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Naina@123
Naina@123
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Bill of Exchange
  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    Advantages of Bill of Exchange: Bill of Exchange is generally used as an instrument of credit as it offers many advantages to its users. The advantages are as follows: CONCLUSIVE EVIDENCE: It acts as a shred of conclusive evidence in case of any dispute between the parties like seller-buyer, drawer-Read more

    Advantages of Bill of Exchange:

    Bill of Exchange is generally used as an instrument of credit as it offers many advantages to its users. The advantages are as follows:

    • CONCLUSIVE EVIDENCE: It acts as a shred of conclusive evidence in case of any dispute between the parties like seller-buyer, drawer-drawee, debtors creditors, etc. Issuing the Bill of Exchange binds the party into a legal relationship. It acts as a legal document and proof in a court of law.

     

    • TERMS AND CONDITIONS: When a Bill of Exchange is issued, it mentions all the terms and conditions of payments. The terms and conditions can be like the amount of bill, date of payments, place of payment, interest amount if any, maturity period, etc.

     

    • ACT AS MEANS OF CREDIT: With the help of the Bill of Exchange, buyers can purchase goods on a credit basis and make payment after the credit period expires. If in case of emergency the drawer can also get such Bills discounted before the maturity period.

     

    • WIDER ACCEPTANCE: The Bills of Exchange carries a wide acceptance feature for the parties through which payments can be received and made without any difficulty.

     

    • RELATIONSHIP FRAMEWORK: The Bill of Exchange acts as an instrument that provides a framework enabling the smooth credit transaction between the parties as per the agreement.

     

    • MUTUAL ACCOMMODATION: Sometimes bills are mutually accommodated for the benefit of the parties. The Bill is drawn and accepted by drawer and drawee. Then the same bill is discounted by the drawer and the agreed sum is remitted to the drawee. This is basically done mutually to provide financial help to each other.
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Bonnie
BonnieCurious
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  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    To proceed with how to make a partnership deed, let me explain to you in short what is partnership deed? A partnership deed is the written agreement between the partners who have agreed to share profits of a business carried on by them. This basically contains terms and conditions to be followed betRead more

    To proceed with how to make a partnership deed, let me explain to you in short what is partnership deed?

    A partnership deed is the written agreement between the partners who have agreed to share profits of a business carried on by them. This basically contains terms and conditions to be followed between the partners.

    Few contents of the partnership deed are as follows:

    • Name, address, and type of business of the partnership firm.
    • Name & address of all the partners
    • Profit-sharing ratio.
    • Rights, duties, and liabilities of all partners.
    • Date of commencement of the partnership
    • Method of settlement of dispute among the partners.
    • Treatment of loss in case of insolvency of one or more partners.

     

    Generally, a partnership deed contains all those matters which can affect the relationship between the partners. However, if there is no such agreement the partnership should follow the provisions mentioned under The Partnership Act, 1932.

    Now coming to the main question how to make a partnership deed? See the process is not so complicated. The partnership deed may be oral or written, but as the oral agreement has no value for obtaining tax benefits, a partnership firm always prefers a written agreement.

    To prepare the same the partnership deed must be prepared on a stamp paper and signed by all the partners as per Indian Stamp Act and copies of the same should be with all the partners and also must be filed by the registrar of the firm.

    A deed may vary depending on the nature of the partnership they are engaged in. Generally, partnerships are of three types

    • General partnership
    • Limited partnership
    • Limited liability partnership

    the process of making deed is same for all but, the content of deed may vary depending on the liability of partners in the partnership.

    Further to know more about the registration process of partnership firm you can refer the following link https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

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Bonnie
BonnieCurious
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Receipts and Payments Account for the year ended 31st March 2019 Receipts Amt Payments Amt To Balance b/d By General Expenses 32,000 Cash in Hand 40,000 By Newspapers 18,500 Cash at Bank 155,500 By Electricity 30,000 To Subscription By Fixed Deposits with Bank 180,000       2017-18                         12,000      (On 30 ...

