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Bank statement and bank column of cash book Bank statement and cash column of cash book Bank column of cash book and cash column of cash book None of the above

Bank Reconciliation Statement
  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not. What isRead more

    The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not.

    What is Reconciliation?

    Reconciliation is an accounting procedure that compares two sets of records to check figures are correct and in agreement. Reconciliation can also be used for personal purposes.

    What is a Bank Reconciliation Statement?

    A statement showing causes of disagreement between the balance of bank statement and bank column of the cash book at the end of a specific period is called a Bank Reconciliation Statement.

    Steps in preparation of Bank Reconciliation Statement

    Step 1: Comparing items appearing on the debit and credit sides of the bank statement and bank column of the cash book.

    Step 2: Make a list of missed entries.

    Step 3: Analyse the causes of differences.

    Step 4: Select the date for the preparation of the Bank Reconciliation Statement.

    Step 5: Choose the starting point i.e balance as per cash book or balance as per bank statement.

    Step 6: Adjust the starting point by adding or subtracting the missed entries.

    Step 7: Bank Statement must match with the cash book.

    To prepare a bank reconciliation statement a business will need a bank statement from its bank and cash book which it prepares to record entries.

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

    The "Income and Expenditure" account lists all the income and expenses incurred by the entity throughout the year. This account is very identical to the profit and loss account and is generally prepared on an accrual basis irrespective of whether the amount is received or paid. Non-profit organizatiRead more

    The “Income and Expenditure” account lists all the income and expenses incurred by the entity throughout the year. This account is very identical to the profit and loss account and is generally prepared on an accrual basis irrespective of whether the amount is received or paid. Non-profit organizations (NPO) prepare this type of account to ascertain surplus earned or deficit incurred by them during the period.

    Talking about the format of income and expenditure accounts we generally see that all the expenses are recorded on the debit side while all incomes are recorded on the credit side. One important thing to note is that items so recorded are revenue items while capital nature items are generally ignored because only current period items are recorded in this statement.

    Since it is a Nominal account, we follow the golden rules to prepare this, stating “debit all expenses and losses and credit all incomes and gains”. The closing balance at the end shows the surplus or deficit for the year. If the balancing figure appears on the debit side it is surplus and if the balancing figure appears on the credit side it is a deficit for the entity.

    Following is the format of income and expenditure account

     

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

    A cheque that has been issued but yet not presented to the bank for payment is known as an unpresented cheque Generally what happens is when a cheque is issued to a party or say, creditor, the business immediately records them in the bank column of the cash book but the creditor might not present thRead more

    A cheque that has been issued but yet not presented to the bank for payment is known as an unpresented cheque

    Generally what happens is when a cheque is issued to a party or say, creditor, the business immediately records them in the bank column of the cash book but the creditor might not present them immediately to the bank for payment on the same date. The bank will only debit the account when it will be presented to it, therefore as long as the cheque remains unpresented there will be a difference in both the books i.e cash book and passbook.

    Let me give you a short example of the above treatment

    Suppose on 27th January, in the books of Mr. Shyam, the balance of the bank column as per the cash book is Rs 10,000. He received a cheque of Rs 5,000 from Mr. Hari, one of his debtors, which was sent to the bank for collection. The amount of the cheque was not collected by the bank until 31st January. Due to this, there arises a difference of Rs 5,000 in the cash book and pass book of Mr. Shyam.

    Following will be the entry in Mr. Shyam cash book and passbook

    In the books of Mr. Shaym

    Cash book (bank column only)

    Date Particulars Bank (Rs) Date Particulars Bank (Rs)
    27th Jan To balance b/d 10,000
    27th Jan To Hari 5,000
    31st Jan By balance c/d 15,000
    15000 15000

      Mr. Shyam

       Bank Statement

    Date Particulars Debit (Withdraw) Credit (Deposite) Debit or Credit Balance
    31st Jan To balance b/d credit 10,000

    How it is treated in the bank reconciliation statement?

    There lies a temporary difference in both the books as the represented cheques will eventually be presented. Therefore we will not alter the cash book. The bank statement shows the greater amount of Rs 5,000 as compared to the cashbook, therefore we will debit the amount of unpresented cheque which will eventually make it balance to the level of bank statement.

     

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Simerpreet
SimerpreetHelpful
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A) No entries made at all in the general ledger for items paid by petty cash B) The same number of entries in the general ledger. C) Fewer entries made in the ...

