Here I've prepared the Income & Expenditure A/c. Income & Expenditure A/c for the year ended 31st March 2021 Expenditure Amt Income Amt To Salary 4,80,000 By Subscriptions 9,00,000 To Rent 50,000 By Donations 10,000 To Stationery 20,000 To Loss on sale ofRead more
Here I’ve prepared the Income & Expenditure A/c.
Income & Expenditure A/c for the year ended 31st March 2021
Expenditure
Amt
Income
Amt
To Salary
4,80,000
By Subscriptions
9,00,000
To Rent
50,000
By Donations
10,000
To Stationery
20,000
To Loss on sale of furniture (WN)
10,000
To Surplus
3,50,000
9,10,000
9,10,000
Working Note: Calculation of Loss on sale of furniture
The following calculation is made to identify the loss incurred on the sale of furniture.
Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense. Outstanding expenses are treated as a liability as the business is yet tRead more
Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense.
Outstanding expenses are treated as a liability as the business is yet to make payment against them. Examples of outstanding expenses include outstanding rent, salary, wages, etc.
At the end of the accounting year, outstanding expenses have to be accounted for in the book of accounts so that the financial statements reflect the accurate profit/loss of the business.
Journal entry for recording outstanding expenses:
Expense A/c
Debit
To Outstanding Expenses A/c
Credit
(Being expenses outstanding at the end of the year)
The concerned expense A/c is debited as there is an increase in expenses. Outstanding expenses are a liability, hence they are credited.
Let me give you a simple example,
Max, a sole proprietor pays 1,00,000 as salary for his employees at the end of every month. Due to the Covid-19 lockdown, he could not pay his employees’ salaries for March month. So the salary for March (1,00,000) will be treated as an outstanding expense. The following entry is made to record outstanding salaries for the year.
Salary A/c
1,00,000
To Outstanding Salaries A/c
1,00,000
(Being salaries outstanding at the end of the year)
At the end of the year, outstanding salary will be adjusted in the P&L A/c and it will be shown as a Current Liability in the Balance Sheet.
The entry for a loan (taken for any purpose) and a car loan are quite different. When you take a bank loan, you'll receive the money from the bank and subsequently, you'll start paying interest on it. In the case of a car loan, you don't receive the money from the bank. Once the car has been purchasRead more
The entry for a loan (taken for any purpose) and a car loan are quite different. When you take a bank loan, you’ll receive the money from the bank and subsequently, you’ll start paying interest on it.
In the case of a car loan, you don’t receive the money from the bank. Once the car has been purchased you’ll make the down payment and the remaining amount will be paid by the bank on your behalf. This car loan should then be paid to the bank in installments.
The following journal entry is posted to record the car loan taken for office use:
Car A/c is debited as there is an increase in the asset. Bank A/c is credited as the down payment for the car is made which reduces the assets. Car Loan A/c is credited as it increases liability.
The following entry is recorded for the repaymentof the loan (first installment) to the bank.
Let me explain this with an example,
Kumar purchased a car for 25,00,000 for his office use. He made a down payment of 2,00,000 and took a car loan from HDFC Bank for 23,00,000. The following entry will be made to record this transaction.
Car A/c
25,00,000
To Bank A/c
2,00,000
To Car Loan A/c
23,00,000
(Being car purchased through a loan from HDFC bank)
The journal entry for the closing stock is passed at the year-end as closing stock is the inventory held by a business at the end of its accounting period. However, the entry for recording closing stock depends on how it is treated in the books of accounts. The two types of the accounting treatmentRead more
The journal entry for the closing stock is passed at the year-end as closing stock is the inventory held by a business at the end of its accounting period. However, the entry for recording closing stock depends on how it is treated in the books of accounts.
The two types of the accounting treatment of closing stock are as follows:
Closing stock is not shown in the Trial Balance.
Closing stock is shown in the Trial Balance.
Closing stock is not shown in the Trial Balance:
As per this treatment, the closing stock is not shown in the Trial Balance because it is already a part of the purchases of the business. Showing it in the Trial Balance would lead to a double effect. This will not give us accurate profit/loss at the end of the year.
The closing stock is transferred to Trading A/c by passing a closing entry.
