AccountingQA Latest Questions

Anushka Lalwani
Anushka Lalwani
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  2. Saurav

    Brands can be considered as an Intangible asset as they are a long-term investment done by the company and it gives benefit to an entity in future periods. Like any other intangible asset, brands require long-term investment and will pay over time. Like any other asset, these brands can be bought anRead more

    Brands can be considered as an Intangible asset as they are a long-term investment done by the company and it gives benefit to an entity in future periods.

    Like any other intangible asset, brands require long-term investment and will pay over time. Like any other asset, these brands can be bought and sold. Brands are best used when they serve the vision and mission of the company.

    So, we can definitely consider an organization brand as an intangible as it is expected to increase sales volume in the future period.

    Further, we can understand both terms to get a deep understanding-

     

    BRAND

    Brand means a product, or service which has a unique identification and can be distinct from other products in the market. Branding is a process by which expenditure is incurred by an entity to create awareness towards the product in the customer’s eyes.

    For example- Maggie, Coca-Cola, BMW

    Brands can be created through these elements-

    • Design
    • Packaging
    • Advertisement

     

    INTANGIBLE ASSETS

    Intangible asset are assets that can’t be seen or touched but the benefit of it occur in future periods for the entity. Even though intangible assets have no physical form but their benefits will accrue in future years. Businesses commonly hold intangible assets. Intangible assets can be further bifurcated in

    Definite– Intangible assets that stay and give benefit for a limited or specific period of time covered under this

    For example- An agreement is entered with an entity to patent a product for 5 years so this will stay for a definite period only

    Indefinite– Intangible assets that stay and  give benefit for an unlimited  period of time covered under this

    For example- A brand which is made by an entity will stay for an indefinite period

    Intangible assets can be in various forms these are the following –

    Trademark– A trademark is a sign, design, and expression that distinguish the company’s product or services from other company. Trademark is considered an Intellectual Property Right.

    Goodwill– Goodwill refers to the value of the company that the company gets from its brand, customer base, and brand Reputation associated with its intellectual property.

    Patents– A patent refers to a right reserved for a product exclusively by a person or entity. Under this the right of such making of the product gets reserved by the company and other person or entity can’t make this product.

    Copyright– Copyright refers to an intellectual property right that protects the work of the original owner from being copied by some other person.

    Brand– Brand means a product, or service that has a unique identification and can be distinct from other products in market

    So, we can definitely consider that brand is a subpart of an intangible asset and can be considered as an intangible asset as it also can’t be touched or seen. Still, its benefit will accrue till future time. These both help an entity to grow its business till the future

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Nistha
Nistha
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Accounting PoliciesAccounting PrinciplesDifference Between
  2. Sandy CMA Final
    This answer was edited.

    To begin with, let me give you a brief explanation of both the terms i.e. Accounting policies and accounting principles- In order to maintain the financial statements, the company’s management adopts various Accounting Policies of its own. This generally includes the rules, the directions as to howRead more

    To begin with, let me give you a brief explanation of both the terms i.e. Accounting policies and accounting principles-

    In order to maintain the financial statements, the company’s management adopts various Accounting Policies of its own. This generally includes the rules, the directions as to how the financial statements will be prepared or how the valuation of depreciation would be done, and so on. These are flexible in nature and vary from company to company.

    For Example 1, Johnson Co. uses FIFO (first in first out) method to value the inventory. That is to say that, while selling its product, it sells those goods or products which it has acquired or produced first.

    It does not consider the LIFO or weighted average cost. The other company may adopt the other method as per its wish.

    Example 2, Johnson Co. uses the straight-line method of depreciating an asset, whereas the other company can opt for a written down value method depending upon the need of the company.

    So what I am trying to explain from this is that the accounting policies are flexible and can be adopted as per the needs of the company.

    Accounting Principles are the rules which the accountants adopt universally for recording and reporting the financial data. It brings uniformity in accounting throughout the practice of accounting. These are generally less flexible in nature.

    For Example, “Cost” is a principle. According to this accounting principle, an asset is recorded in the books at the price paid to acquire it and this cost will be the basis for all the subsequent accounting for the asset.  However, asset market value may change over time, but for the accounting purpose, it continues to be shown at its book value i.e. at which it is acquired.

    Some more examples would be of Matching principle, Consistency principle, Money measurement principle, etc.

    Differences

    Conclusion

    The point is Accounting Principles are the broad direction to reach a goal and to reach that goal helps the accounting policies.

