AccountingQA Latest Questions

Aadil
AadilCurious
In: >

A. Trading Account B. Profit & Loss Statement C. Balance Sheet D. Cash Book

  2. Vijay Curious M.Com
    This answer was edited.

    The correct answer is C. Balance Sheet. A Balance Sheet is a financial statement prepared to know the financial position of a company at any particular point in time. Hence, the answer to your question is the balance sheet. It is also known as Position Statement (as it shows financial position) or SRead more

    The correct answer is C. Balance Sheet.

    A Balance Sheet is a financial statement prepared to know the financial position of a company at any particular point in time. Hence, the answer to your question is the balance sheet.

    It is also known as Position Statement (as it shows financial position) or Statement of Affairs (when it is prepared under the Single Entry System of accounting).

    The balance sheet shows the assets and liabilities of a firm at any specific point in time. It is a summary of the assets held by a firm and the liabilities owed to outsiders.

    As the name suggests, a balance sheet must always be balanced i.e, the total of assets should always be equal to the total of liabilities on any single day. To put it simply,

    Assets = Liabilities + Capital

    In the case of a sole proprietorship or partnership, capital means the amount invested by the proprietor/partners in the business. In the case of a company, capital means the funds contributed by the shareholders in the form of shares.

    Here is a link for the official balance sheet format as per the Companies Act 2013 (page 260 of the pdf),

    https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

    See less
    • 0
Jasmeet_Sethi
Jasmeet_SethiCurious
In: >

  2. Simerpreet Helpful CMA Inter qualified

    Sundry Debtors Sundry Debtors are those persons or firms to whom goods have been sold or services rendered on credit and the payment has not been received from them. In other words, Debtors are the persons or firms from whom the payment is to be received by the business. For Example, Ramen Sold goodRead more

    Sundry Debtors

    Sundry Debtors are those persons or firms to whom goods have been sold or services rendered on credit and the payment has not been received from them. In other words, Debtors are the persons or firms from whom the payment is to be received by the business.

    For Example, Ramen Sold goods to Sam on credit, Sam did not pay for the goods immediately, so here Sam is the debtor for Ramen because he owes the amount to Ramen.

    Another Example, If goods worth Rs 7000 have been sold to Sid on credit, he will continue to remain as debtor of the business so long as he does not make the full payment.

    Treatment:

    Sundry Debtor is considered as a current asset and hence it is shown on the assets side of the balance sheet under the Current Assets heading.

    Sundry Debtors are not considered as an item of profit and loss because it is not considered as an item of income or expense. However, the items associated with sundry debtors such as bad debts or provision for doubtful debts or bad debts recovered are shown in profit and loss accounts in the debit and credit sides respectively.

    Sundry Creditors

    Sundry creditors are those persons or firms from whom goods have been purchased or services rendered on credit and for which payment has not been made. In other words, Creditors are the person or firms to whom some money has to be paid by the business.

    For Example, Ramen purchased goods from Sam on credit, Ramen did not pay for the goods immediately, so here Ramen is the creditor for Sam because he owes money to Sam.

    Another Example, If Mr. Johnson purchased goods worth Rs 3000 from M/s. Rick & Co. on credit, Mr. Johnson will continue to remain as a creditor of M/s. Rick & Co. as long as the full payment is made by Mr. Johnson.

    Treatment:

    Sundry Creditor is shown in the liabilities side of the balance sheet under the heading Current Liabilities.

    See less
    • 0
Jayesh Gupta
Jayesh GuptaCurious
In: >

A. Trading Account B. Trial Balance C. Profit and Loss Statements D. Balance Sheet  

  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The correct answer is Option C. The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period ofRead more

    The correct answer is Option C.

    The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period of time.

    Option A Trading Account reports only the operating revenues and operating expenses.

    Option B Trial Balance shows the balances of all the ledgers of a business and is prepared to check the arithmetical accuracy of the books of accounts.

    Option D Balance sheet reports the balances of assets and liabilities of a business as at a particular date.

    People often confuse the trading and the profit and loss statement to be the same. But they are different.

    Trading Account is prepared with aim of arriving at operating profit or gross profit whereas the profit and loss statement is prepared to arrive at the net profit of a business and reports every revenue and expense whether operating or non operating in nature.

    Operating revenue and operating expense are earned or incurred respectively are related to the chief business activities of a business.

