AccountingQA Latest Questions

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

    Journal entry for commission earned but not received Commission earned but not received is called accrued income. As we know there are two types of accounting, cash basis of accounting, in which the transaction is recorded only when cash is received or paid, and accrual basis of accounting, in whichRead more

    Journal entry for commission earned but not received

    Commission earned but not received is called accrued income. As we know there are two types of accounting, cash basis of accounting, in which the transaction is recorded only when cash is received or paid, and accrual basis of accounting, in which even if money is yet to be accepted or paid, the transactions are still recorded.

    E.g of accrual income- rent earned but not collected, interest on the investment earned but not received, etc.

    Journal entry

    • The commission that is to be received is debited, indicating the increase in assets whereas, the commission account (which will be giving you the commission) is credited.
      • Later on, upon receiving the cash an entry is passed crediting the commission receivable as shown below:

     

    • These are adjusted while making the final accounts for the business.

    Simplifying with an example

    If the rent earned was $1,000 and it’s yet to be received, we’ll be passing this entry-

    When it’s received, this entry is passed

     

     

     

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Karan
Karan
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    The journal entry for a loan to an employee is as follows: Loans to employee A/c                                            …..Dr xxx             To Bank/Cash A/c xxx (Being loan given to employee) From the above journal entry, we see that there are two accounts-first one is "Loan to employee accounRead more

    The journal entry for a loan to an employee is as follows:

    Loans to employee A/c                                            …..Dr xxx
                To Bank/Cash A/c xxx
    (Being loan given to employee)

    From the above journal entry, we see that there are two accounts-first one is “Loan to employee account” and the second one is “Bank/cash account“. Both are assets for the company.

    Loan to employees is considered an asset because they are expected to be returned by the employee within the stipulated time period. If the loan is repaid within one year it will be shown under the current asset and if it is not expected to be collected within a year or in short might be repaid after a year then it will be shown under long-term assets.

    Also, we all know Bank/cash is an asset for the company.

    Why loan to employee A/c is debited and Bank/cash A/c is credited?

    As per the modern rule:

    ASSETS
    Increase Debit
    Decrease Credit

    Connecting the above-stated entry with the modern rule “loan to an employee” is debited as money comes back into the business hence there is an increase in an asset therefore debited. While in the second case “bank/cash account” is credited as the money goes out of the business, there is a decrease in assets of the company therefore credited.

    Loan to employee The inflow of cash in a future date Increase in an asset Debit
    Bank/ cash The outflow of cash Decrease in an asset Credit

    We notice that in this entry there is an increase in one asset while a decrease of another asset. Therefore the impact on the balance sheet is Nil.

    Let me give you a simple illustration of the above entry

    Mr. Ross was an employee of Maxwell Pvt ltd. Mr. Ross was lent Rs 2,00,000 by the company for some emergency purpose. So as per modern rules the accounting entry in the books of the company will be as follows:

    Loans to Mr. Ross A/c                                            …..Dr 2,00,000
                To Bank/Cash A/c 2,00,000
    (Being loan given to Mr. Ross)
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Manvi
Manvi
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The journal entry for commission received is as presented below: Cash A/c / Bank A/c  / A Personal A/c    Dr.    -   ₹                     To Commission received A/c          -        ₹         (Being ₹ commission received)   The commission received means an amount received by a person or entity forRead more

    The journal entry for commission received is as presented below:

    Cash A/c / Bank A/c  / A Personal A/c    Dr.    –   ₹

                        To Commission received A/c          –        ₹        

    (Being ₹ commission received)

      The commission received means an amount received by a person or entity for the provision of a service. For example, a firm sold goods worth ₹10,000 of a manufacturer and was paid an amount of ₹1000 in cash as commission. So, the entry in the books of accounts of the firm will be as follows:

    Cash A/c       Dr.       ₹1000

    To Commission received A/c    ₹1000

    Now, let’s understand the logic behind the journal entry through the modern rules of accounting.