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

    The correct option is D) Fewer entries in the general ledger To understand why option D is correct, we need to understand the concept. Petty cashbook is a special cashbook prepared for recording petty or small cash expenses. The benefit is that the chief cashier can focus on large cash and bank tranRead more

    The correct option is D) Fewer entries in the general ledger

    To understand why option D is correct, we need to understand the concept.

    • Petty cashbook is a special cashbook prepared for recording petty or small cash expenses.
    • The benefit is that the chief cashier can focus on large cash and bank transactions and there are fewer transactions in the main cashbook.
    • The petty cashier is provided with a fixed amount for a month or week and is reimbursed the amount spent at the end of the period after he sends the details of expenses to the chief cashier.
    • There are entries for the transfer of cash to the petty cashier in the main cashbook only.

    Option A ‘No entries made at all in the general ledger for items paid by petty cash ‘ is wrong. It is not possible to omit entries of petty expense just because there is a petty cashbook. There will be entries related to:

    • The cash is given to the petty cashier in a fixed amount or the amount spent as petty expenses during the month or week.

    Petty cash A/c  Dr.        Amt

        To Cash A/c                   Amt

     Option (B) ‘The same number of entries in the general ledger is wrong because there can never be the same number of entries as all the petty expenses are recorded in the petty cashbook and only the entries for transfer of cash to the petty cashier is recorded in the main cash book.

    Option D ‘More entries made in the general ledger​’ is wrong because the number of entries actually reduce as only petty cash transfer entries are recorded in the main cashbook instead of numerous entries of petty cash transactions.

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Bonnie
BonnieCurious
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  2. Radhika
    This answer was edited.

    A cash flow statement is a statement showing the inflow and outflow of cash and cash equivalents during a financial year. Cash Flow Statements along with Income statements and Balance Sheet are the most important financial statements for a company. The Cash Flow Statement provides a picture to the sRead more

    A cash flow statement is a statement showing the inflow and outflow of cash and cash equivalents during a financial year. Cash Flow Statements along with Income statements and Balance Sheet are the most important financial statements for a company.

    The Cash Flow Statement provides a picture to the shareholders, government, and the public of how the company manages its obligations and fund its operations. It is a crucial measure to determine the financial health of a company.

    The Cash Flow Statement is created from the Income Statement and the Balance Sheet. While Income Statement shows money engaged in various transactions during the year, the Balance Sheet presents information about the opening and closing balances.

    The primary objective of a Cash Flow Statement is to present a record of inflow and outflow of cash, cash equivalents, and marketable securities through various activities of a company.

    Various activities in a company can be broadly classified into three parts or heads:

    • Cash Flow from Operating Activities: it represents how money from regular business activities is derived and spent. It includes Net Profit from Income Statement after adjusting for tax and extra-ordinary activities. Items included in Operating Activities are adjustments in Working Capital. If current liabilities are paid or current assets are bought it means outflow of cash, hence it is deducted and if liabilities are increased or assets are sold it means the inflow of cash, hence it is added. Operating Activities take into account taxation, dividend, depreciation, and other adjustments.
    • Cash Flow from Investing Activities: it represents aggregate inflow or outflow of cash due to various investments activities that the company was engaged in. Purchase and sale of non-current assets like fixed assets and long-term investments are considered under this head. If there is an investment made, it means outflow of cash, hence it is deducted and if there is an investment sold it means the inflow of cash, and hence it is added.
    • Cash Flow from Financing Activities: it represents the activities that are used to finance a company’s operations, like, issue of cash or debentures, paying dividends and interest, long-term borrowing taken by a company, etc. If these are paid, it means outflow of cash and is hence deducted and if they are acquired, it means the inflow of cash and hence ae added.

    Cash Flow Statements also present a picture of the liquidity of the company and are therefore used by the management of a company to take decisions with the help of the right information.

    Cash Flow Statements are a great source of comparison between a company’s last year’s performance to its current year or with other companies in the same industry and hence, helps shareholders and potential investors to make the right decisions.

    It also helps to differentiate between non-cash and cash items; incomes and expenditures are divided into separate heads.

     

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Anushka Lalwani
Anushka Lalwani
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Interest on capital is the interest provided on the capital invested in the business. It is calculated as a percentage on the capital invested. Interest on capital is provided if there is any rule established by the owner of the capital. Otherwise, it is not provided. We generally encounter ‘InteresRead more

    Interest on capital is the interest provided on the capital invested in the business. It is calculated as a percentage on the capital invested. Interest on capital is provided if there is any rule established by the owner of the capital. Otherwise, it is not provided.