    Features of profit and loss statement:

    1. It is prepared to measure the net profit of a business hence its profitability.
    2. It is usually prepared for a period of one year but many companies do prepare quarterly statements to better judge their performance.
    3. It helps the management in decision making and the other stakeholders like shareholders, creditors to make informed decisions.
    See less
    • 0
Karan
Karan
In: >

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

    The profits earned by a company are mainly divided into two parts: Dividend, and Retained Earnings The part of profit distributed to its shareholders is called a dividend. The part of the profit that the company holds for future expansion or diversification plans is called retained earnings. As theRead more

    The profits earned by a company are mainly divided into two parts:

    • Dividend, and
    • Retained Earnings

    The part of profit distributed to its shareholders is called a dividend. The part of the profit that the company holds for future expansion or diversification plans is called retained earnings.

    As the name suggests, retained earnings are the profit that is retained in the company. Retained earnings can be used for various purposes:

    • To distribute as dividends to shareholders
    • Expansion of business
    • Diversification
    • For an expected merger or acquisition

    As the profits of the company belong to shareholders, retained earnings are considered as profits re-invested in the company by the shareholders.

    The formula to calculate the cost of retained earnings is:

    (Expected dividend per share / Net proceeds) + growth rate

    • Expected dividend is the dividend an investor expects for his investment in the company’s shares based on the last year’s dividend, trends in the markets, and financial statements presented by the company.
    • Net proceeds is the market value of a share, that is, how much an investor would get if he sells his shares today.
    • Growth rate represents growth of company’s revenue, dividend from previous years in the form of a percentage.

    The expected dividend per share is divided by net proceeds or the current selling price of the share, to find out the market value of retained earnings.

    The growth rate is then added to the formula. It’s the rate at which the dividend grows in the company.

    For example:

    The net proceeds from share is Rs 100, expected dividend growth rate is 2% and expected dividend is 5.

    Cost of retained earnings

    = (Expected dividend per share / Net proceeds) + Growth rate

    = (5 / 100) + 0.02

    = 0.07 or 7%

     

    See less
    • 0
Karan
Karan
In: >

  2. Pooja_Parikh Aspiring Chartered Accountant

    No, Goodwill cannot be called a fictitious asset. A fictitious asset does not have any physical existence or realizable value. Although it is recorded in the assets column, it is not really an asset, rather it is an expense that is incurred during the accounting period. Its benefit, however, is realRead more

    No, Goodwill cannot be called a fictitious asset.

    A fictitious asset does not have any physical existence or realizable value. Although it is recorded in the assets column, it is not really an asset, rather it is an expense that is incurred during the accounting period. Its benefit, however, is realized for extended periods. This is why they are recorded as assets. They are recorded in a single year and are amortized over the years. A fictitious asset is neither tangible nor intangible.

    Examples of Fictitious Assets

    • Preliminary expenses
    • Promotional expenses
    • Discount on issue of shares/debentures etc.

    Now, goodwill is an intangible asset that relates to the purchase of a company. It is the amount that a company pays over the net worth of the company being purchased. This can be because of its brand value, good customer base, etc. As a company’s reputation improves, its goodwill increases accordingly. Therefore, It does not have a tangible existence but it does have a monetary value. They are also recorded on the asset side of the balance sheet under the head “Intangible assets”.

    Reason for not being a fictitious asset

    Since goodwill is an asset and not an expense, it cannot be called a fictitious asset. Moreover, goodwill has a realizable value. Unlike fictitious assets, goodwill can be purchased or sold. Therefore, goodwill is termed as an intangible asset but not a fictitious asset. The major difference between an intangible asset and a fictitious asset is:

    See less
    • 0
AbhishekBatabyal
AbhishekBatabyalHelpful
In: >

  2. Ayushi Curious Pursuing CA

    Introduction Internal reconstruction refers to the process of restructuring a sick company’s balance sheet by certain methods to turn it financially healthy, thus saving it from potential liquidation. Explanation When a company has been making losses for many years, it has a huge amount of accumulatRead more

    Introduction

    Internal reconstruction refers to the process of restructuring a sick company’s balance sheet by certain methods to turn it financially healthy, thus saving it from potential liquidation.

    Explanation

    When a company has been making losses for many years, it has a huge amount of accumulated losses due to which the reserve and surplus appear at a very low or negative amount in the balance sheet.

    Also, such a company is said to be overcapitalised as it is not able to generate enough returns to its capital.

    As the company is overcapitalised, the assets are also overvalued. The balance sheet also contains many fictitious assets and unrepresented intangible assets.

