AccountingQA Latest Questions

Naina@123
Naina@123
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  2. prashant06 B.com, CMA pursuing

    A cash discount is a discount allowed to customers when they make payments for the items they purchased. This type of discount is generally based on time. The early the payment is made by the debtors, the more discount they earn. To be more precise cash discount is given to simulate or encourage earRead more

    A cash discount is a discount allowed to customers when they make payments for the items they purchased. This type of discount is generally based on time. The early the payment is made by the debtors, the more discount they earn. To be more precise cash discount is given to simulate or encourage early payment by the debtors.

    Trade discount is a discount allowed by traders on the list price of the goods to the customer at specified rate. Unlike cash discount, trade discount is based on number of sale i.e, more the sale more the discount earned. This is mainly given on bulk orders by the customers.

    To understand trade discount and cash discount let me give you simple example

    Mr. X purchased goods from Mr. Y of list price Rs 10,000. Mr. Y allowed a 10% discount to Mr.X on the list price for purchasing goods in bulk quantity. Further, he was provided with cash discount of Rs 500 for making an immediate payment. Therefore the entry for the above transaction in the books of Mr. X would be

    Purchase A/c                                                        ……Dr 9,000
               To Cash A/c 8,500
               To Discount received 500
    (Being goods purchased from Mr. Y worth Rs. 10,000@ 10% trade discount and cash discount of Rs. 500)
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Manvi
Manvi
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    As the name suggests, unrecorded liabilities means the liabilities that a firm fails to record in its book of accounts. Usually, a firm gets to know about its unrecorded liabilities when it is about to get dissolved. What happens is that upon hearing that a firm is going to dissolve in near future,Read more

    As the name suggests, unrecorded liabilities means the liabilities that a firm fails to record in its book of accounts.

    Usually, a firm gets to know about its unrecorded liabilities when it is about to get dissolved. What happens is that upon hearing that a firm is going to dissolve in near future, its creditors and lenders report to the firm about their dues.

    At that time, a firm may get to know that it had failed to record some liabilities in its books and it has settled them now.

    We know that when a partnership firm is dissolved, a realisation account is created to which all the assets and liabilities of the firm are transferred.  Entries are as given below:

    Realisation A/c     Dr.      ₹ Amt

    To Assets A/c                  ₹ Amt

    ( Asset transferred to realisation account)

    Liabilities A/c    Dr.        ₹ Amt

    To Realisation A/c       ₹ Amt

    (Liabilities transferred to realisation account)

    Hence, for transferring unrecorded liabilities, the procedure is the same for the recorded liabilities:

    Unrecorded Liabilities A/c        Dr.     ₹ Amt

    To Realisation A/c                               ₹ Amt

    ( Unrecorded liabilities transferred to realisation account)

    Then to pay off the unrecorded liability the entry is:

    Realisation A/c     Dr.    ₹ Amt

    To Cash / Bank A/c       ₹ Amt

    (Unrecorded liabilities paid off)

    That’s it, I hope I was able to make you understand.

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Ayushi
AyushiCurious
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  2. Rahul_Jose Aspiring CA currently doing Bcom
    This answer was edited.

    When a manager provides services to a company, he is expected to receive some kind of compensation. This is given in the form of managerial remuneration. Section 197 of the Companies Act allows a maximum remuneration of 11% of the net profit of the company to the directors, managing directors and whRead more

    When a manager provides services to a company, he is expected to receive some kind of compensation. This is given in the form of managerial remuneration. Section 197 of the Companies Act allows a maximum remuneration of 11% of the net profit of the company to the directors, managing directors and whole-time directors etc. This section is applicable for public companies and not private companies

    Yes, a company can pay managerial remuneration in case of inadequacy of profits or losses, provided they follow the condition in Schedule V of the Companies Act 2013.

    Conditions

    In order to pay remuneration while the company is at a loss, it has to comply with the following:

    • Pass a resolution at the board meeting
    • The company has not defaulted in payments to any Banks, non-convertible debenture holders or any secured creditors. But in case of default, the company has obtained prior approval from such creditors or banks before obtaining approval from their general meeting.
    • Ordinary resolution or special resolution (if the limit is exceeded)

    The limit mentioned above refers to the maximum limit of Rs 60 lakhs when the effective capital is negative or less than Rs 5 Crore. Such remuneration can also only be paid if such a manager does not have any interest in the company and also possesses special knowledge and expertise along with a graduate-level qualification.

    Effective capital is the aggregate of paid-up share capital, share premium, reserves and surplus, long term loans and deposits and after subtracting Investments, accumulated losses and preliminary expenses not written off.