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

    In the books of Rural Literacy Society Income & Expenditure A/c for the year ended 31 March 2019 Expenditure Amt Amt Income Amt Amt To General Expenses 32,000 By Subscription (W.N.1) 2,72,000 To Newspapers 18,500 By Legacy 12,500 To Electricity 30,000 By Government Grant 1,20,000 To Rent 65,000Read more

    In the books of Rural Literacy Society

    Income & Expenditure A/c for the year ended 31 March 2019

    Expenditure Amt Amt Income Amt Amt
    To General Expenses 32,000 By Subscription (W.N.1) 2,72,000
    To Newspapers 18,500 By Legacy 12,500
    To Electricity 30,000 By Government Grant 1,20,000
    To Rent 65,000 By Interest Received on Fixed Deposit 9,000
    Less: Prepaid Rent (65,000/13) -5,000 60,000     (1,80,000*10%*6/12)
    To Salary 36,000
    Add: Outstanding Salary 6,000 42,000
    To Postage Charges 3,000
    To Loss on Sale of Furniture (W.N.2) 13,000
    To Surplus (excess of income over expenditure) 2,15,000
    4,13,500 4,13,500

     

    Balance Sheet as on 31 March 2019

    Liabilities Amt Amt Assets Amt Amt
    Capital Fund (W.N.3) 3,85,500 Fixed Deposit 1,80,000
    Add: Surplus 2,15,000
    Advance Subscription 5,000 Books 50,000
    Outstanding Salaries 6,000 Add: Purchased 70,000 1,20,000
    Furniture 1,20,000
    Add: Purchased 1,05,000
    Less: Sold -50,000 1,75,000
    Outstanding Subscription 15,000
    Prepaid Rent 5,000
    Cash in Hand 30,000
    Cash at Bank 82,000
    Accrued Interest (W.N.4) 4,500
    6,11,500 6,11,500

     

    Working Notes:

    W.N.1: Calculation of Subscription

    Subscription for 2018-19 2,65,000
    Add: Outstanding Subscription (31 March 2019) 15,000
    Less: Outstanding Subscription (2017-18) -8,000
                     Total Subscription 2,72,000

    In the above calculation, for the year 2017-18 subscription amount was 12,000, and in the adjustment at the end of the year subscription was 20,000 so the difference of 8,000 is the amount of subscription that was outstanding.

     

    W.N.2: Calculation of loss on sale of furniture

    Book Value of Furniture 50,000
    Less: Sold -37,000
                    Loss on Sale of Furniture 13,000

     

    W.N.3: Calculation of Capital Fund

    Balance Sheet as on 31 March 2018

    Liabilities  Amt  Assets Amt
    Capital Fund (Balancing Figure) 3,85,500 Books 50,000
    Furniture 1,20,000
    Outstanding Subscription 20,000
    Cash in Hand 40,000
    Cash at Bank 1,55,500
    3,85,500 3,85,500

     

    W.N.4: Calculation of Accrued Interest

    Interest as of 30 September 2018 9,000
    Less: Interest as of 31 March 2019 -4,500
                   Accrued Interest 4,500
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Nistha
Nistha
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Debit Balance
  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    A Profit and Loss (P&L) statement is a financial statement that records a summary of all expenses and incomes of a business during a period of time. It helps in determining the financial performance of the business. After recording all transactions in an account, if the debit side is greater thaRead more

    A Profit and Loss (P&L) statement is a financial statement that records a summary of all expenses and incomes of a business during a period of time. It helps in determining the financial performance of the business.

    After recording all transactions in an account, if the debit side is greater than the credit side, then the account is said to have a debit balance. Similarly, if the credit side is greater than the debit side, then the account has a credit balance.

    In a P&L account, when the expenses (debit) are greater than the incomes (credit), the business is said to be in a net loss. This loss is what we call the debit balance of a Profit and Loss account. A P&L account with a debit balance can be subtracted from Capital or be shown on the asset side of the Balance Sheet.

    As you can see above, the net loss is shown on the right side of the P&L account. This represents the debit balance of P&L. Once it is transferred to the balance sheet, it is either subtracted from capital or shown on the asset side as shown in the second image. However, they cannot be shown on both sides of the balance sheet at the same time.

    However, if the credit side is greater, that is if income is greater than expenses, then the P&L account shows a credit balance which is also known as net profit. This profit is added with Capital to show the final balance in the Balance Sheet.

