AccountingQA Latest Questions

Astha
AsthaLeader
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  2. GautamSaxena Curious .
    This answer was edited.

    Current Assets & Examples Current AssetsĀ 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 AssetsĀ 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.

    Current assets on the balance sheet

    Balance Sheet (for the year…)

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Bonnie
BonnieCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Credit Note A credit note is a document which generally evidences a sales return. It is created by the seller and sent to the buyer acknowledging the receipt of goods returned by the buyer. On the basis of it, the seller promises to pay back the buyer for the goods returned to him or adjust the amouRead more

    Credit Note

    A credit note is a document which generally evidences a sales return. It is created by the seller and sent to the buyer acknowledging the receipt of goods returned by the buyer. On the basis of it, the seller promises to pay back the buyer for the goods returned to him or adjust the amount in future transactions.

    A credit note is also created when the buyer has sent excess money by mistake against the goods delivered to him.

    In Tally, a credit note is created using a credit note voucher. Now, a credit note can only be created only if a sales entry has been made.

    Hence first, we will be creating a sales entry and then the credit note.

    Ā Creation of sales entry in sales voucher ( If not done before)

    The step to create a sale entry in Tally prime is as follows:

    Gateway of Tally –> Vouchers –> Press F8 to open sales voucher

    Enter the details of sales in the sales voucher like I have entered in my sale voucher and accept.

    Here, my debtor is Rama and I have sold 1000pcs of Linc pens@Rs. 10 to him

    Important things to consider:

    • If no ledger accounts, stock items and stock units are created in your company, you can easily create them while in the voucher creation menu itself. Just press Alt + C Ā in the field where you need to enter party name, stock item name or stock unit name and the respective creation menus will open.
    • After entering the item details, a new menu will open which will ask for which account to be credited for the sale entry. As we know, a sales account is credited, so you have select the sales account from the menu or simply create a Sales account if not created by pressing Alt + C. Below is that menu:

    #2 Creation of credit note

    If already in the voucher creation menu, just press Alt + F6 to open the credit note voucher.

    Enter the party name and a menu will open, asking for a tracking number.Ā  No need to enter any details there.

    Next, another menu will open asking for party details. Select the name of the respective debtor.

    Next enter the details of stock items returned as I have done:

    I have made a credit note for 100pcs of Linc pens returned by Rama.

    After entering all the details, press Enter and accept.

    You can verify the effect of this sales voucher by performing the following steps.

    Gateway of Tally –> Display more reports –> Account Books –> Ledger –>Select the debtor account from the list of ledgers.

    After opening the ledger, if you see that the debtor account is credited by an amount through a credit note voucher, then it can be said that you have performed the steps correctly.

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Bonnie
BonnieCurious
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  2. GautamSaxena Curious .

    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 lifeĀ 

    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.
    • Ā 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.

     

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

    Meaning The term ā€˜Sundry creditorsā€™ consist of two words:Ā  ā€˜Sundryā€™ and ā€˜creditorsā€™.Ā  The word ā€˜sundryā€™ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items. Creditors are the person from whom money is borrowed or goods are puRead more

    Meaning

    The term ā€˜Sundry creditorsā€™ consist of two words:Ā  ā€˜Sundryā€™ and ā€˜creditorsā€™.Ā 

    The word ā€˜sundryā€™ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items.

    Creditors are the person from whom money is borrowed or goods are purchased on credit by a business or a non-business entity. They have to be repaid after a period of time which is usually less than or up to one year.

    By combining the meaning of both words, ā€™sundryā€™ and ā€˜creditorā€™, the term ā€˜sundry creditorā€™ will refer to the collection of insignificant creditors of an entity.

    Back in the days when accounting records were maintained on paper, only the records of those creditors were maintained separately, from whom goods are purchased regularly and in large amounts.Ā 

    But there used to be numerous other creditors with whom the transactions were occasional and insignificant. To reduce the paperwork, records of all such creditors were maintained on a single page or book under the head ā€˜Sundry Creditorsā€™

    Nowadays, as accounting records are maintained digitally, hence maintaining records of each and every creditor is not a problem.Ā 

    Hence, every creditor whether small or big, is grouped under the head ā€˜Sundry creditorā€™ or ā€˜Trade Creditorā€™.