    Percentage of Remuneration

    When the Company earns adequate profits, they are allowed to provide remuneration up to a certain per cent. The percentage of remuneration depends on whether the directors are working whole-time or part-time according to the Companies Act.

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

    A balance sheet is a financial statement that reports the position or value of assets, liabilities and equity at a particular date, which is usually the closing date of a financial year. Formats of balance sheet A balance sheet may be presented in two formats: T-form or Horizontal format This formatRead more

    A balance sheet is a financial statement that reports the position or value of assets, liabilities and equity at a particular date, which is usually the closing date of a financial year.

    Formats of balance sheet

    A balance sheet may be presented in two formats:

    T-form or Horizontal format

    This format is the same as the format of ledger accounts. There are two columns with the headings ‘Liabilities’ for the left column and ‘Assets’ for the right column and columns adjacent to both columns for amounts. The liabilities and equity (capital) are shown on the liabilities side because they both have credit balance and assets are shown on the asset side. Most of the non-corporates prepare their balance as per this format. The T-form balance sheet looks as given below:

    Vertical format

    The vertical format of the balance sheet is mostly prepared by corporate entities. Here, the liabilities and assets are shown in the same column as compared to two separate columns in the horizontal format. This results in having a longer shape. Hence, it is called a ‘vertical’ balance sheet. Generally, companies prepare their balance sheet as per this format.

    Also, many times, there are two columns for the amount in this format presenting the amount of both the current year and the previous year. This format looks like as given below:

    Grouping and marshalling

    Beside the structure of the balance sheet i.e. horizontal and vertical, the grouping and marshalling of the items inside the balance sheet are also very important.

    Grouping refers to the presenting of similar items under a heading or group. This is done in order to present the balance sheet in a concise manner. This is very important to do. For example, a business can have numerous creditors, but they are all presented under one ‘Creditors’ heading or two or more heading specifying different types of creditors.

    The assets of a business are grouped under the heading such as Plant, Property and equipment, Current assets, Non-current investments etc.

    Marshalling means the arranging of items as per a particular order. We know that a balance sheet consists of many items and to make the statement more useful and easy to comprehend, the items are arranged in one of the following orders:

    • Order of Liquidity: The items which are more liquid i.e which can be easily converted into cash are kept at the top. Like in assets, cash is the most liquid asset and requires no conversion. Then items like current investment, inventories (in case of fast-moving goods) are placed under and so on. At the near bottom, items that require a long time of conversion into cash are placed such as land, plant and machinery.

    In case of liabilities, the items which are due for repayment soon are kept at the top, like bank overdraft etc. The items which are due for repayment after a long time or at the time of winding capital are kept at the bottom, like long term loans and capital funds. Given below is a format of horizontal balance sheet in which the items are marshalled in order of liquidity:

    • Order of permanence: This type of arrangement is just the opposite of the order of liquidity. Here the items which are least liquid are placed at the top and the more liquid items are placed at the bottom. Like in the case of assets, cash appears at the bottom and non-current assets at the top. On the liabilities side, equity and non-current liabilities are at the top while current liabilities are at the bottom. Mostly all balance sheets are marshalled in order of permanence.
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Bonnie
BonnieCurious
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Debited to P&L A/C Credited to P&L A/C Debited to Capital A/C None

  2. GautamSaxena Curious .
    This answer was edited.

    Interest on Drawings  Interest on drawings is debited to the capital account. As Interest on drawings is charged on the drawings made by partners/proprietors from their respective capital accounts in a partnership firm or proprietary concern. Drawings refer to the amount withdrawn by an owner or parRead more

    Interest on Drawings 

    Interest on drawings is debited to the capital account.

    As Interest on drawings is charged on the drawings made by partners/proprietors from their respective capital accounts in a partnership firm or proprietary concern.

    Drawings refer to the amount withdrawn by an owner or partner for his personal use. Thereby, interest on drawings is an income of a firm payable by the owner hence, it’s deducted/debited.

    The Profit and Loss Account, on the other hand, shows the income and expenses of a business incurred over an accounting period. Accounts like interest on drawings and capital are not shown in the P&L a/c because they are internal transactions and P&L a/c focuses only on the financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.

     

    Partners’ Capital A/c

     

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Bonnie
BonnieCurious
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  2. GautamSaxena Curious .

    Capitalize in Accounting The term 'capitalized' in accounting means to record an expenditure as an asset on the balance sheet. Capitalization takes place when a business buys an asset that has a useful life. The cost of the relevant asset is then allocated to expense over its useful life i.e charginRead more

    Capitalize in Accounting

    The term ‘capitalized’ in accounting means to record an expenditure as an asset on the balance sheet. Capitalization takes place when a business buys an asset that has a useful life. The cost of the relevant asset is then allocated to expense over its useful life i.e charging depreciation, etc. This means that the relevant expenditure will appear on the balance sheet instead of the income statement. The capitalizing of the expenses is a benefit for the company as the assets bought by them for the long-term are subjected to depreciation and capitalizing expenses can amortize or depreciate the costs. This process is called capitalization.