Closing stock is an asset. It is debited because there is an increase in the assets. Trading A/c is credited because of the Matching concept as the value of the closing stock is adjusted against the cost of goods sold.
At the end of the year, it is shown on the Asset side of the Balance Sheet, under the head Current Assets and sub-head Inventory.
For example,
ABC Ltd. at the beginning of the year had an opening inventory of 20,000. During the year, purchases worth 5,000 were made and goods worth 10,000 were sold. At the end of the year, the value of the closing stock will be 15,000 (20,000 + 5,000 – 10,000).
Now the closing stock worth 15,000 will be recorded through this journal entry:
Closing Stock A/c
15,000
To Trading A/c
15,000
(Being closing stock worth 15,000 transferred to Trading A/c)
Closing stock is shown in the Trial Balance:
This scenario is possible only when the closing stock is adjusted against purchases. By adjusting against purchases, the double effect of showing both purchases and closing stock in Trial Balance is eliminated.
The following entry is recorded to adjust closing stock against purchases.
Closing Stock is debited as there is an increase in the asset. Purchase A/c is credited because of the Matching concept.
After recording the adjustment entry, the closing stock is shown on the debit column of the Trial Balance. It is not shown in the Trading A/c as it is already adjusted against purchases. In the Balance Sheet, it is shown as a Current Asset.
Buildings S.No. Particulars Rate 1 Buildings which are used mainly for residential purposes except hotels and boarding houses. 5% 2 Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below. 10% 3 Buildings acquired on or after the 1st day oRead more
Buildings
S.No.
Particulars
Rate
1
Buildings which are used mainly for residential purposes except hotels and boarding houses.
5%
2
Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below.
10%
3
Buildings acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infra- structure facilities.
40%
4
Purely temporary erections such as wooden structures.
40%
Furniture & Fittings
S.No.
Particulars
Rate
Furniture and fittings including electrical fittings.
10%
Machinery & Plant
S.No.
Particulars
Rate
1
Machinery and plant other than those covered by sub-items (2), (3) and (8) below.
15%
2 (i)
Motor cars, other than those used in a business of running them on hire, acquired or put to use on or after the 1st day of April, 1990 except those covered under entry (ii).
15%
2 (ii)
Motor cars, other than those used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020.
30%
3 (i)
Aeroplanes – Aero engines.
40%
3 (ii)
(a) Motor buses, motor lorries and motor taxis used in a business of running them on hire other than those covered under entry (b).
30%
(b) Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020.
45%
3 (iii)
Commercial vehicle which is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999 and is put to use for any period before the 1st day of April, 1999 for the purposes of business or profession.
40%
3 (iv)
New commercial vehicle which is acquired on or after the 1st October, 1998, but before the 1st April, 1999 in replacement of condemned vehicle of over 15 years of age and is put to use for any period before the 1st day of April, 1999 for the purposes of business or profession.
40%
3 (v)
New commercial vehicle which is acquired on or after the 1st April, 1999 but before the 1st April, 2000 in replacement of condemned vehicle of over 15 years of age and is put to use before the 1st April, 2000 for the purposes of business or profession.
40%
3 (vi)
New commercial vehicle which is acquired on or after the 1st April, 2001 but before the 1st April, 2002 and is put to use before the 1st day of April, 2002 for the purposes of business or profession.
40%
3 (via)
New commercial vehicle which is acquired on or after the 1st January, 2009 but before the 1st October, 2009 and is put to use before the 1st October, 2009 for the purposes of business or profession.
40%
3 (vii)
Moulds used in rubber and plastic goods factories.
30%
3 (viii)
Air pollution control equipment.
40%
3 (ix)
Water pollution control equipment.
40%
3 (x)
Solid waste control equipments & solid waste recycling and resource recovery systems.
40%
3 (xi)
Machinery and plant, used in semi-conductor industry covering all integrated circuits (ICs).
30%
3 (xia)
Life saving medical equipment.
40%
4
Containers made of glass or plastic used as re-fills.
40%
5
Computers including computer software.
40%
6
Machinery and plant, used in weaving, processing and garment sector of textile industry, which is purchased & put to use under TUFS on or after the 1st April, 2001 but before the 1st April, 2004.