    Cash account, bank account and personal account are asset accounts. Hence, they are debited when assets are increased.

    While the commission received account is an income account. Hence, when income increases, it is credited.

    As per the traditional rules i.e. the golden rules of accounting, these are the explanations:

    Commission can be received in cash or bank. Hence the Cash or Bank account is debited as they are real accounts.

    “Debit what comes in, credit what goes out”

    Also, when it is not received but accrued, then a personal account is debited (the person or entity who has received the service but has not paid for it yet).  The following rule applies to the personal account.

    “Debit the receiver, credit the giver”

     Commission received is an income, thus it is a nominal account. It will be credited because of the following rule of nominal accounts:-

    “Debit all expense and losses, credit all income and gains”

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

    Introduction   Furniture is treated as a fixed asset of an enterprise unless it deals in the manufacturing or the trade of furniture. As stock in trade, it will be treated as current assets. In both cases, they are real accounts. Hence, the golden rule of accounting will be the same. But, when it coRead more

    Introduction

     

    Furniture is treated as a fixed asset of an enterprise unless it deals in the manufacturing or the trade of furniture. As stock in trade, it will be treated as current assets.

    In both cases, they are real accounts. Hence, the golden rule of accounting will be the same.

    But, when it comes to journal entries, Furniture A/c will appear only when it is treated as a fixed asset.

    No journal entries are passed in the stock-in-trade account except for some balance transferring entries.

    Journal Entries on taking Furniture as a fixed asset

    Taking furniture as a fixed asset, we can pass various entries related to it. Since furniture is an asset, any increase is debited and the decrease is credited.

    Also, furniture is a real account which means the golden rule of accounting  applicable is, “Debit what comes in and credit what goes out”.

    Following are the basic entries related to furniture.

    Purchase of furniture

    The most common entry related to furniture is the purchase of furniture:

    Furniture A/c                                            Dr. Amt
    To Cash / Bank A/c Amt

    Here Furniture A/c is increased, hence debited.
    Cash or Bank being reduced is credited.

    Sale of furniture

     

    Cash / Bank A/c                                       Dr. Amt
    Profit and Loss A/c *                               Dr. Amt
    To Furniture A/c Amt
    To Profit and Loss A/c  ** Amt

     *In case of loss

    **In case of profit

     On the sale of furniture, its balance gets reduced, hence credited.
    Cash or Bank is debited as cash comes in hand or into the bank.

    Also, profit or loss may arise due to the difference in sale value and the carrying amount of the furniture A/c.

    The difference is debited to Profit and Loss A/c in case of loss and credited in case of profit.

     

    Depreciation on Furniture

    Depreciation A/c                                         Dr. Amt
    To Furniture A/c Amt

    Here, furniture is credited as it is decreased by the amount of depreciation.

    Depreciation being a non-cash expense, is debited.

    Journal Entries on taking Furniture as stock in trade

    When furniture is stock of trade of a business, the journal entries will be like normal purchase and sales entries as below:

     

    Purchase A/c                                               Dr. Amt
    To Cash / Bank A/c Amt

     

     

    Cash / Bank A/c                                          Dr. Amt
    To Sales A/c Amt

    There will be no furniture account.

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prashant06
prashant06
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  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    The journal entry for the opening stock will be: Particulars Amt Amt Trading A/c INR              To Opening Stock A/c INR (Being opening stock transferred to Trading A/c) Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. ORead more

    The journal entry for the opening stock will be:

    Particulars Amt Amt
    Trading A/c INR
                 To Opening Stock A/c INR
    (Being opening stock transferred to Trading A/c)

    Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. Opening stock may include stock of raw material, semi-finished goods, and finished goods. It is a part of the cost of sales.

    Closing stock is the value of unsold inventory left with the company at the end of the year. The previous year’s closing stock is the current year’s opening stock.

