how it is made, it’s a little different from the journal proper. Journal proper is a subsidiary book that records all the transactions which are not recorded in other subsidiary books.
A journal is an original book of entries that records all the business transactions, while a journal proper is a subsidiary book in which all types of miscellaneous credit business transactions are recorded that do not fit anywhere in the other subsidiary books. Its format is the same as the journal entries’ format. Therefore, it’s also known as a miscellaneous journal.
Format
Bills Receivable Book
The bills receivable book is the book that draws the bills favorable to the business i.e when the goods or services are provided to any customer on credit, they become a debtor, and bills receivable is a written note received from the customer indicating that they formally agree to pay the sum of money owed.
Therefore, it helps in recording these types of transactions. The sum total of the bills receivable book is posted to the bills receivable account.
Format
Bills Payable Book
The bills payable book is the subsidiary book that records all the bills that are drawn on the company. The bills payable is drawn on the company when we buy a good/service on credit and agrees to pay the amount to the supplier by signing a written note with the date we agree to pay.
It’s a liability of the business and the total of the bills payable book is posted on the credit side of the bills payable account.
Format
See lessWhat is the meaning of capitalized in accounting?
Capitalize in Accounting The term 'capitalized' in accounting means to record an expenditure as an asset on the balance sheet. Capitalization takes place when a business buys an asset that has a useful life. The cost of the relevant asset is then allocated to expense over its useful life i.e charginRead more
Capitalize in Accounting
The term ‘capitalized’ in accounting means to record an expenditure as an asset on the balance sheet. Capitalization takes place when a business buys an asset that has a useful life. The cost of the relevant asset is then allocated to expense over its useful life i.e charging depreciation, etc. This means that the relevant expenditure will appear on the balance sheet instead of the income statement. The capitalizing of the expenses is a benefit for the company as the assets bought by them for the long-term are subjected to depreciation and capitalizing expenses can amortize or depreciate the costs. This process is called capitalization.
In order to capitalize any expense, we’ll have to make sure it meets the criteria stated below.
The assets exceeding the capitalization limit
The companies set a capitalization limit, below which the expenses are considered too immaterial to be capitalized. Therefore, the limit is supposed to be followed and considered as it controls the capitalization of the expenses. Generally, the capitalization limit is $1,000.
The assets have a useful life
The companies also seek to generate revenues for a long period of time. Thus, the asset should have a long and useful life at least a year or more. Thereby, the business can record it as an asset and depreciate it over its valuable life.
Most of the important principles of capitalization in accounting are from the matching principle.
Matching Principle
The matching principle states that the expenses in the accounting should be recorded when they are incurred and not when the payment is made. This helps the business identify the amounts spent to generate revenue.
For e.g, the company bought machinery for manufacturing goods with more efficiency. It is supposed to have a useful life for a period of over 10 years. Instead of expensing the entire cost of the machinery, the company will write off (depreciated) the cost of the asset over its useful life i.e 10 years. Therefore, the asset will be written off as it is used and these types of assets are automatically used as capitalized assets.
Benefits of Capitalization
Capitalization is of course recording expenses as an asset but this indeed has benefits.
See lessWhat account is land?
The land is a fixed asset and is treated as a long-term asset account. Explanation The land is a fixed asset which is also referred to as a long-term asset. The fixed assets are those assets that are not expected to be cashed, consumed, last, sold, or written off within one accounting year and areRead more
The land is a fixed asset and is treated as a long-term asset account.
Explanation
The land is a fixed asset which is also referred to as a long-term asset.
The fixed assets are those assets that are not expected to be cashed, consumed, last, sold, or written off within one accounting year and are purchased for long-term use. The fixed assets are also called non-current assets and the reason behind it is that current assets are easily converted into cash within one year and they are not.
Fixed assets are planned by the company to be used for the long term in order to generate income.
Example- Land, building, furniture, plants & equipment, etc.
Why is land an asset?
Although the land is not depreciated, it is still considered to be an asset because just like other assets the business spends its own money to acquire it.
It can also be used by the business for different operations and it doesn’t create any liability for the business. Instead, reselling the land after a few years can help the company earn a huge margin of profit.
Land in the balance sheet
On the asset side of the balance sheet, the land is stated under the heading long-term assets.
Balance Sheet (for the year…)
Therefore, the land is a fixed asset and is treated as a long-term asset account.
See lessWhat are examples of current assets?
Current Assets & Examples Current Assets are those assets that are bought by the company for a short duration and are expected to be converted into cash, consumed, or written off within one accounting year. They are also called short-term assets. These short-term assets are typically called currRead more
Current Assets & Examples
Current Assets are those assets that are bought by the company for a short duration and are expected to be converted into cash, consumed, or written off within one accounting year. They are also called short-term assets.