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

    Let me brief you about the nature of computers, their parts, laptops according to the companies act 2013. Basically, these are treated as non-current tangible fixed assets. This is because these types of equipment are used in business to generate revenue over its useful life for more than a year. AsRead more

    Let me brief you about the nature of computers, their parts, laptops according to the companies act 2013. Basically, these are treated as non-current tangible fixed assets. This is because these types of equipment are used in business to generate revenue over its useful life for more than a year. As per the companies act 2013, the following extract of the depreciation rate chart is given for computers.

    Giving you a short example, suppose M/s spy Ltd purchased 20 computers worth Rs 30000 each. As per the companies act 2013, the computer’s useful life is taken to be 3 years, and the rate of depreciation rate is 63.16%. Applying the WDV method we can calculate depreciation as follows:

     Depreciation as per WDV = (Cost of an asset – salvage value)* Depreciation rate

    So for the first year, the depreciation amount will be

    Cost of computers = Rs 6,00,000 (20*30000)

    Salvage value = NIL

    Rate of depreciation as per the Act = 63.16%

    Therefore depreciation = (6,00,000 – NIL)* 63.16%

    = Rs 3,78,960

    this amount of depreciation will be shown in the profit & loss account as depreciation charged to computers and the same will be adjusted in the balance sheet. The extract of Profit & Loss and corresponding year Balance sheet is shown below.

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Aadil
AadilCurious
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  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    The journal entry for Cash Sales is- Particulars Amount Amount Cash A/c                                                      Dr $$$      To Sales A/c $$$ Sales Account is a Revenue Account and Cash Account is an Asset Account for the business. So, According to the modern approach for Sales account:Read more

    The journal entry for Cash Sales is-

    Particulars Amount Amount
    Cash A/c                                                      Dr $$$
         To Sales A/c $$$

    Sales Account is a Revenue Account and Cash Account is an Asset Account for the business.

    So, According to the modern approach for Sales account:

    • When there is an increase in the Revenue, it is ‘Credited’.
    • When there is a decrease in the Revenue, it is ‘Debited’.

     

    According to the Modern approach for Cash  account:

    • When there is an increase in the Asset, it is ‘Debited’.
    • When there is a decrease in the Asset, it is ‘Credited’.

     

    So, the journal entry here is about cash sales and since there is an increase in Revenue on account of goods being sold, the sales account will be credited as per the modern rule and due to the increase in cash on account of sales, cash account will be debited.

    For Example, Polard sold goods for cash worth Rs 2,000 for his business.

    I will try to explain it with the help of steps.

    Step 1: To identify the account heads.

    In this transaction, two accounts are involved, i.e. Cash A/c and Sales A/c.

    Step 2: To Classify the account heads.

    According to the modern approach: Sales A/c is a Revenue account and Cash A/c is an Asset account.

    Step 3: Application of Rules for Debit and Credit:

    According to the modern approach: As Sales increases, because goods have been sold, ‘Sales A/c’ will be credited. (Rule – increase in Revenue is credited).

    Cash account is an Asset account. As cash has been received on account of goods sold, there is an increase in assets and hence Cash account will be debited (Rule – increase in Asset is debited).

    So from the above explanation, the Journal Entry will be-

    Particulars Amount Amount
    Cash A/c                                                      Dr 2,000
         To Sales A/c 2,000

     

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Ayushi
AyushiCurious
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  2. Spriha Sparsh
    This answer was edited.

    Based on duration, expenses can be categorized as capital expenditure and revenue expenditure. A) Capital expenditure or CAPEX are those funds that are used to acquire or maintain or enhance long-term assets. Such expenses do not occur frequently and are incurred to enhance the company’s utility inRead more

    Based on duration, expenses can be categorized as capital expenditure and revenue expenditure.

    A) Capital expenditure or CAPEX are those funds that are used to acquire or maintain or enhance long-term assets. Such expenses do not occur frequently and are incurred to enhance the company’s utility in the long-term i.e. more than one year.

    The formula of CAPEX can be given as –

    Capital expenditure = Net increase in PP & E + Depreciation Expense

    . It is showed in companies’ cash flow statement and in its Balance Sheet under the head of fixed assets. These capital expenditures are capitalized.