    Trading Account is a nominal account. According to the golden rules of accounting, the nominal account is the account where “Debit” all expenses and losses, and “Credit” all income and gains.

    In the above journal entry, the opening stock account is credited because it is the balance that is carried forward from the previous year and carried forward with the aim of selling it and gaining profit from it. The trading account here is debited as opening stock is carried forward to the next year from the trading account only.

    According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenues, and decreases assets and expenses.

    Here, Trading A/c is debited because an expense is incurred while bringing stock into the business. Opening Stock A/c is credited because indirectly it is creating a source of income for the business.

    The formula for calculating opening stock is as follows:

    Opening Stock = Cost of Goods Sold + Closing Stock – Purchases

    For example, AB Ltd. started a new accounting period for dairy products and introduced opening stock worth Rs.1,00,000 in the business.

    Here, the journal entry will be,

    Particulars Amt Amt
    Trading A/c 1,00,000
                 To Opening Stock A/c 1,00,000
    (Being opening stock transferred to Trading A/c)
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SidharthBadlani
SidharthBadlani
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Journal Entry is an entry made in the journal is called journal entry. And the process of recording a transaction in a journal is called journalizing. Broadly journal entries are of two types : 1. Simple entry 2. Compound entry Otherwise, they are categorized into seven types which are asRead more

    Definition

    Journal Entry is an entry made in the journal is called journal entry. And the process of recording a transaction in a journal is called journalizing.

    Broadly journal entries are of two types :

    1. Simple entry
    2. Compound entry

    Otherwise, they are categorized into seven types which are as follows :

    1. Opening entries
    2. Closing entries
    3. Rectification entries
    4. Transfer entries
    5. Adjusting entries
    6. Entries on dishonor of bills
    7. Miscellaneous entries

    Explanation

    Now let me explain to you the above types of entries mentioned which are as follows ;

    Simple entry
    • Is a journal entry in which one account is debited and another account is credited with an equal amount.
    • For example, the purchase of goods of Rs 5000 cash. It will affect two accounts,i.e., purchase A/C and cash A/C with the amount of Rs 5000.

    Compound entry
    • Is a journal entry in which one or more accounts are debited and/or one or more accounts credited or vice versa.
    • For example the sale of goods to Sati for Rs 5000, Rs 2000 is received in cash, and the balance is to be received later.
    • This transaction of the sale has an effect on three accounts i.e cash or bank A/C, Sati A/C, and sales A/C.

    Opening entries
    • Are defined as when books are started for the new year, the opening balance of assets and liabilities are journalized. For example bills payable, short-term loans, etc.

    Closing entries
    • At the end of the year, the profit and loss account has to be prepared. For this purpose, the nominal accounts are transferred to this account. This is done through journal entries called closing entries.

    Rectification entries
    • If an error has been committed, it is rectification through a journal entry.

    Transfer entries
    • If some amount is to be transferred from one account to another, the transfer will be made through a journal entry.

    Adjusting entries
    • At the end of the year, the number of expenses or income may have to be adjusted for amounts received in advance or for amounts not yet settled in cash.
    • Such an adjustment is also made through journal entries. Usually, the entries pertain to the following :

    Outstanding expenses,i.e., expenses incurred but not yet paid;

    Prepared expenses,i.e., expenses paid in advance for some period in the future ;

    Interest on capital is the interest proprietor’s investment in the business entity investment; and

    Depreciation fall in the value of assets used on account of wear and tear. For all these, journal entries are necessary.

    Entries on dishonor of bills
    • If someone who accepts a promissory note ( or bill) is not able to pay in on the due date, a journal entry will be necessary to record the non–payment or dishonor.

    Miscellaneous entries
    The following entries will also require journalizing
    • Credit purchase of things other than goods dealt in or materials required for the production of goods e.g. Credit purchase of furniture or machinery will be journalized.
    • An allowance to be given to the customers or a charge to be made to them after the issue of the invoice.
    • Receipt of promissory notes or issue to them if separate bills books have not been maintained.
    • On an amount becoming irrecoverable, say, because, of the customer becoming insolvent.
    • Effects of accidents such as loss of property by fire.
    • Transfer of net profit to capital account.