40%
7
Machinery and plant, acquired and installed on or after the 1st September, 2002 in a water supply project or a water treatment system and which is put to use for the purpose of business of providing infrastructure facility.
40%
8 (i)
Wooden parts used in artificial silk manufacturing machinery.
40%
8 (ii)
Cinematograph films – bulbs of studio lights.
40%
8 (iii)
Match factories – Wooden match frames.
40%
8 (iv)
Mines and quarries.
40%
8 (v)
Salt works – Salt pans, reservoirs and condensers, etc., made of earthy, sandy or clayey material or any other similar material.
40%
8 (vi)
Flour mills – Rollers.
40%
8 (vii)
Iron and steel industry – Rolling mill rolls.
40%
8 (viii)
Sugar works – Rollers.
40%
8 (ix)
Energy saving devices: (a) Specialised boilers and furnaces.
40%
(b) Instrumentation and monitoring system for monitoring energy flows.
40%
(c) Waste heat recovery equipment.
40%
(d) Co-generation systems.
40%
(e) Electrical equipment.
40%
(f) Burners.
40%
(g) Other equipment.
40%
8 (x)
Gas cylinders including valves and regulators.
40%
8 (xi)
Glass manufacturing concerns – Direct fire glass melting furnaces.
40%
8 (xii)
Mineral oil concerns: (a) Plant used in field operations (above ground) distribution – Returnable packages.
40%
(b) Plant used in field operations (below ground), but not including kerbside pumps including underground tanks and fittings used in field operations (distribution) by mineral oil concerns.
40%
(c) Oil wells not covered in clauses (a) and (b).
15%
8 (ix)
Renewal energy devices.
40%
9 (i)
Books owned by assessees carrying on a profession.
40%
9 (ii)
Books owned by assessees carrying on business in running lending libraries.
40%
Ships
S.No.
Particulars
Rate
1
Ocean-going ships including dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes and fishing vessels with wooden hull.
20%
2
Vessels ordinarily operating on inland waters, not covered by sub-item (3) below.
20%
3
Vessels ordinarily operating on inland waters being speed boats.
20%
Intangible Assets
S.No.
Particulars
Rate
1
Know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature not being goodwill of business of profession.
The correct answer is 2. Credit balance in the bank column of the cash book. The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allowsRead more
The correct answer is 2. Credit balance in the bank column of the cash book.
The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allows the account holder to borrowa specified sum of money over and above the balance in their accounts.
It is a form of short-term borrowing offered by banks and is extremely useful for businesses to resolve short-term cash flow issues.
The account holder can withdraw money even when his/her account does not have enough balance to cover the withdrawal. Since the business is withdrawing money that is not in its account, an overdraft is represented by a negative bank balance. That is why they are shown as a credit balance in the bank column of the Cash Book.
Overdraft is a liability for the business. Hence, it is shown on the Equity and Liability part of the Balance Sheet under the head Current Liabilities and sub-head Short Term Borrowings.
Banks do not offer this facility to all customers. Only those who have a good reputation and credit score are eligible for this facility. Like any other borrowing, interest is charged on the amount utilized by the account holder as an overdraft.
The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired. As per the Income Tax Act, cars come under the Plant and Machinery block of assets. The Act classifies cars into two categories, Group 1 - MotorRead more
The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired.
As per the Income Tax Act, cars come under the Plant and Machinery block of assets.
The Act classifies cars into two categories,
Group 1 – Motor cars other than those used in the business of running them on hire.
Group 2 – Motor taxis used in the business of running them on hire.
Group 1:
If the motor car is acquired and put to use on or after 23rd August 2019 but before 1st April 2020, then the rate applicable is 30%.
If the motor car is acquired and put to use on or after 1st April 1990, then the rate applicable is 15%. (All the cars which are not covered under the category (1) comes under this category.)
Group 2:
If the motor taxi is acquired and put to use on or after 23rd August 2019 but before 1st April 2020, then the rate applicable is 45%.
The rate applicable for motor taxis not covered under category (1) is 30%.
Here is a summarised version of the rates applicable to cars,
The rates can also be found on the Income Tax India website.