    We generally encounter ‘Interest on capital’ in partnership accounting but a sole proprietorship can also provide interest on capital.

    Interest on capital is charged or appropriated from the profits of the firm. Hence, it appears on the debit side of the profit and loss account.

    The journal entry is as follows:

    The partners, in case the firm makes profit, are provided interest on their capital balance apart from their share of profit if provision of interest on capital is mentioned in the partnership deed.

    Hence, interest on capital is an appropriation of profit in partnership accounting. The journal in case of partnership account is as follows:

    The Interest on capital is credited to the capital/ partners’ capital account thereby increasing the capital balance.  The journal is as follows:

    In the balance sheet it is shown as an addition to the capital account.

    Numerical example

    P, Q and R are partners. Their firm reported a net profit of ₹ 20,000. Their capitals are ₹30,000, ₹45,000 and ₹60,000. It is in their partnership deed to provide the partners 4% interest on capital and a salary of ₹5,000 per annum for Q. Calculate the interest on capital.

    Solution:

    Interest on capital to be provided to the partners:

    P – ₹30,000 x 6% = ₹1,800

    Q – ₹45,000 x 6% = ₹2,700

    R – ₹60,000 x 6% = ₹3,600

    This interest will be credited to the partners’ capital. The journals are as follows:

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

    20 Journal Entries Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries. Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is creditedRead more

    20 Journal Entries

    Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries.

    Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is credited.

    In the case of compound journal entries, one set of accounts is debited and one set of accounts is credited.

    The amount of debit and credit always remains the same.

    For example, when cash is introduced into a business, it affects two accounts: Cash A/c and Capital A/c. The accounts are debited and. credited as per the golden rules of accounting.

    The journal entries which I have provided are based on the following transactions and events:

    1. The business started with Rs. 1,00,000 
    2. Bought machinery for Rs. 15,000 and furniture for Rs. 10,000
    3. Purchased goods of Rs. 20,000 with cash 
    4. Bought Stationery for Rs. 500 
    5. Cash deposited into bank Rs. 40,000 
    6. Goods sold to Matt for Rs. 15,000 
    7. Purchased goods from Uday of Rs. 30,000 
    8. Being Rs. 5,000 rent paid for premises 
    9. Cheque received from Matt of Rs. 15,000 
    10. Defective goods returned to Uday returned of Rs. 2,000 
    11. Cash sales of Rs. 25,000 
    12. Carriage Inward paid Rs. 700
    13. Cash withdrawn from bank Rs. 15,000 
    14. Full payment made to Uday in cash. Discount received from Uday Rs. 1000.
    15. Refreshments given to customers of Rs. 200
    16. Goods sold to Shyam for Rs. 7,500 
    17. Goods purchased from Ram of Rs. 50,000 
    18. Salaries paid to employees by bank Rs. 5,000 
    19. Good sold to Suri for Rs. 25,000 
    20. Insurance premium paid of Rs. 1,500 by the bank.

    Journal Entries

    The journal entries based on the above are as follows:

     

    Ledgers

    Ledger is known as the book of final entry. It is the book where the transactions related to a specific account are posted. This posting of transactions is done from journal entries.

    The posting of journal entries into the ledger is performed in the following way:

    The journal entry of cash sales is :

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

    Here, Cash A/c is debited to Sales A/c. So, in the Cash A/c ledger, posting will be made on the debit side as “To Sales A/c”

    In the Sales A/c ledger, the posting will be made on the credit as “By Cash A/c” because Sales A/c is credited to Cash A/c

    For creating ledgers, journal entries are a prerequisite.

    Now, the ledgers to be created as per the journal entries made above are as follows:

    1. Cash A/c
    2. Bank A/c
    3. Capital A/c
    4. Furniture A/c
    5. Machinery A/c
    6. Purchase a/c
    7. Sales A/c
    8. Matt A/c (Debtor)
    9. Uday A/c (Creditor)
    10. Rent A/c
    11. Purchase Return A/c
    12. Stationery A/c
    13. Carriage Inward A/c
    14. Refreshment A/c
    15. Shyam A/c (Debtor)
    16. Ram A/c (Creditor)
    17. Suri A/c (Debtor)
    18. Refreshment A/c
    19. Discount Received A/c

    The account ledgers are as follows:

    Trial Balance

    A trial balance is a statement that is prepared to check the arithmetical accuracy of books of accounts.