    Here are some examples of journal entries showing the above types :

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Nistha
Nistha
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Journal Entry
  2. Radhika
    This answer was edited.

    When a company earns profit, it distributes a proportion of its income to its shareholders, and such distribution is called the dividend. The dividend is allocated as a fixed amount per share and shareholders receive dividends proportional to their shareholdings. However, a company can only pay diviRead more

    When a company earns profit, it distributes a proportion of its income to its shareholders, and such distribution is called the dividend. The dividend is allocated as a fixed amount per share and shareholders receive dividends proportional to their shareholdings.

    However, a company can only pay dividends out of its current year profits or retained earnings (profits of the company that are not distributed as dividend and retained in the business is called retained earnings) of previous years but not out of capital.

    Dividends can be paid to shareholders in the form of

    • Cash
    • dividend re-investing plan of the company
    • future shares
    • share repurchase.

    For companies, payment of regular dividends boosts the morale of the shareholders, investors trust the companies more and it reflects positively on the share price of the company.

    For example, Nestle in India paid an interim dividend of 1100.00% to its shareholders in 2021.

    The journal entry for dividend paid is

    Particulars Debit Credit
    Retained Earnings A/c                                                          Dr. Amt  
    To Cash A/c   Amt

     

    According to the golden rules of accounting-

    • Retained earnings is a credit account by nature and since dividends are paid from retained earnings resulting in a deduction of the account, we debit
    • Cash is credited because the account is debit in nature and since dividends are paid in cash it’s credited to present the deduction in the account.

    According to modern rules of accounting-

    • Since cash is decreasing, we credit
    • Since retained earnings are decreasing and it is a part of capital it should be

    For example-

    A company paid a dividend of 25 crores to its shareholders in cash, the journal entry according to golden rules will be-

    Particulars Debit

    (in crores)

    		 Credit

    (in crores)
    Retained Earnings A/c  (Dr.) 25  
    To Cash A/c   25

     

     

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Simerpreet
SimerpreetHelpful
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  2. GautamSaxena Curious .
    This answer was edited.

    Interest on capital Interest on capital is interest payable to the owner/partners for providing a firm with the required capital to commence the business. It's a fixed return that a business owner is eligible to receive. When the business firm faces a loss, the interest on capital will not be providRead more

    Interest on capital

    Interest on capital is interest payable to the owner/partners for providing a firm with the required capital to commence the business. It’s a fixed return that a business owner is eligible to receive.

    When the business firm faces a loss, the interest on capital will not be provided. It is permitted only when the business earns a profit. Such payment of interest is generally observed in partnership firms. It is provided before the division of profits among the partners in a partnership firm.

    If an owner or partner introduces additional capital to the business, it is also taken into account for providing interest on capital.

    Sample journal entry

    Interest on capital is an expense for business, thus, debited as per the golden rules of accounting, debit the increase in expense, and the owner/partner’s capital a/c is credited as per the rule, credit all incomes and gain.

    As per the modern rules of accounting, we debit the increase in expenditure and credit the increase in capital.

    As we know, as per the business entity concept, business and owner are two different entities and a business is a separate living entity. Therefore, the capital introduced by the owner/partners is the amount on which they’re eligible to receive a return.

    Example:

    Tom is the business owner of the firm XYZ Ltd. He has contributed ₹ 10,00,000 to the business with 10% interest provided to Tom at the end of the year.