A Consignment Account is a Nominal Account. It is classified as a nominal A/c because it is prepared to ascertain the profit earned or loss incurred on the consignment. The accounting rule applied to consignment A/c: Debit all Expenses & Losses and Credit all Incomes & Gains. As per the modeRead more
A Consignment Account is a Nominal Account. It is classified as a nominal A/c because it is prepared to ascertain the profit earned or loss incurred on the consignment.
The accounting rule applied to consignment A/c: Debit all Expenses & Losses and Credit all Incomes & Gains.
As per the modern rules, there is no clear-cut classification of consignment A/c. It is prepared from the perspective of the consignor, hence it cannot be outrightly classified as an expense/revenue.
In the context of accounting, consignment refers to an arrangement of goods wherein the consignor sends the goods to the consignee so that the consignee can sell/distribute the goods on behalf of the consignor.
The relationship between the consignor and consignee is that of a principal and agent. The consignee gets a commission for his services.
You should keep in mind that the consignee does not get ownership of the goods even though the goods are in his possession. The ownership remains with the consignor till the sale is made. On sale, the buyer will become the owner.
A Consignment A/c is an account prepared to record the transactions happening in a consignment business. This account is maintained by the consignor. It shows the profit earned or loss incurred by the consignor on a specific consignment.
A consignor may send goods to more than one consignee. In such a case, a separate consignment A/c is prepared for each consignment.
The following items appear on the debit side of the consignment A/c:
Cost of goods sent on consignment.
Expenses incurred by the consignor (freight, insurance, etc.)
Expenses paid by the consignee (storage and warehousing, marketing expenses, packaging and selling expenses, etc.)
Bad debts in consignment.
Commission paid to consignee.
The entries appearing on the credit side of the consignment A/c are as follows:
Gross sales.
Abnormal loss of goods.
Inventories on consignment (stock in transit).
The balance in the consignment A/c represents the profit or loss made on the consignment. It is transferred to the P&L A/c and the account is closed.
A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook. This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the pRead more
A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook.
This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the point of view of the banker. Since both are prepared from a different point of view, differences are bound to occur.
Bank Reconciliation is the process by which on a particular date the bank balance as per Cash Book is reconciled with the balance as per Pass Book/Bank Statement.
Whenever bank reconciliation is done, we need to identify the reasons or transactions causing the differences between both balances. Then a statement highlighting the reasons or causes of differences is prepared. This statement is known as Bank Reconciliation Statement.
A Bank Reconciliation Statement is prepared by starting with either the (a) bank balance as per Cash Book or the (b) balance as per Pass Book/Bank Statement. Only those entries which are recorded in the Cash Book but not in the Pass Book/Bank Statement or vice versa are considered while preparing the Bank Reconciliation Statement.
The reasons for the differences between the two balances can be broadly classified into three categories:
Differences due to timing.
Transactions recorded by the Bank.
Errors.
For example, the debit bank balance as per the Cash Book of Mr. A on 31st March is 20,000. On the same date, his Bank Statement showed a credit balance of 30,000. When the Bank Reconciliation Statement is prepared on 31st March, he will find out the transactions causing the 10,000 (30,000 – 20,000) difference between both the balances. Once the transactions are identified he will reconcile the balance as per the Cash Book with the balance as per his Bank Statement.
Whenever the proprietor/owner of a business withdraws cash or goods from the business for his/her personal use, we call it drawings. For example, Alex, proprietor of a soap manufacturing company, takes 50 pack of soaps costing 30 each for his personal use. So, 1,500 (50*30) will be considered as draRead more
Whenever the proprietor/owner of a business withdraws cash or goods from the business for his/her personal use, we call it drawings. For example, Alex, proprietor of a soap manufacturing company, takes 50 pack of soaps costing 30 each for his personal use. So, 1,500 (50*30) will be considered as drawings of Alex. One important thing to note here is whenever goods are withdrawn for personal use they are valued at cost.
Drawings are not an asset/liability/expense/income to the business. The drawings account is a contra-equity account. A contra-equity account is a capital account with a negative balance i.e. debit balance. It reduces the owner’s equity/capital.