    In this statement, the total of all accounts having debit balance and the total of all accounts having credit balance is computed. If the total of debit and credit matches, then it can be said that the books of accounts are arithmetically accurate.

    Here also we have prepared the trial balance by computing the total of accounts  having debit balances and the total of  accounts having credit balances

    The debit column total and credit column total are matching. Hence, we can say that the books of accounts we have prepared are arithmetically accurate.

    Note: Matt A/c and Uday A/c have not appeared in the trial balance because they do not have any carrying balance.

     

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Simerpreet
SimerpreetHelpful
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  2. Akash Kumar AK
    This answer was edited.

    Partnership Firm Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name” In simple words, A partnership is an agreRead more

    Partnership Firm

    Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name”

    In simple words, A partnership is an agreement between two or more people who comes together to run a business on a partnership deed, which is called a Partnership firm. A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called a Partnership Agreement.

    It has no separate legal entity which cannot be separated from the members. It is merely a collective name given to the individuals composing it. This means, a partnership firm cannot hold property in its name, and neither it can sue nor be sued by others.

     

    Contents of a Partnership Deed

    A Partnership Deed shall mainly include the following contents:

    1. Name of the Partnership firm
    2. Address of the Partnership firm
    3. Details of all the Partners
    4. Date of commencement of the Business
    5. The amount of capital contributed by each of the partners forming the Partnership firm
    6. The Profit sharing ratio (The Business profit shared among the partners on a ratio basis)
    7. The rate or amount of Interest on Capital & the rate or amount of Interest on drawings to each partner respectively.
    8. The salary is payable to each of the partners of the firm.
    9. The rights, duties, and power of each partner of the firm.
    10. The duration of the existence of the firm

     

    Types of Partners

    The following are the various types o partners

    1. Working partner or Active partner
    2. Sleeping partner
    3. Limited partner
    4. Partner in profit only
    5. Nominal or quasi partner
    6. Minor as a partner

     

    Types of Partnership Firms

    There are four types of partnership which are as below.

    1. General Partnership
    2. Limited Partnership
    3. Partnership at will
    4. Particular Partnership

    Essential characteristics of a partnership firm

    1. Two or More persons: There must be at least two persons to form a partnership. A person cannot enter into a partnership with himself. The maximum number of persons in a partnership should not exceed 50.
    2. Agreement between partners: There must be an agreement between the parties in a partnership. The relation of partnership arises from the formation of a contract i.e., Partnership deed.
    3. Mutual Agency: Partnership business can be carried on by all the partners or by any of them acting on behalf of the others. in simple words, every partner is an agent to the other partners and of the form. Each partner is liable for acts performed by other partners on behalf of the firm.
    4. Registration of Firm: Registration of a partnership firm is not compulsory under the Act. The only document or even an oral agreement among partners required is the ‘partnership deed’ to bring the partnership into existence.
    5. Unlimited Liability: the liability of the partners is unlimited for the debts of the firm. In case the assets of the firm are insufficient to pay the debts in full, the personal property of each partner can be attached to pay the creditors of the firm.
    6. Non-Transferability of interest: there is a restriction in the transfer of shares of profits of the partnership without the prior consent of all other partners.
    7. Sharing of profits: The profits must be distributed among the partners in an agreed ratio. Similarly, losses should be shared among the partners.
    8. Lawful Business: The business carried on by the partners must be lawful. Illegal acts such as theft, dacoity, smuggling, etc., cannot be called partnerships.
    9. Utmost good faith: A partner must observe utmost good faith in all dealings with his co-partners. He must render true accounts and make no secret profits from the business.

     

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Ishika Pandey
Ishika PandeyCurious
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Debtors are treated as an asset. A debtor is a person or an entity who owes an amount to an enterprise against credit sales of goods and/or services rendered. When goods are sold to a person on credit that person is called a debtor because he owes that much amount to the enterprise. Debtors are consRead more

    Debtors are treated as an asset.

    A debtor is a person or an entity who owes an amount to an enterprise against credit sales of goods and/or services rendered.

    When goods are sold to a person on credit that person is called a debtor because he owes that much amount to the enterprise.

    Debtors are considered assets in the balance sheet and are shown under the head of current assets.