    The balance sheet of such a ‘sick’ company looks like the following:

    Hence, to save the company from liquidation,

    • its assets and liabilities are revalued and reassessed,
    • its capital is reduced by paying off part of paid-up capital to shareholders or cancelling the paid-up capital.
    • the right of shareholders related to preference dividends is altered,
    • agreements are made with creditors to reduce their claims and
    • fictitious assets and accumulated losses are written off.

    In this way, its balance sheet gets rid of all undesirable elements and the company gets a new life without being liquidated.  This process is known as internal reconstruction.

    Legal compliance

    The internal reconstruction of a company is governed by the provisions of the Companies Act, 2013.

    See less
    • 0
A_Team
A_Team
In: >

  2. ShreyaSharma none
    This answer was edited.

    Prepaid Payable Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future. A prepaid expense is an asset on the balance sheet. The number of prRead more

    Prepaid Payable

    Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future.

    A prepaid expense is an asset on the balance sheet. The number of prepaid expenses that will be used up within one year is reported on a company’s balance sheet as a current asset. According to generally accepted accounting principles (GAAP), expenses should be recorded in the same accounting period as the benefit generated from the related asset.

    Example

    ABC Ltd. purchases insurance for the warehouse. It was ₹2,000 per month. The company pays ₹24,000 in cash upfront for a 12-month insurance policy for the warehouse. Each month an adjusting journal entry will be passed, adjusting the amount of insurance used from the prepaid insurance.

    Journal Entry-

    Prepaid Expenses in Balance Sheet-

    Prepaid expenses are shown in the balance sheet under the current assets heading as it’s a short-term asset and to be consumed within one accounting year.

    Balance Sheet (for the year ending…)

    See less
    • 0
A_Team
A_Team
In: >

  2. Mitika

    Non-current assets are long-term investments that are not easily converted into cash within an accounting year. They are required for the long term in the business. They have a useful life of more than an accounting year. Non-current assets can be fixed assets and intangible assets. Fixed assets areRead more

    Non-current assets are long-term investments that are not easily converted into cash within an accounting year. They are required for the long term in the business. They have a useful life of more than an accounting year.

    Non-current assets can be fixed assets and intangible assets. Fixed assets are tangible assets that can be seen and touched. Whereas, intangible assets are those assets that can not be seen and touched.

     

    You can correlate examples of  Non-Current Assets with tangible and intangible assets as mentioned below:

    Land and building – They are fixed assets that will give long-term benefits and will be classified as noncurrent assets.

    Plant and Machinery ­– They are tangible assets will give future benefits and are thus mentioned under noncurrent assets.

    Office Equipment – They are tangible assets that will give future economic benefits to the company, and comes under noncurrent assets.

    Vehicles – They are tangible assets that will give long-term benefits, and will be classified as noncurrent assets.

    Furniture – They are also tangible assets that will give future benefits and are classified as non-current assets.

    Trademarks – These are intangible assets that will not be easily converted into cash and will be classified as noncurrent assets.

    Goodwill – They are intangible assets that can’t be easily converted into cash, and are classified as non-current assets.

    Patents – They are intangible assets that will not be converted into cash within an accounting period, and are classified as non-current assets.

    Copyrights – They are intangible assets that will not be converted into cash within an accounting period, and are classified as non-current assets.

    Long-term Investments – They are long-term investments that will not be easily converted into cash within an accounting period and are classified as non-current assets.

     

     

    Non-current Assets = Total Liabilities – Current Assets

     

    Current Assets are the assets that will be converted into cash within an accounting year. They include cash, bank, debtors, etc.

     

    BALANCE SHEET

    		  
    LIABILITIES ASSETS
    Capital xxx Fixed Assets  
    Reserves and Surplus xxx Land and Building xxx
        Vehicle xxx
    Current Liabilities   Furniture xxx
    Accounts Payable xxx    
    Bank Overdraft xxx Intangible Assets  
    Outstanding Expenses xxx Goodwill xxx
      Trademarks xxx
         
      Long-term Investments xxx
           
      Current Assets  
      Cash xxx
      Debtors xxx
      Others xxx
      xxx   xxx

     

    See less
    • 0
SidharthBadlani
SidharthBadlani
In: >

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

    Definition A ledger may be defined as a book that contains, in a summarized and classified form, a permanent record of all transactions. Or in other words, we can say a group of accounts with different characteristics. It is also called the Principal Book of accounts. For example:- salary account, aRead more

    Definition

    A ledger may be defined as a book that contains, in a summarized and classified form, a permanent record of all transactions.