    Debit balance of Profit & Loss account is not preferable for a business. Hence they should put in efforts to either reduce costs or increase their income to gain profits.

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

    Yes, sure! But lets us first understand what a revaluation account is. A revaluation account is prepared to recognise the change in the book value of assets and liabilities of an entity. These changes happen when assets and liabilities are revalued to present their fair value. It is a nominal accounRead more

    Yes, sure! But lets us first understand what a revaluation account is.

    A revaluation account is prepared to recognise the change in the book value of assets and liabilities of an entity. These changes happen when assets and liabilities are revalued to present their fair value.

    It is a nominal account because it represents gain or loss in value of assets and liabilities. However such gain or loss is unrealised because the assets and liabilities are not sold or discharged.

    After revaluation of assets and liabilities, the balance of the revaluation account can be debit or credit. The debit balance means ‘loss on revaluation’ and credit balance means ‘gain on revaluation’.

    The balance of revaluation is transferred to the capital account.

    Journal Entries related to Revaluation Account

     1. Increase in value of an asset upon revaluation:

    Asset A/c Dr. Amt
    To Revaluation A/c Cr. Amt
    (Being asset value increased upon revaluation)

    2. Decrease in value of an asset upon revaluation:

    Revaluation A/c Dr. Amt
    To Asset A/c Cr. Amt
    (Being asset value decreased upon revaluation)

    3. Increase in value of liabilities upon revaluation:

    Revaluation A/c Dr. Amt
    To Liabilities A/c Cr. Amt
    (Being liabilities value increased upon revaluation)

    4. Decrease in value of liabilities upon revaluation:

    Liabilities A/c Dr. Amt
    To Revaluation A/c Cr. Amt
    (Being liabilities value decreased upon revaluation)

    5. Transfer or distribution of the balance of revaluation account

    Revaluation A/c Dr. Amt
    To Capital/ Partners’ capital  A/c Cr. Amt
    (Being profit on revaluation transferred to capital account.

    or

    Capital/ Partners’ capital  A/c Dr. Amt
    To Revaluation A/c Cr. Amt
    (Being loss on revaluation transferred to capital account.

    Numerical example

    P, Q and R are partners of the firm ‘PQR Trading’. They share profits and losses in the ratio 3:2:1. On 1st May 20X1, they decided to admit S for 1/6th share in profits and losses of the firm. Upon the revaluation:

    • Plant and machinery increased from Rs 1,20,000 to Rs. 1,30,000
    • The stock decreased by Rs 5000
    • Debtors and creditors both decreased by Rs 4,000 and Rs 6,000 respectively.
    • Furniture decreased from Rs 25,000 to Rs 10,000
    • Land increased by Rs 40,000.

    Let’s prepare the revaluation account.

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Radhika
Radhika
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Plant and Machinery are the equipment attached to the earth that supports the manufacturing of the company or its operations. These are tangible non-current assets to the company and as a result, have a debit balance. Depreciation is the decrease in the value of an asset that is spread over the expeRead more

    Plant and Machinery are the equipment attached to the earth that supports the manufacturing of the company or its operations. These are tangible non-current assets to the company and as a result, have a debit balance.

    Depreciation is the decrease in the value of an asset that is spread over the expected life of the asset. Not depreciating an asset presents a false image of the company as the asset is recorded at a higher value and profit is overstated as depreciation expense is not provided for.

    There are two ways that a company provide depreciation:

    • By reducing the balance of an asset in the Asset Account by passing a journal entry.
    • By maintaining a separate account for depreciation called Accumulated Depreciation A/c. The nature of this account is naturally credit since it is created to reduce the value of an asset.

    For most of the depreciation methods, we need a rate to provide for depreciation every year. Now, for accounting purposes, the management can use a rate they think is suitable depending on the use and expected life of the machinery.

    Depreciation is calculated on the basis of the Companies act, 2013 for the purpose of book-keeping. According to Schedule 2 of the Companies Act, depreciation on plant and machinery is calculated on the basis of either SLM or WDV.

    Plant and machinery for those special rates are not assigned useful life is considered to be 15 years and depreciation is calculated @ 18.10% on WDV and @6.33% on SLM.