    In order to capitalize any expense, we’ll have to make sure it meets the criteria stated below.

    The assets exceeding the capitalization limit

    The companies set a capitalization limit, below which the expenses are considered too immaterial to be capitalized. Therefore, the limit is supposed to be followed and considered as it controls the capitalization of the expenses. Generally, the capitalization limit is $1,000.

    The assets have a useful life 

    The companies also seek to generate revenues for a long period of time. Thus, the asset should have a long and useful life at least a year or more. Thereby, the business can record it as an asset and depreciate it over its valuable life.

    Most of the important principles of capitalization in accounting are from the matching principle.

     

    Matching Principle

    The matching principle states that the expenses in the accounting should be recorded when they are incurred and not when the payment is made. This helps the business identify the amounts spent to generate revenue.

    For e.g, the company bought machinery for manufacturing goods with more efficiency. It is supposed to have a useful life for a period of over 10 years. Instead of expensing the entire cost of the machinery, the company will write off (depreciated) the cost of the asset over its useful life i.e 10 years. Therefore, the asset will be written off as it is used and these types of assets are automatically used as capitalized assets.

     

    Benefits of Capitalization

    Capitalization is of course recording expenses as an asset but this indeed has benefits.

    • This reduces the fluctuation of income over time as the fixed assets (long-term) are costly. For the small business owners or the small firms, it’s even greater.
    • The capitalization of expenditures increases the company’s asset balance, without changing the company’s liability balance. This improves the financial ratios like the current ratio.
    •  Small businesses have a provision for tax benefits related to the depreciation of capitalized assets. Section 179 of depreciation allows those business owners to depreciate certain assets quicker than others are allowed.

     

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A_Team
A_Team
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Wages Outstanding Wages and Salaries Director’s Remuneration Advance Payment of Wages All of the Above

  2. SidharthBadlani CA Inter Student
    This answer was edited.

    The correct answer is option B. Wages and salaries are debited to the trading account. The trading account helps us to determine the Gross Profit Or Loss that a company earns or incurs by carrying on its core manufacturing or trading activities. Let us discuss the above items and their treatments inRead more

    The correct answer is option B. Wages and salaries are debited to the trading account.

    The trading account helps us to determine the Gross Profit Or Loss that a company earns or incurs by carrying on its core manufacturing or trading activities.

    Let us discuss the above items and their treatments in the final accounts one at a time:

    Wages Outstanding

    Firstly, “wages outstanding” is not debited into the trading account. It is a liability that is shown in the balance sheet.

    Outstanding wages imply remuneration due to be paid to the workers for the services they have already rendered to the business.

    Since the company has already received the service, it becomes a legal obligation for it to pay the wages to the workers for those services. Hence, outstanding wages are a liability.

    Wages and Salaries

    Wages and Salaries are debited to the trading account.

    Wages Vs Salaries

    Let us understand the difference between wages and salaries. Wages are the regular payments that are made daily, weekly or fortnightly. Such payments are mostly made to factory workers.

    Salaries, on the other hand, are assumed to imply the remuneration paid to office workers and sales staff.

    Wages are debited to the trading account, while salaries are debited to the Profit and Loss account.

    Director’s Remuneration

    No, the director’s remuneration is not debited to the trading account. This is because director’s generation is a business expense. It is a kind of salary provided to the director for the services rendered by him to the company.

    Directors’ remuneration refers to compensation the company gives to its directors for the services rendered. It is debited to the Profit and Loss Account.

    Advance Payment of Wages

    No, advance payment of wages is not debited to a trading account. It is shown by reducing it to wages. Advance payment of wages implying paying remuneration to the workers before the commencement of the period for which the wages relate to.

    However, one must note that if both wages and prepaid wages appear within the trial balance, then only the figure written against wages would appear in the trading account. There would be no treatment for prepaid wages.

    Let us consider a scenario where wages of amount 5,000 is appearing inside trial balance. Outside the trial balance, the following information is provided

    • Wages prepaid for the current financial year = 1,000
    • Wages prepaid for the next financial year = 2,000

    In the above case, the total wages to be debited to the trading account would be 5,000 + 1,000 – 2,000 = 4,000

    Significance of the Final Accounts

    • It helps in determining the net profit or loss of the entity for the current financial year.
    • It is a major source of guidance for investors. Shareholders decide whether or not to invest in a company on the basis of final accounts.
    • It allows banks and investors to see your business’s total income, debt load a,nd financial stability.

     

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