    List of some capital expenses –

    • Buildings (Including costs of purchase and other cost that extend the useful life of a building)
    • Computer equipment (Cost of purchase and installation cost)
    • Office equipment (Purchase cost)
    • Furniture and fixtures (Cost of purchase and installation cost)
    • Intangible assets (i.e. patent, trademark)
    • Land (Including the cost of purchasing and upgrading the land)
    • Machinery (Purchase cost and costs that bring the equipment to its location and for its intended use)
    • Software (Installation cost)
    • Vehicles

    Example- If an asset costs Rs10,000 when bought and installation cost is Rs2000. The total capital expenditure will be Rs12000 and is expected to be in use for five years, Rs2,500 may be charged to depreciation in each year over the next five years.

    B) Revenue expenditure or OPEX are those expenses that are incurred during its course of the operation. It can also be termed as  total expenses that are incurred by firms through their production activities. Such costs do not result in asset creation, and the benefits resulting from it are limited to one accounting year. These are for managing operational activities and revenue within a given accounting period.

    The accounting treatment for revenue expenditure for an accounting period is shown in a companies Income Statement, but it is not recorded in the firm’s Balance Sheet. OPEX is not capitalized and depreciation is not levied on such expenses.

    Examples for revenue expenditures are as follows –

    • Direct expenses

    These types of expenses are mostly incurred directly through the production process. Common direct expenses include – direct wages, freight charge, rent, material cost, legal expenses, and electricity cost.

    • Indirect expenses

    These expenses are indirectly related to production like during sale, distribution, and management of finished goods or services. They include expenses like selling salaries, repairs, interest, commission, depreciation, rent, and taxes, among others.

     

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Bonnie
BonnieCurious
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  2. Ayushi Curious Pursuing CA

    ‘Reserve and surplus’ is a heading under ‘Equities and Liabilities’ in which various reserves and surplus of profit of an enterprise appear. Reserve are the amount set aside to meet with uncertainties of the future. They have credit balance as they are internal liabilities of an enterprise. While ‘sRead more

    ‘Reserve and surplus’ is a heading under ‘Equities and Liabilities’ in which various reserves and surplus of profit of an enterprise appear. Reserve are the amount set aside to meet with uncertainties of the future. They have credit balance as they are internal liabilities of an enterprise. While ‘surplus’ generally means the surplus amount in the profit and loss A/c or the operating surplus in case of a non-profit organisation, reserves are of many types:

    1. Revenue reserve
    2. Specific reserves
    • Reserves created from shareholder’s contribution
    1. Capital reserve
    2. Secret reserves

    Let’s discuss each of the above:

    1. Revenue reserves:

    Revenue reserve has two different definitions.

    First – Revenue reserves are the reserves that are created out of the profit made by an enterprise in the ordinary course of business. As per this definition, the examples of revenue reserves are:

    • General reserve: There is no restriction on the purpose for which this reserve can be used. It is a free reserve. Generally, this reserve is used to pay dividends.
    • Debenture Redemption Reserve: This reserve is mandatory to be created by law. The purpose is to ensure the timely redemption of debentures.
    • Dividend Equalisation Reserve: This reserve is created to maintain a steady rate of dividend every year even if the enterprise reports loss in any financial year.
    • Capital Redemption Reserve: This reserve can be solely used to issue bonus shares to fill the void created in total capital by redemption of preference shares.
    • Workmen Compensation Reserve: This reserve is created to pay for uncertain compensation that an enterprise may be liable to pay to its employees.
    • Investment Fluctuation Reserve: This reserve is created out of the profit of

     

       Second: Revenue reserve is a reserve from which can be used to any use. It can be the payment of dividends, creation of other reserves or reinvestment in the business. It is another name for general reserve.

    1. Specific reserves

    These are the reserves that are restricted to specific purposes only. These reserves are not free reserves i.e. dividends cannot be declared out of these reserves. However, if in case such reserve is not a statutory reserve, an enterprise can very well use such reserves for other purposes too. Specific reserves can be further classified into two types:

    • Statutory specific reserves: These are reserves that are mandatory to be created to comply with legal provisions applicable to an enterprise. Use of such reserves is restricted to some specific purposes.

    If such reserves are not created whenever applicable or if the amount in such reserves is used for a purpose other than the purpose for which it is created, the enterprise can invite face legal consequences. The examples of statutory reserves are as follows:

    • Capital Redemption Reserve
    • Debenture Redemption Reserve
    • Securities Premium Reserve
    • Non – Statutory specific reserves: It is not mandatory to create such reserves. They are created to meet with specific uncertainties of the future.
    • Workmen Compensation Reserve
    • Investment Fluctuation Reserve

    Important Note: Statutory reserve in the context of insurance companies means the minimum amount of cash and marketable securities to be set aside to comply with legal requirements.