    According to the Income Tax Act, 15% depreciation is provided every year on Plant and Machinery and, an additional 20% depreciation is provided in the first year of installation of machinery.

    Depreciation on Machinery is charged on the basis of usage of such machinery. if it is used for 180 days or more then full depreciation is allowed and if it is used for less than 180 days then only 50% depreciation is allowed.

     

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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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Anushka Lalwani
Anushka Lalwani
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1) Liability 2) Asset 3) Expenses 4) Income

  2. ShreyaSharma none
    This answer was edited.

    Therefore, 2) Asset is the correct option. Explanation   The petty cash book is managed and made by not an accountant but the petty cashier and is done to record small incomes and expenditures that are not recordable in the cash book. Therefore, the desired result we obtain from the deduction oRead more

    Therefore, 2) Asset is the correct option.

    Explanation

     

    The petty cash book is managed and made by not an accountant but the petty cashier and is done to record small incomes and expenditures that are not recordable in the cash book. Therefore, the desired result we obtain from the deduction of the total expenditure and total cash receipt is the closing balance of the petty cash book.

    Petty cash refers to the in-hand physical cash that a business holds to pay for small and unplanned expenses.

    Asset: The closing balance of the petty cash book is considered an asset because the petty cash book is a type of cash book. The petty cash book also deals in outflow and inflow of the cash, it also maintains and records income and expenditure that are similar to the cash book.

     

    The petty cash book since being a part of the cash book, which records all the inflow and outflow of cash in a business, which is an asset, thus petty cash book’s closing balance is considered an asset. Also, the balance of the petty cash book is never closed. Their closing balance is carried forward to the next year.

     

    Liability: The closing balance of the petty cash book is not considered a liability because that closing balance of the petty cash book doesn’t create a liability for the business. In fact, the closing of the petty cash book is placed under the head current asset in the balance sheet as mentioned above, it’s a part of the cash book which records the transactions of cash a/c which is an asset itself.

     

    Expenses or Income: It is not an expense because the closing balance of the petty cash book is calculated by deducting the total expenditure from the total cash receipt.

    That is an asset and it is considered to be a current asset, neither an income nor an expense. It is used for paying out petty expenses.

     

    Therefore, the closing balance of the petty cash book is considered an asset.

     

     

     

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Simerpreet
SimerpreetHelpful
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Accrued expenses are those expenses that have already been incurred but not paid. The business has already received the benefit of these goods or services but is yet to pay for them. For example, X Ltd took an insurance policy on 30th September 20XX. The premium is to be paid annually on 30th SeptemRead more

    Accrued expenses are those expenses that have already been incurred but not paid. The business has already received the benefit of these goods or services but is yet to pay for them.

    For example,

    • X Ltd took an insurance policy on 30th September 20XX. The premium is to be paid annually on 30th September every year for the next 20 years.
    • While preparing the financial statements for the year 20XX – 20XX+1, the business will recognize insurance premiums for the period 30th September, 20XX to 31st March 20XX+1 as an accrued expense. The premium would be actually paid on September 20XX+1.
    • As we can see, the company has already incurred the insurance premium for the period 30th September, 20XX to 31st March 20XX+1.
    • Thus, it has to recognize the same as an expense of that period only even though it will be actually paid in the next accounting period.

    Why does the concept of accrued expenses arise in accounting?

    The concept of accrued expenses arises in accounting because accounting records transactions on an accrual and not cash basis.

    Accounting on an accrual basis implies recording transactions as and when they are incurred while recording transactions on a cash basis means recording them as and when cash is actually paid for receiving those services.

    For example,

    • X Ltd ordered 5 televisions from LG. It received the delivery of all 5 televisions on 1st March, 20XX. However, it received the invoice for those televisions on 31st April, 20XX.
    • Now, the question arises as to whether while preparing the financial statements on 31st March, 20XX, X Ltd will recognize the cost of those 5 televisions as a purchase expenditure.
    • If X Ltd were recording transactions on a cash basis, they would not have recognized the cost of those 5 televisions as a purchase expenditure in the financial statements prepared on 31st March 20XX as the payment had been made in the next financial year.
    • Thus, in that case, that purchase would be recorded in the financial statements of the next year.
    • However, accounting is done on an accrual basis. As per accrual basis, as the event of purchase has occurred during the financial year ending 31st March 20XX, it must be recorded in financial statements for that period only.
    • Thus, due to the accrual basis, X Ltd will record that expenditure in the financial statements prepared on 31st March 20XX even though cash has been paid in the next financial year.