Drawings being a contra-equity account has a debit balance, reducing the owner’s capital in the business. This is because withdrawals for personal use represent a reduction of the owner’s equity in the business.
Drawings are not shown in the Income Statement as they are neither an expense nor an income for the business. However, the following journal entries are passed to record drawings for the year:
Drawings A/c is debited because it reduces the owner’s capital. Cash/Purchases A/c is debited as a withdrawal reduces the assets of the business.
At the end of the year, drawings A/c are closed by transferring it to the owner’s capital A/c. We post the following entry to close the drawings A/c at the end of the year:
In the balance sheet, drawings are shown by deducting it from the owner’s capital A/c.
Let us take our earlier example of Alex. He withdrew soaps worth 1,500. At the end of the year, his capital was worth 5,500. The journal entry for recording the drawings is as follows:
In the balance sheet, drawings worth 1,500 are shown as follows:
Prepare Income and Expenditure Account for the Year Ended 31st March, 2020 from the Following?
Here I've prepared the Income & Expenditure A/c. Income & Expenditure A/c for the year ended 31st March 2021 Expenditure Amt Income Amt To Salary 4,80,000 By Subscriptions 9,00,000 To Rent 50,000 By Donations 10,000 To Stationery 20,000 To Loss on sale ofRead more
Here I’ve prepared the Income & Expenditure A/c.
Income & Expenditure A/c for the year ended 31st March 2021
Working Note: Calculation of Loss on sale of furniture
The following calculation is made to identify the loss incurred on the sale of furniture.
See lessWhat are outstanding expenses?
Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense. Outstanding expenses are treated as a liability as the business is yet tRead more
Outstanding expenses are those expenses that have been incurred during the accounting period but are yet to be paid. Basically, any expense which has become due for payment but is not paid will be called an outstanding expense.
Outstanding expenses are treated as a liability as the business is yet to make payment against them. Examples of outstanding expenses include outstanding rent, salary, wages, etc.
At the end of the accounting year, outstanding expenses have to be accounted for in the book of accounts so that the financial statements reflect the accurate profit/loss of the business.
Journal entry for recording outstanding expenses:
The concerned expense A/c is debited as there is an increase in expenses. Outstanding expenses are a liability, hence they are credited.
Let me give you a simple example,
Max, a sole proprietor pays 1,00,000 as salary for his employees at the end of every month. Due to the Covid-19 lockdown, he could not pay his employees’ salaries for March month. So the salary for March (1,00,000) will be treated as an outstanding expense. The following entry is made to record outstanding salaries for the year.
At the end of the year, outstanding salary will be adjusted in the P&L A/c and it will be shown as a Current Liability in the Balance Sheet.
See lessCan someone tell me the journal entry for car loan for office use?
The entry for a loan (taken for any purpose) and a car loan are quite different. When you take a bank loan, you'll receive the money from the bank and subsequently, you'll start paying interest on it. In the case of a car loan, you don't receive the money from the bank. Once the car has been purchasRead more
The entry for a loan (taken for any purpose) and a car loan are quite different. When you take a bank loan, you’ll receive the money from the bank and subsequently, you’ll start paying interest on it.
In the case of a car loan, you don’t receive the money from the bank. Once the car has been purchased you’ll make the down payment and the remaining amount will be paid by the bank on your behalf. This car loan should then be paid to the bank in installments.
The following journal entry is posted to record the car loan taken for office use:
Car A/c is debited as there is an increase in the asset. Bank A/c is credited as the down payment for the car is made which reduces the assets. Car Loan A/c is credited as it increases liability.
The following entry is recorded for the repayment of the loan (first installment) to the bank.
Let me explain this with an example,
Kumar purchased a car for 25,00,000 for his office use. He made a down payment of 2,00,000 and took a car loan from HDFC Bank for 23,00,000. The following entry will be made to record this transaction.
See lessWhat is the Journal Entry for Closing Stock?
The journal entry for the closing stock is passed at the year-end as closing stock is the inventory held by a business at the end of its accounting period. However, the entry for recording closing stock depends on how it is treated in the books of accounts. The two types of the accounting treatmentRead more
The journal entry for the closing stock is passed at the year-end as closing stock is the inventory held by a business at the end of its accounting period. However, the entry for recording closing stock depends on how it is treated in the books of accounts.