     

    Accounting TreatmentĀ 

    Sundry creditors are the persons to whom a business owes money.Ā 

    Hence, as per golden rules of accounting, Sundry creditor is a personal account and the golden rule for personal account is, ‘Debit the receiver and credit the giver’Ā 

    We know sundry creditors are liabilities, hence, as per modern rule of accounting, sundry creditors are credited in case of increase and debited in case of decrease.

    Example, a business purchased goods for Rs. 10,000 from ABC & Co. The journal entry will as follows:

    Here, ABC & Co is the creditor. It is credited as it is a personal account and the creditor has given the goods to the business, hence the giver is credited.

    From point of view of modern rules of accounting, ABC & Co. is a creditor, a liability. On purchase of goods on credit, a liability is created. Hence, ABC & Co A/c is credited.

     

    Balance sheet

    Sundry creditor is a current liability, so it is shown on the liabilities side of a balance sheet. Trade payable and accounts payable mean sundry creditors only.

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Anushka Lalwani
Anushka Lalwani
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  2. GautamSaxena Curious .
    This answer was edited.

    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….)

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Anushka Lalwani
Anushka Lalwani
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Introduction In Tally, journal entries are made in the vouchers. For each type of journal entry, there is a specific voucher. It is the vouchers where the transactions are recorded along with all the relevant details. Hence, when we speak of journal entries in tally, it is the vouchers which we haveRead more

    Introduction

    In Tally, journal entries are made in the vouchers. For each type of journal entry, there is a specific voucher. It is the vouchers where the transactions are recorded along with all the relevant details. Hence, when we speak of journal entries in tally, it is the vouchers which we have to master.

    In Tally, vouchers are of four types:

    1. Accounting vouchers
    2. Inventory vouchers
    3. Order voucher
    4. Payroll voucher

    The vouchers under the above voucher types are as shown below:

    To open the voucher creation menu follow these steps:

    In Tally ERP 9: Gateway of Tallyā†’ Accounting Vouchersā†’ Voucher creation menu will open

    In Tally Prime: Gateway of Tallyā†’ Vouchersā†’ Voucher creation menu will open

    Out of the above vouchers, the vouchers which I would suggest you practice are as follows (along with their short-cut keys):

    1. Contra Voucher ā€“ F4
    2. Payment Voucher ā€“ F5
    3. Receipt Voucher ā€“ F6
    4. Journal Voucher ā€“ F7
    5. Sales Voucher ā€“ F8
    6. Purchase Voucher ā€“ F9
    7. Credit note ā€“ Alt + F6
    8. Debit note ā€“ Alt + F5

     

    All of the above are accounting vouchers. You can simply press the short-cut keys to open the respective voucher while in the voucher creation menu

    If you are new to tally, I would suggest you practice only the accounting vouchers.

    Here, I have discussed only the accounting vouchers:

    Payment Voucher ā€“ F5

    A payment voucher is used to record payments of cash or by the bank. Payment can be to creditors or for expenses.

    There are two modes to this voucher which you can change by clicking the ā€˜Change Modeā€™ option on the right-hand side menu or simply pressing Ctrl + H. This menu will open.

    Select the ā€˜Double Entryā€™ mode for sake of simplicity. In this mode, the entry will be just like the conventional journal entry as in the double entry system of accounting.

    You have to just select the account you want debit which can be an expense, creditor etc. and you can credit only the cash or bank accounts as it is a payment voucher. Below there is a narration field which you can fill too. After entering all the necessary details you have to accept the voucher.

    Here, is a filled payment voucher in which I have recorded an expense payment entry.

     

    Ā The journal entries which you can practice on payment vouchers are as follows:

    • Payment of expenses like rent, electricity, wages, salaries, carriage, interest etc
    • Payment to trade creditors.
    • Purchase of Assets

     

    Receipt Voucher ā€“ F6

    A receipt voucher is used for the recorded receipt of cash in the business. Just like a payment voucher, I recommend you to use it in Double Entry mode. In Tally prime, it looks this:

     

    The receipt voucher given above is already filled. I have passed a ā€˜collection from the debtorā€™ entry here.Ā 

    The journal entries you can practice in the receipt voucher are as follows:

    • Receipt of cash from trade debtors.
    • Receipt of interest from the bank.
    • Commission received
    • Sale of Assets.

    Purchase Voucher ā€“ F7

    A purchase voucher is a voucher for exclusively recording purchase of goods entries. Purchase whether cash or credit should be recorded in the purchase voucher only as it allows recording of additional details related to purchase as well as tracking with purchase order and receipt note.