    Solution:

    Here interest on capital will be calculated as,

    Interest on capital = Amount invested × Rate of interest × Number of Months/12

    = 10,00,000 × 10% × 12/12

    = ₹ 1,00,000

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Simerpreet
SimerpreetHelpful
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  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolutionRead more

    Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolution of the partnership firm

    Unrecorded assets are treated in two ways:

    1. Either they can be sold for cash.
    2. Taken over by any of the partners.

    The journal entry for the unrecorded assets sold in cash is as follows:

    Bank A/c                                                                           ……..Dr xxx
                To Realization A/c xxx
    (Being unrecorded assets sold for cash)

    To make the entries more simple for you let me give you a small example

    A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. They decide to sell the furniture for Rs 3,000. Here we can see that the firm has decided to realize its furniture by selling them in cash. Therefore the journal entry would be

    Bank A/c                                                                    ……..Dr 3,000
                To Realisation A/c 3,000
    (Being old furniture sold for cash)

    And the journal entry for unrecorded assets taken over by the partner is as follows:

    Partner’s capital A/c                                                      ……..Dr xxx
                To Realization A/c xxx
    (Being unrecorded taken over by the partner)

    For example:

    A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. One of the pieces of furniture was taken over by one of the partners for Rs 3,000. Here we can see that the firm has decided to realize its furniture by taking over the partner. Therefore the journal entry would be

    Bank A/c                                                                    ……..Dr 3,000
                To Partnership A/c 3,000
    (Being old furniture taken by partner)

    As realization is a nominal account it debits all expenses and losses while credit all incomes and gains. Therefore when a business treats unrecorded assets either by selling them or is taken over by the partner’s, it brings a certain amount of cash into the business hence Bank A/c and Partner’s capital account is debited in the journal entry and appear on the credit side of the realization account.

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SidharthBadlani
SidharthBadlani
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Posting refers to moving the transaction entries from the journal to the ledger books of the company. It is an important part of the accounting cycle. Posting helps us to classify transactions in a better manner. A journal is used to record transactions in chronological order while ledgerRead more

    Definition

    Posting refers to moving the transaction entries from the journal to the ledger books of the company. It is an important part of the accounting cycle.

    Posting helps us to classify transactions in a better manner.

    A journal is used to record transactions in chronological order while ledger books are used to classify transactions into assets, liabilities, expenses, and incomes.

    Steps of Posting

    • Create and name ledger accounts for different items of trial balance

    • Identify those entries in the journal that relate to the relevant ledger book under consideration.

    • Post the entry on the debit or credit side of the ledger account.

    • For example, when salaries are paid a salary account is debited and a bank account is credited. When posting this transaction in the bank account we will debit the bank account and write “To salaries” under the head “particular”. This will indicate that salaries were paid from a bank account causing a reduction in the bank balance.

    • After all the journal entries relevant to a particular ledger account have been posted in it, we will tally the total of the debit and the credit side of the ledger account to ascertain any balance left.

    • Usually, asset accounts have the debit side exceeding the credit side. That is to say, they have a debit balance. Liability accounts usually have a credit balance.

    • It is not necessary that every ledger account may have a balance left at the end. The total of the amounts on the debit side may be equal to the total of the amounts on the credit side in some ledger accounts.

    • The last step is to recheck the ledger account to identify and correct any mistakes that may have occurred during the posting process.

    Importance of Posting

    • Posting helps us to classify transactions in a better and more efficient manner.

    • Posting makes the books of accounts more readable.

    • An accountant may choose to engage in posting once every month or even once every day as per the requirements of the business and the financial reporting norms.

    • Posting is necessary for the creation of financial statements. A trial balance cannot be drafted without determining the balance of each ledger account.

    • Posting helps us to know the balance of each account This helps to run the business smoothly by tracking balances timely and making up for any likely deficiency in advance.

    • Analysis of how balances of various ledger accounts have changed over time helps us to draw valuable conclusions for the business.

    Conclusion

    We can conclude by saying that the process of posting refers to transferring the entries from the journal to the ledger accounts.

    Posting is an essential step of the accounting cycle and without it, financial statements cannot be prepared. Any error while posting is bound to adversely affect the creation of the financial statements.

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