    • Reserves created from shareholder’s contribution

    This is a reserve that is created out of a shareholder’s contribution. Securities premium reserve is the only such reserve that is created out of such shareholder’s contribution.

     

    Securities Premium Reserve: It is a reserve that is created when securities of a company such as shares or debentures are issued at a premium. The share or debenture premium money is created for this reserve. The purposes of which this reserve may be used as per section 52 of the Companies Act, 2013 are as follows:

    • For the issue of fully paid bonus shares.
    • For meeting preliminary expenses incurred by the company
    • For meeting the expense, commission or discount allowed on the issue of securities of the company.
    • In providing premium payable on the redemption of preference shares.
    • For the purchase of its own shares or other securities under section 68.
    1. Capital Reserve:

    Capital reserve is a reserve that is created out of the profit made by an enterprise from its non-operating activities like

    • selling of capital assets(fixed assets) at a profit
    • buying a business at profit (where net assets acquired is more than the purchase consideration)

    This reserve is used to finance long term projects of a company like buying or construction of fixed assets, writing off capital losses( selling of fixed assets at loss).

    1. Secret Reserve:

    A secret reserve is a reserve that exists but its existence is not shown in the balance sheet of an enterprise. An enterprise creates such reserves to hide from its competitor that it is in a better financial position than it appears in its balance sheet. Although the creation of secret reserves is prohibited by law, there are provisions for banking companies to create such reserves.

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Ayushi
AyushiCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Bank Reconciliation Statement or BRS is a statement prepared to reconcile the bank account balance as per the cashbook with the bank balance as per the passbook. This is done so because often the bank balance as per the cashbook does not match with the bank balance as per the passbook. BRS is usuallRead more

    Bank Reconciliation Statement or BRS is a statement prepared to reconcile the bank account balance as per the cashbook with the bank balance as per the passbook. This is done so because often the bank balance as per the cashbook does not match with the bank balance as per the passbook.

    BRS is usually prepared by the accountant of an entity to find out the causes of the difference between the bank balance as per cashbook and the bank balance as reported in the passbook. The frequency of preparation of BRS is usually monthly. Nowadays, many enterprises have computerised accounting systems which help in automatic bank reconciliation.

    Sometimes, BRS is also prepared by auditors during the audit of financial statements.

    The balance of the bank account column of the cashbook does not match the bank balance as per the passbook. This is due to many transactions like the following that go unnoticed by the accountant:

    • The credit of bank interest,
    • Auto-debit of bank charges,
    • Delay in the clearing of cheques deposited, for which debit is already given by the accountant.
    • Late presentment of cheque issued by enterprise, for credit is already given by the account.

    Differences also occur due to accounting errors like posting wrong amounts in the cashbook.

    To prepare the BRS, we have to start either with the bank balance as per cashbook, then add or subtract amounts to arrive at the bank balance as per passbook. Or we can do the vice verse. Here, the amounts we add or subtract are the amounts of items that are causes for the difference between the two balances.

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Aadil
AadilCurious
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  2. GautamSaxena Curious .
    This answer was edited.

    Meaning of Opening Stock Opening stock is the inventory or stock of goods that are available at the beginning of the new accounting year carried down from the previous year's closing stock which is recorded in the books of accounts. In simple words, Opening stock is the goods/quantity/products thatRead more

    Meaning of Opening Stock

    Opening stock is the inventory or stock of goods that are available at the beginning of the new accounting year carried down from the previous year’s closing stock which is recorded in the books of accounts.

    • In simple words, Opening stock is the goods/quantity/products that are held by a business at the beginning of a new accounting period and it is the closing stock of the preceding year carried down.
    • Similarly, the closing stock is the number of unsold goods that remain with the business at the end of an accounting year and is further carried down to the next year as Opening Stock.

     

    Formula

    There are 3 main formulas used for Opening Stock’s calculation. They are-

    • For manufacturing companies

    Opening Stock = Raw Material Cost + Work in Progress + Finished Goods Cost

    • When only Sales, GP, COGS, and Closing Stock are given

    Opening Stock = Sales – Gross Profit – Cost of Goods Sold + Closing Stock

    • You can use this one when only limited information is provided

    Opening Stock = COGS + Closing Inventory – Purchases

     

    Types of Opening Stock

    There are three types of Opening Stock or we may also say that Opening  Stock consists of these 3 elements. They are-

    • Raw Materials- These are the unprocessed goods held by a business that is yet to be converted into finished goods.
    • Work in Progress- These include the goods that are in process but not converted into finished goods.
    • Finished Goods- These are the goods/products that have completed the manufacturing process but have not yet been sold.