    Treatment of Accrued Expenses

    Accrued expenses are classified as current liabilities. That is because the business has a short-term obligation to pay these expenses. The other party has a legal right to receive the amount due. In other words, accrued expenses become payable in the near term.

    As current liabilities, accrued expenses are carried in the balance sheet on the liabilities side. They are also recognized in the income statement as an expense as per the concept of accrual basis of accounting.

    Conclusion

    Accrued expenses are the expenses for which the business has already received the benefit of goods or services but which are payable in an accounting period other than the one in which such benefit is received.

    As per the accrual basis of accounting, they are recognized in the year in which the expense is incurred. The expense is carried forward as a current liability until the period in which it is actually paid.

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Simerpreet
SimerpreetHelpful
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  2. Karishma
    This answer was edited.

    A profit and loss account is a financial statement which shows the net profit or net loss of an enterprise for an accounting period.  It reports all the indirect expenses and indirect income including gross profit or loss derived from trading accounts for an accounting period. When the total revenueRead more

    A profit and loss account is a financial statement which shows the net profit or net loss of an enterprise for an accounting period.  It reports all the indirect expenses and indirect income including gross profit or loss derived from trading accounts for an accounting period.

    When the total revenue i.e. credit side of profit and loss a/c is more than the total of expenses i.e. the debit side of profit and loss a/c, it results in net profit whereas when the total revenue is less than the total of expenses, it results in a net loss.

    The debit balance of the profit and loss account is the net loss incurred during the accounting period by an enterprise. It is transferred to a capital account thereby reducing the capital or can be shown as a debit balance on the asset side.

    Accounting entry for loss transferred is as follows :

    Capital A/c   …Dr.

    To Profit & Loss A/c

    (being net loss transferred to capital account)

     

    Example

    A Business has a total income of $50,000 in an accounting year and has expenses amounting to $60,000 in that particular year. The profit and loss account will show a net loss of $10,000 ($60,000-50,000). Net loss will be transferred to capital A/c. Capital of the business will be reduced by $10,000. This loss can also be shown on the asset side of the balance sheet.

    Extract of a Profit and loss a/c showing net loss is as under:

    Profit and loss A/c for the year ended …..

    Particulars Amount (Dr.) Particulars Amount (Cr.)
    To gross loss b/d xxx By gross profit b/d xxx
    To salaries xxx By bank interest xxx
    To office rent xxx By commission received xxx
    To printing and stationery xxx By rent received xxx
    To insurance xxx By dividend xxx
    To audit fees xxx By profit on sale of asset xxx
    To electricity chares xxx By Net Loss xxx
    To depreciation xxx
    To bad debts xxx
    To bank charges xxx
    To miscellaneous expenditure xxx
    To interest on loans xxx
    Total xxx

    The debit balance for a non-corporate entity is shown as a reduction from the capital account

    Extract of the Balance sheet showing the debit balance of Profit & Loss A/c is as under :

    Balance Sheet as on…

    Liabilities Amount
    Equity and liabilities
    Capital

    Less: Profit & Loss A/c

    While the Debit balance of profit and Loss A/c of a corporate entity is shown as a reduction in Reserves and surplus. If the business doesn’t have reserves then the debit balance is shown on the asset side.

    Extract of the Balance sheet showing the debit balance of Profit & Loss A/c is as under :

    Balance Sheet as on..

    Liabilities Amount
    Equity and liabilities
    Reserves And Surplus

    Less: Profit & Loss A/c

    Conclusion:  Debit balance of profit and loss a/c represents that expenses are more than the income of a business in an accounting period. Debit balance of profit and loss a/c indicates that company need to increase its income or cut down on unnecessary expenses.

    The business needs to find out the reason of excessive expenses because accumulated losses are not good for the health of the company.

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