These short-term assets are typically called current assets by the accountants and have no long-term future in the business. Current assets may be held by a company for a duration of a complete accounting year, 12 months, or maybe less. A major reason for the conversion of current assets into cash within a very short amount of time is to pay off the current liabilities.
Examples
Some of the major examples of current assets are – cash in hand, cash at the bank, bills receivables, sundry debtors, prepaid expenses, stock or inventory, other liquid assets, etc.
Current assets on the balance sheet
Balance Sheet (for the year…)
See lessWhat is the meaning of sundry debtors?
Sundry debtor refers to either a person or an entity that owes money to the business. If someone buys some goods/services from the business and the payment is yet to be received, a group of such individuals or entities is called sundry debtors. Sundry debtors are also referred to as trade receivableRead more
Sundry debtor refers to either a person or an entity that owes money to the business. If someone buys some goods/services from the business and the payment is yet to be received, a group of such individuals or entities is called sundry debtors. Sundry debtors are also referred to as trade receivables or account receivables.
The term ‘Sundry’ means various or several, referring to a collection of miscellaneous items combined under one head. Sundry debtors typically arise from core business activities such as sales of goods or services. The business treats them as an asset.
Example
Suppose you run a business, ABC Ltd. Mr. Y bought goods from you on credit. Therefore, Mr. Y will be recorded as Debtor (current asset) in your books of accounts. Similarly, a collection of such debtors is viewed as sundry debtors from the business’ point of view.
Journal Entry
Rules
As per the golden rules of accounting, we ‘debit the receiver and credit the receiver’. That’s how in this journal entry we’ll be debiting the sundry debtor’s account. Also, ‘debit what comes in and credit what goes out.’ That’s why sales a/c is credited and cash a/c is debited.
As per the modern rules of accounting, ‘debit the increase in asset and credit the decrease in asset’. That’s why we debit sundry debtors and cash a/c. And credit sales a/c when goods are sold and inventory decreases.
Why debtor is an asset?
As we know, a debtor refers to a person or entity who owes money to the business which means, the money is to be received by them in the future, making them an asset. On the other hand, creditors are a liability to the firm as we owe them money and it is to be paid by us in the near future, making it an obligation for the firm.
Sundry Debtors in Balance Sheet
Sundry debtors are shown under the current asset heading on the balance sheet. They are often referred to as account receivables.
Balance Sheet (for the year ending….)
See lessWhat is a ledger posting example?
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
See lessWhat are non debt capital receipts?
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:
For Example – Disinvestment and recovery of loans are non-debt creating capital receipts.
See lessThe term current assets does not include?
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.
See lessPermanent working capital is also known as?
Fixed Working Capital Permanent working capital is also known as fixed working capital. Working capital is the excess of the current assets over the current liability and further, it is classified on the basis of periodicity, into two categories, permanent working capital, and variable working capitRead more
Fixed Working Capital
Permanent working capital is also known as fixed working capital.
Working capital is the excess of the current assets over the current liability and further, it is classified on the basis of periodicity, into two categories, permanent working capital, and variable working capital.
Permanent working capital means the part of working capital that is permanently locked up in current assets to carry business smoothly and effortlessly. Thus, it’s also known as fixed working capital.
The minimum amount of current assets which is required to conduct a business smoothly during the year is called permanent working capital. The amount of permanent working capital depends upon the nature, growth, and size of the business.
Fixed working capital can further be divided into two categories:
Whereas, on the other hand, variable working capital, also known as temporary working capital refers to the level of working capital that is temporary and keeps fluctuating.
See lessWhat is Capital Expenditure and revenue Expenditure?
Capital Expenditure Capital expenditure refers to the money a business spends to buy, maintain, or improve the quality of its assets. Capital expenditures are the expenses incurred by an organization for long-term benefits, i.e on the long-term assets which help in improving the efficiency or capaciRead more
Capital Expenditure
Capital expenditure refers to the money a business spends to buy, maintain, or improve the quality of its assets. Capital expenditures are the expenses incurred by an organization for long-term benefits, i.e on the long-term assets which help in improving the efficiency or capacity of the company. These expenses are borne by the company to boost its earning capacity.
The investment done by the companies on assets is capital in nature and through capital expenditure, the company may use it for acquiring new assets or may use it in the maintenance of previous ones. These expenditures are added to the asset side of the balance sheet.
Example: Purchase of machinery, patents, copyrights, installation of equipment, etc.
Revenue Expenditure
Revenue expenditure refers to the routine expenditures incurred by the business to manage day-to-day expenses. They are incurred for a shorter duration and are mostly limited to an accounting year. These expenses are borne by a company to sustain its profitability. These expenditures are shown in the income statement.
These expenditures do not increase the revenue but stay maintained. These expenses are not capitalized.
They are divided into two sub-categories:
Example: Wages, salary, insurance, rent, electricity, taxes, etc.
See less