    Opening Stock in Final Accounts

    Opening stock is a part of the Trading Account while preparing the Final Accounts. And this is how it is posted in the Trading A/c.

    Trading A/c (for the year ending…)

     

    Example of Opening Stock

    Example

    IKEA, the biggest Furniture manufacturer collected this data on April 1, 2021,

    Timber – $300,000

    Wood – $30,000

    Nails – $15,000

    Pre-cut Wood – $120,000

    Assembled Furniture – $400,000

    Now, adding them (as said earlier, Opening stock is a combination of these three.)

    Opening Stock (Raw Material + Work in Progress + Finished Goods) = $865,000

    Therefore, that’s how one can calculate Opening Stock.

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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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Bonnie
BonnieCurious
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    What is net credit sales? Net credit sales are those revenues by a business entity, less all sales returns and allowances. Immediate payment in cash is not included in net credit sales. Formula  The formula for net credit sales is as follows: Net credit sales  = Sales on credit - Sales returns - SalRead more

    What is net credit sales?

    Net credit sales are those revenues by a business entity, less all sales returns and allowances. Immediate payment in cash is not included in net credit sales.

    Formula

     The formula for net credit sales is as follows:

    Net credit sales  = Sales on credit – Sales returns – Sales allowances

    In the balance sheet, you can find credit sales in the “short-term assets “section. It can be calculated from account receivables, bills receivables, and debtors of the balance sheet.

    Credit sales = closing debtors + receipts – opening debtors

    Steps to calculate net credit sales

    • Calculate total sales for the period
    • Subtract the Sales Returns
    • Subtract the Sales Allowances
    • Subtract the Cash Sales ( if any )

     

    Terms relevant to understand before calculation

    Sales return:  A sales return is when a customer or client returns or sends a product back to the seller. And this can happen due to various reasons, including:

    • Excess quantity ordered
    • Not upto Customer expectations
    • Shipping delays ( product arrived late )
    • Accidentally ordered an item and there can be more such reasons.

    Sales allowance: A sales allowance is a discount that a seller offers a buyer as an alternative to the buyer for returning the product.

    Because of a problem or issue with the buyer’s order or we can say that he is not satisfied with the product.

    Cash sales: Cash sales are sales in which the payment is done at once or I can say that buyer has obligation to make payment to the seller.

    Cash sales are considered to include bills, checks, credit cards, and money orders as forms of payment.

    Example

    Now after understanding the terms used in the formula let me explain to you with an example which is as follows:-

      • First, we will calculate the Total Sales for the Period:- In the month of May, Flipkart company had cash sales of Rs 80,000. The total amount in Accounts Receivables is Rs 150,000, with Rs 30,000 as the carryover from April’s receivables.
      • Since you only want to know about credit sales in the current period (September), you subtract Rs 30,000 from the total. This means that for the month of September, Flipcart Company had sales totaling Rs 200,000 (80,000 + 120,000).

     

      • Second, we will subtract the Sales Returns:- During the month of September, Flipcart Company issued Rs 20,000 in refunds, because several items were damaged during shipment, so the customer could not use them.
      • This amount would reduce the total number of cash sales if the accounts receivable balance was from a credit customer. This reduces the total sales to Rs 180,000 (Rs 200,000 in total sales – Rs 20,000 in returns).

     

      • Thirdly we will subtract the Sales Allowances:- Sales allowances are discounts offered to customers for not asking for full refunds.
      • For example, an item that had been shipped to a customer was the wrong size, but the customer told that he will agree to keep the item if the price could be adjusted. Flipcart Company issued Rs 10,000 in allowances in May.
      • After this deduction, the total sales for May are Rs 170,000 (Rs 180,000 – Rs 10,000).

     

      • Then at last there are any cash sales then subtract:- After figuring out the total number of sales for September and then subtracting the sales returns and allowances, the cash sales are deducted since you are focusing on net credit sales for the period.
      • After deducting the Rs 60,000 in cash sales, Flipcart Company has Rs 110,000 as net credit sales.

     

    Why do we need net credit sales?

    • Net Credit sales help to calculate the accounts receivable turnover ratio.

     

    • Net credit sales also indicate the amount of credit you offer to your customer.

     

    •  Net credit sale is also used to calculate other financial analysis items like days sales outstanding.
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