    Or in other words, we can say a group of accounts with different characteristics.

    It is also called the Principal Book of accounts.

    For example:– salary account, and debtor account.

    Sub- ledger it is defined as a group of accounts with common characteristics. And is a part of ledger accounts.

    For example:- customer account, vendor account, etc.

    The difference between a ledger and a sub-ledger is that ledger accounts control sub-ledger accounts whereas a sub-ledger is a part of the ledger account.

    Features Of Ledger

    • Ledger is prepared from the journal.
    • Ledger is a master record of all the accounts of the business.
    • The Ledger account shows the current balances of all accounts.
    • Ledger accounts summarize the effect of transactions upon assets, liabilities, capital, incomes, and expenditures.

    Features Of Sub-Ledger

    • Sub-ledger in accounting provides up-to-date information about the daily activities of the business.
    • It keeps individual track of all balances.
    • Help locate errors in individual accounts.
    • A sub-ledger is a collection of different ledgers used in an account.

     

    Utilities of ledger

    The main utilities of a ledger are summarized as follows :

    • Provides complete information about a particular account: Complete information relating to a particular account is available in one place in the ledger.

    • Information on income and expenses: In the ledger, a separate account is maintained for each income and expense. The amount of total income and total expenses are known from the ledger accounts.

    • Preparation of trial balance: Ledger helps in preparing trial balances which ensure arithmetical accuracy of the transaction recorded in the books of account.

    • Helps in preparing final accounts: After preparing the trial balance, final accounts are prepared to know the profitability and financial position of the business.

    Utilities of sub-ledger

    The utilities of the sub-ledger are as follows :

    • Track customer information: If a client has an outstanding credit debt or needs money refunded, a company can use a sub-ledger to verify the information quickly.

    • Protect financial information: A sub-ledger allows a financial supervisor to isolate certain records so that employees can view only parts of the company’s financial information. This added level of security is important for large corporations.

    • Create separate databases: Large companies usually process large amounts of financial data that may be too big for one database. Software programs organize this data into isolated files to calculate financial information in the general ledger of a business.

    Conclusion

    So here I conclude that a ledger is compulsory in the recording process whereas a sub-ledger is optional.

    The ledger is used for preparing trial balance but the sub-ledger is not used for the same.
    Sub ledger is controlled by the ledger.

    The sub-ledger supports the transaction of each specific account indicated on the ledger.

    See less
    • 4
Astha
AsthaLeader
In: >

Capital
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    As per Wiki, it is also called construction in progress. Capital work in progress is a non-current asset of an entity. It is also known as CWIP in short. CWIP is the work which is not yet completed but the amount for which has already been paid. Suppose, at the time of preparing a balance sheet, ifRead more

    As per Wiki, it is also called construction in progress. Capital work in progress is a non-current asset of an entity. It is also known as CWIP in short.

    CWIP is the work which is not yet completed but the amount for which has already been paid.

    Suppose, at the time of preparing a balance sheet, if an asset is not completed, all the costs incurred on that asset up to the balance sheet date are to be transferred to an account called capital work in progress.

    Example 1: A machinery under installation.

    There are several expenses incurred while installing machinery, expenses such as labor charges, Initial delivery and handling costs, Assembly and installation cost, etc are included in CWIP and when the asset is completed and is ready to use, all the costs are transferred to the relevant accounts.

    To make it simpler, let me show journal entries relating to this example.

    When an expense is incurred/paid:

    Journal entry for capital work in progress when an expense is incurred

    When an asset is complete and put to use:

    Journal entry for capital work in progress when asset is complete and put to use

    Example 2: A Contractor is constructing a building. The following expenditures are being incurred to date:

    i) Raw materials – 5,00,000

    ii) Payment to Architect – 3,50,000

    iii) Advance for Equipments – 1,50,000

    Following accounting entries will be passed to record the expenditure on CWIP assets:

    capital work in progress journal entries example

    The following accounting entry will be passed once assets are ready to use:

    entry to show cwip when asset is complete

    Disclosure in the Balance sheet

    CWIP account is shown separately in the balance sheet below the fixed asset.

    we cannot depreciate capital work in progress. It can only be depreciated when the asset is put to use.

    Capital work in progress shown in balance sheet

    See less
    • 0

Most Helping Users

Astha

Astha

Leader
Simerpreet

Simerpreet

Helpful
AbhishekBatabyal

AbhishekBatabyal

Helpful