The two types of the accounting treatment of closing stock are as follows:
Closing stock is not shown in the Trial Balance:
As per this treatment, the closing stock is not shown in the Trial Balance because it is already a part of the purchases of the business. Showing it in the Trial Balance would lead to a double effect. This will not give us accurate profit/loss at the end of the year.
The closing stock is transferred to Trading A/c by passing a closing entry.
Closing stock is an asset. It is debited because there is an increase in the assets. Trading A/c is credited because of the Matching concept as the value of the closing stock is adjusted against the cost of goods sold.
At the end of the year, it is shown on the Asset side of the Balance Sheet, under the head Current Assets and sub-head Inventory.
For example,
ABC Ltd. at the beginning of the year had an opening inventory of 20,000. During the year, purchases worth 5,000 were made and goods worth 10,000 were sold. At the end of the year, the value of the closing stock will be 15,000 (20,000 + 5,000 – 10,000).
Now the closing stock worth 15,000 will be recorded through this journal entry:
Closing stock is shown in the Trial Balance:
This scenario is possible only when the closing stock is adjusted against purchases. By adjusting against purchases, the double effect of showing both purchases and closing stock in Trial Balance is eliminated.
The following entry is recorded to adjust closing stock against purchases.
Closing Stock is debited as there is an increase in the asset. Purchase A/c is credited because of the Matching concept.
After recording the adjustment entry, the closing stock is shown on the debit column of the Trial Balance. It is not shown in the Trading A/c as it is already adjusted against purchases. In the Balance Sheet, it is shown as a Current Asset.
See lessWhat are the income tax depreciation rates for ay 2020-21?
Buildings S.No. Particulars Rate 1 Buildings which are used mainly for residential purposes except hotels and boarding houses. 5% 2 Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below. 10% 3 Buildings acquired on or after the 1st day oRead more
See lessOverdraft as per cash book means?
The correct answer is 2. Credit balance in the bank column of the cash book. The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allowsRead more
The correct answer is 2. Credit balance in the bank column of the cash book.
The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allows the account holder to borrow a specified sum of money over and above the balance in their accounts.
It is a form of short-term borrowing offered by banks and is extremely useful for businesses to resolve short-term cash flow issues.
The account holder can withdraw money even when his/her account does not have enough balance to cover the withdrawal. Since the business is withdrawing money that is not in its account, an overdraft is represented by a negative bank balance. That is why they are shown as a credit balance in the bank column of the Cash Book.
Overdraft is a liability for the business. Hence, it is shown on the Equity and Liability part of the Balance Sheet under the head Current Liabilities and sub-head Short Term Borrowings.
Banks do not offer this facility to all customers. Only those who have a good reputation and credit score are eligible for this facility. Like any other borrowing, interest is charged on the amount utilized by the account holder as an overdraft.
See lessDepreciation on car as per income tax act?
The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired. As per the Income Tax Act, cars come under the Plant and Machinery block of assets. The Act classifies cars into two categories, Group 1 - MotorRead more
The rate of depreciation on a car as per the Income Tax Act depends upon the purpose for which it has been purchased and the year on which it was acquired.
As per the Income Tax Act, cars come under the Plant and Machinery block of assets.
The Act classifies cars into two categories,
Group 1:
Group 2:
Here is a summarised version of the rates applicable to cars,
The rates can also be found on the Income Tax India website.
See lessConsignment account is which type of account?
A Consignment Account is a Nominal Account. It is classified as a nominal A/c because it is prepared to ascertain the profit earned or loss incurred on the consignment. The accounting rule applied to consignment A/c: Debit all Expenses & Losses and Credit all Incomes & Gains. As per the modeRead more
A Consignment Account is a Nominal Account. It is classified as a nominal A/c because it is prepared to ascertain the profit earned or loss incurred on the consignment.
The accounting rule applied to consignment A/c: Debit all Expenses & Losses and Credit all Incomes & Gains.