    The purchase voucher looks like this:

    Here, the purchase voucher is opened in ā€˜Item invoiceā€™ mode. Item invoice is easier to understand hence I advise you to this mode to use the purchase voucher. You can change the mode by pressing Ctrl + H.

    If you wish to record transactions like journal entries then you can choose the ā€˜As Voucherā€™ mode.

    The details which you have to fill in are as follows:

    • Reference number or Bill number
    • Party A/c Name or the name of the creditor. (If the creditor is not created, press Alt + C to create)
    • Name of item purchased ( Press Alt + C to create the stock item if not created)
    • Enter theĀ quantity and rate of the item and the total amount will be auto-populated.
    • The accounting details menu will open asking for the account to be debited for the purchase. Select the purchase account you want to debit or create a purchase account by pressing Alt + C if not created.

    • Enter a narration if you want and accept the voucher.

    Below is a complete purchase voucher where a credit sale transaction is passed:

    Sales Voucher ā€“ F8

    A sales voucher is a voucher for exclusively recording sales of goods entries. Sales, whether cash or credit, should be recorded in the sales voucher only as it allows recording of additional details related to sales as well as tracking with Sales orders and Delivery notes.

    Here also, I recommend you to use the sales voucher in Invoice mode

    Filling up of details in sales voucher is same as in purchase voucher. The difference here is that in the ā€˜Accounting detailsā€™ section you have selected a sales account to be credited.

    Here is a completed sales voucher where I have recorded a credit sale transaction:

    Contra Voucher ā€“ F4

    A Contra voucher is used to record contra transactions. Contra transactions are those transactions which take place between:

    • A Bank account and cash account
    • Two different bank accountsĀ 

    The journal entries which can be practised on contra voucher are as follows:

    1. Withdrawal of cash from the bank.
    2. Deposit from cash into the bank.
    3. Transfer of amount from one bank to another.

    Given below is a completed Contra voucher in which ā€˜cash deposited into bankā€™ transaction is recorded:

    Journal Voucher ā€“ F7

    There are many transactions which cannot be passed in any of the vouchers discussed above. The examples of such transactions or journal entries are as follows:

    1. Depreciation of assets
    2. Entries related to the provision
    3. Prepaid Expenses
    4. Outstanding expenses
    5. Rectification of error entries
    6. Accrued income entries
    7. Any other entry which cannot be passed in any other voucher.

    It is an important voucher in Tally as many crucial entries are recorded in it.
    The journal voucher looks like this:

    It looks like a journal book and it does not have any different mode like voucher discussed above:

    The journal entries to practice on journal vouchers are many. You can refer to the examples of transactions I have mentioned above.

     

    Debit Note Voucher ā€“ Alt + F5

    A debit note voucher is to record purchase return transactions in Tally. Hence, the only transaction you can record here is of purchase return. The debit note voucher looks like this:

     

    Credit Note Voucherā€“ Alt + F5

    In credit note vouchers, the sale return transactions are recorded. The credit note voucher looks like this:

    Thatā€™s all.Ā  These are vouchers I would recommend one to practice on Tally.

     

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Anushka Lalwani
Anushka Lalwani
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A. Cash Book B. Statement C. Journal D. None of These

  2. Akash Kumar AK
    This answer was edited.

    The correct option is A) Cash book let's understand what is petty cash book: A petty cash bookĀ is a cash book maintained to record petty expenses. Petty expenses, mean small or minute expenses for which the payment is made in coins or a few notes or which are smaller denominations like tea or coffeeRead more

    The correct option is A) Cash book

    let’s understand what is petty cash book:

    • A petty cash bookĀ is a cash book maintained to record petty expenses.
    • Petty expenses, mean small or minute expenses for which the payment is made in coins or a few notes or which are smaller denominations like tea or coffee expenses, postage, bus or taxi fare, stationery expenses, etc.
    • The person who maintains the petty cash book is known as the petty cashier.
    • It is a simple process that helps organizations by focusing on major transactions as petty cashiers handle all small transactions.

     

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

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

     

    The petty cash book has two columns in which

    • Cash received is recorded in the Left column i.e, “Receipts” or “Debit” column.
    • Cash payments are recorded in the Right column i.e, “Payment” or “Credit” column.