    For example – Ram Sold goods to Sam on credit, Sam did not pay for the goods immediately, so here Sam is the debtor for Ram because he owes the amount to Ram. This amount will be payable at a later date.

    Liabilities Vs Assets

    Liabilities

    It means the amount owed (payable) by the business.  Liability towards the owners ( proprietor or partners ) of the business is termed internal liability. For example, owner’s capital, etc

    On the other hand, liability towards outsiders, i.e., other than owners ( proprietors or partners ) is termed as an external liability.
    For example creditors, bank overdrafts, etc.

    Assets

    An asset is a resource owned or controlled by a company. The benefit from the asset will accrue to the business in current and future periods. In other words, it’s something that a company owns or controls and can use to generate profits today and in the future.
    For example – machinery, building, etc.

    Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business. They are readily realizable into cash.

    In other words, we can say that the expected realization period of current assets is less than the operating cycle period.

    For example, goods are purchased with the purpose to resell and earn a profit, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.

     

    Why debtors are treated as assets?

    Now let me explain to you why debtors are treated as assets and not as liabilities because of the following characteristics :

    • We can say that the expected realization period is less than the operating cycle period.
    • Expected to be converted into cash in the normal course of business.
    • In the business, debtors are treated as current assets which we can see on the asset side of the balance sheet.
    • Debtors have a debit balance.

     

    Conclusion

    Now after the above discussion, I can conclude that debtors are considered to be an asset and not a liability.

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Simerpreet
SimerpreetHelpful
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  2. Kajal

    A Realisation account is prepared at the time of dissolution of the Partnership firm to ascertain profit or loss from the sale of assets and payment of liabilities of the firm. All assets that can be converted into cash (i.e. from which any value can be realised) and all external liabilities to be pRead more

    A Realisation account is prepared at the time of dissolution of the Partnership firm to ascertain profit or loss from the sale of assets and payment of liabilities of the firm. All assets that can be converted into cash (i.e. from which any value can be realised) and all external liabilities to be paid are transferred to the Realisation A/c.

    So, Cash and Bank (already in liquid form), fictitious assets (doesn’t have any value to be realised), Partner’s Loan (internal liability) and Undistributed profits (not something that can be realised) are not included in the Realisation account.

     

    DISSOLUTION OF PARTNERSHIP FIRM

    It means the firm closes down its business and comes to an end. Simply, it means the firm will cease to exist in the future. As the firm is closing down, its assets are sold, liabilities are paid off, and the remaining amount (if any) is distributed among the partners.

     

    REALISATION ACCOUNT

    This account is prepared only once, at the time of dissolution of the Partnership firm. It is opened to dispose of all the assets of the firm and make payments to all the external creditors of the firm.

    It ascertains the profit earned or loss incurred on the realisation of assets and payment of liabilities.

     

    Items not included in Realisation A/c

     

    1. ASSETS

    CASH AND BANK BALANCES are not included in the Realisation account as the purpose of the Realisation account is to sell assets to realise cash, but cash and bank are already in liquid form and thus, not included.

    These are directly used for the payment of liabilities and if there is any remaining amount, then that amount is distributed among the partners.

     

    FICTITIOUS ASSETS are huge expenses or losses that are written off over the years by writing off a portion of it every year for the next few years like accumulated losses, balance of Advertisement expenses, Preliminary expenses, Loss on the issue of Debentures, etc. They don’t have any physical existence or realisable value.

    Since nothing can be realised from these assets they are not included in the Realisation account. These are transferred to the Partner’s Capital A/c.

     

    2. LIABILITIES

     

    PARTNER’S LOAN refers to the loan given to the firm by any partner of the firm. 

    Suppose, there are three Partners A, B and C. ‘C’ gave the firm a loan of $5,000. This $5,000 will be recorded as a Partner’s Loan and not just as a normal loan taken from an external party.

    Since, Partner’s Loans are the internal obligation of the firm, they are not included in the realisation account instead a separate account is prepared to settle Partner’s Loan after all external liabilities are settled.

    So, we can say in the Realisation account only external liabilities are included and paid.

     

    UNDISTRIBUTED PROFITS  are the  Profits that are not distributed among the Partners like General Reserve, Reserve Fund, and Credit balance of P&L A/c.

    They are not included in the realisation account as they can’t be sold as an asset neither they are any liabilities that should be paid. Undistributed profits belong to the Partners of the firm and thus, are transferred to Partner’s capital A/c.

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