As per the modern rules, there is no clear-cut classification of consignment A/c. It is prepared from the perspective of the consignor, hence it cannot be outrightly classified as an expense/revenue.
In the context of accounting, consignment refers to an arrangement of goods wherein the consignor sends the goods to the consignee so that the consignee can sell/distribute the goods on behalf of the consignor.
The relationship between the consignor and consignee is that of a principal and agent. The consignee gets a commission for his services.
You should keep in mind that the consignee does not get ownership of the goods even though the goods are in his possession. The ownership remains with the consignor till the sale is made. On sale, the buyer will become the owner.
A Consignment A/c is an account prepared to record the transactions happening in a consignment business. This account is maintained by the consignor. It shows the profit earned or loss incurred by the consignor on a specific consignment.
A consignor may send goods to more than one consignee. In such a case, a separate consignment A/c is prepared for each consignment.
The following items appear on the debit side of the consignment A/c:
The entries appearing on the credit side of the consignment A/c are as follows:
The balance in the consignment A/c represents the profit or loss made on the consignment. It is transferred to the P&L A/c and the account is closed.
Below is the format for Consignment A/c:
See lessA bank reconciliation statement is prepared to know the causes for the difference between?
A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook. This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the pRead more
A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook.
This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the point of view of the banker. Since both are prepared from a different point of view, differences are bound to occur.
Bank Reconciliation is the process by which on a particular date the bank balance as per Cash Book is reconciled with the balance as per Pass Book/Bank Statement.
Whenever bank reconciliation is done, we need to identify the reasons or transactions causing the differences between both balances. Then a statement highlighting the reasons or causes of differences is prepared. This statement is known as Bank Reconciliation Statement.
A Bank Reconciliation Statement is prepared by starting with either the (a) bank balance as per Cash Book or the (b) balance as per Pass Book/Bank Statement. Only those entries which are recorded in the Cash Book but not in the Pass Book/Bank Statement or vice versa are considered while preparing the Bank Reconciliation Statement.
The reasons for the differences between the two balances can be broadly classified into three categories:
For example, the debit bank balance as per the Cash Book of Mr. A on 31st March is 20,000. On the same date, his Bank Statement showed a credit balance of 30,000. When the Bank Reconciliation Statement is prepared on 31st March, he will find out the transactions causing the 10,000 (30,000 – 20,000) difference between both the balances. Once the transactions are identified he will reconcile the balance as per the Cash Book with the balance as per his Bank Statement.
See lessDo we show drawings in income statement?
Whenever the proprietor/owner of a business withdraws cash or goods from the business for his/her personal use, we call it drawings. For example, Alex, proprietor of a soap manufacturing company, takes 50 pack of soaps costing 30 each for his personal use. So, 1,500 (50*30) will be considered as draRead more
Whenever the proprietor/owner of a business withdraws cash or goods from the business for his/her personal use, we call it drawings. For example, Alex, proprietor of a soap manufacturing company, takes 50 pack of soaps costing 30 each for his personal use. So, 1,500 (50*30) will be considered as drawings of Alex. One important thing to note here is whenever goods are withdrawn for personal use they are valued at cost.
Drawings are not an asset/liability/expense/income to the business. The drawings account is a contra-equity account. A contra-equity account is a capital account with a negative balance i.e. debit balance. It reduces the owner’s equity/capital.
Drawings being a contra-equity account has a debit balance, reducing the owner’s capital in the business. This is because withdrawals for personal use represent a reduction of the owner’s equity in the business.
Drawings are not shown in the Income Statement as they are neither an expense nor an income for the business. However, the following journal entries are passed to record drawings for the year:
Drawings A/c is debited because it reduces the owner’s capital. Cash/Purchases A/c is debited as a withdrawal reduces the assets of the business.
At the end of the year, drawings A/c are closed by transferring it to the owner’s capital A/c. We post the following entry to close the drawings A/c at the end of the year:
In the balance sheet, drawings are shown by deducting it from the owner’s capital A/c.
Let us take our earlier example of Alex. He withdrew soaps worth 1,500. At the end of the year, his capital was worth 5,500. The journal entry for recording the drawings is as follows:
In the balance sheet, drawings worth 1,500 are shown as follows:
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