     

    Balance of Petty cash book

    The balance of petty cash book isĀ never closed and their balances are carried forward to the next accounting period which is considered one of the most significant qualities of an asset whereasĀ IncomeĀ doesnā€™t have any opening balance and their balances getĀ closedĀ at the end of every accounting year.

    A petty cash book is placed under the head current assetĀ in theĀ balance sheet.Ā The Closing Balance of the petty cash book is computed by deducting Total expenditure from the Total cash receipt (as received from the head cashier).

     

    Format for petty cash book

    Only small denominations are recorded in the petty cash book. It varies with the type, quantity, and need of a business. It involves cash and checks.

     

    • Ordinary Petty cash book:

     

    • Analytical Petty cash book:

     

    Conclusion

    A simple petty cash book is a type of cash book because it records the small expenses which involve small transactions in the ordinary daily business.

    A petty cash book is not as important as an income statement, balance sheet, or trail balance it doesn’t measure the accuracy of accounts so it is not treated as a statement.

    No journal entries are made in the books of accounts while spending or purchasing using a petty cash book so, it is not treated as a journal.

     

     

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Simerpreet
SimerpreetHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    IntroductionĀ  Working capital refers to the capital which is required by an enterprise to smoothly run its daily operations. It is the measure of the short-term liquidity of a business.Ā  Working capital is the total of the current assets of a business, net of its current liabilities. Working capitalRead more

    IntroductionĀ 

    Working capital refers to the capital which is required by an enterprise to smoothly run its daily operations.

    It is the measure of the short-term liquidity of a business.Ā 

    Working capital is the total of the current assets of a business, net of its current liabilities.

    Working capital = Current Assets – Current LiabilitiesĀ 

    The working capital consists of cash, accounts receivable and inventory of raw materials and finished goods fewer accounts payable and other short-term liabilities.

    Without a proper level of working capital, a business cannot maintain regular production and pay its creditors and expenses.

    Hence, for proper management of working capital, it is divided into types:

    • Permanent working capitalĀ 
    • Temporary working capitalĀ 

    I have discussed them below:

    Permanent Working CapitalĀ 

    It is the fixed level or minimum level of working capital that an enterprise needs to maintain to ensure production at the normal capacity and pay for its daily expenses. It is independent of the level of production.

    It is also known as fixed working capital.

    By ‘permanent’,Ā  it does not mean that it will forever remain at the same level or amount but it may change if the overall production capacity changes. But such changes in permanent working capital are not often.

    Temporary Working CapitalĀ 

    It is the level of working capital that depends upon the level of production of a business. It is the excess working capital over the permanent capital that is required to meet seasonal high demand.

    It is also known as fluctuating working capital because it tends to change often depending on the level of production.

    Temporary working capital is required when high production is required to meet seasonal demands.Ā 

    For example, a bakery will need more working capital to meet the increased demand for cakes and pastry during Christmas seasonĀ 

    Graph showing permanent and temporary working capital

    Here, the temporary working capital is fluctuating whereas the permanent working capital is gradually increasing with time.

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Simerpreet
SimerpreetHelpful
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  2. ShreyaSharma none
    This answer was edited.

    Ledger posting As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ā€˜Ledgerā€™. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting toRead more

    Ledger posting

    As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ā€˜Ledgerā€™. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting to the ledger accounts. Balancing of ledgers is carried out to find differences at the year’s end.

    Posting to the ledger account means entering information in the ledger, and respective accounts from the journal for individual records. The accounts that are credited are posted to the credit side and vice versa.

    Ledger maintenance is done at the end of an accounting period and it’s maintained to reflect 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.

    While posting to the ledger account, suppose goods were bought for cash. While passing the journal entry, we’ll be debiting the purchases a/c and crediting the cash a/c by stating it as, ‘To Cash A/c’.

    Now, this entry will be affecting both the purchases account and the cash account. In the cash account, we’ll be debiting purchases. Whereas in the purchases account, we’ll be crediting the cash. That’s how it works in the double-entry bookkeeping system of accounting.

    Example

    Mr. Tony Stark started the business with cash of $100,000 on April 1, 2021. He bought furniture for business for $15,000. He further purchased goods for $75,000.

    Now, we’ll be journalizing the transactions and posting them into the ledger accounts.

    Journal Entries

    Posting to Ledger Account

    Cash A/c

    Capital A/c

    Furniture A/c

    Purchases A/c

     

     

     

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