AccountingQA Latest Questions

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A. Original B. Duplicate C. Personal D. Nominal

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries. Journal follows the double-entry system oRead more

    The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries.

    Journal follows the double-entry system of accounting. It means a journal entry affects at least two accounts. It is from the journal entries, the ledger accounts are prepared. For example, the transaction, ‘sale of goods for Rs 1000 for cash’ affects two accounts. The journal entry is:

    There are many special journals that record some special set of transactions which are called subsidiary journals or daybooks. Such special journals are not considered the books of original entry.

    Option (B) Duplicate is wrong. It is because the journal is the book where monetary events and transactions are recorded. It cannot be the book of duplicate entries. There is no such thing as ‘book of duplicate entry.’

    Option (C) Personal is wrong. Personal is a type of account under the golden rules of accounting. A personal account is a type of account that represents a person. But, the journal is not an account, it is a book. Also, there is no such thing as book of personal entry.

    Option (D) Nominal is wrong. Nominal is also a type of account under the golden rules of accounting. The nominal account is a type of account that represents an income, expense, gain or loss. Journal is a type of account but a book.

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Simerpreet
SimerpreetHelpful
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  2. Rahul_Jose Aspiring CA currently doing Bcom

    Preliminary expenses are those expenses that are incurred before the company’s business commences. These expenses are written off annually which does not involve any flow of cash. Therefore, in the cash flow statement, preliminary expenses are added back to net profit before tax and extraordinary itRead more

    Preliminary expenses are those expenses that are incurred before the company’s business commences. These expenses are written off annually which does not involve any flow of cash. Therefore, in the cash flow statement, preliminary expenses are added back to net profit before tax and extraordinary items under the head operating activities (indirect method).

    A cash flow statement is a financial statement that summarises the cash and cash equivalents entering and leaving the company. They can be classified into operating activities, investing activities and financing activities.

    Reason for Treatment

    Operating activities refer to those sources or usage of cash that relates to business activities.
    As per the indirect method, the cash flow statement for operating activities begins with net profit before tax and extraordinary items. Since the company records non-cash expenditures also, they should add these back to net profit to find out the true cash flows. This is why preliminary expenses are added to net profit in the indirect method.

    As per the direct method, all cash receipts are added and all cash expenses are subtracted to get cash flow from operating activities. Since preliminary expenses are a non-cash activity, they do not require any treatment in the direct method.

    Preliminary expenses do not fall under the head investing activities as investing activities involve the acquisition or disposal of long term assets or investments. They do not fit in financing activities either as financing activities relate to change in capital or borrowings of the company.

    Example

    If the balance in preliminary expenses for the year 2019 was Rs.5,000 and its balance in 2020 reduced to 3,000, then its treatment in the cash flow statement would be:

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Anushka Lalwani
Anushka Lalwani
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  2. Radhika
    This answer was edited.

    Unrecorded Assets are the assets that are completely written off but still physically available in the company or assets that are not shown in the books of the company. Unrecorded assets are generally recorded or recognized at the event of admission, retirement, death of a partner when all the assetRead more

    Unrecorded Assets are the assets that are completely written off but still physically available in the company or assets that are not shown in the books of the company.

    Unrecorded assets are generally recorded or recognized at the event of admission, retirement, death of a partner when all the assets and liabilities are revalued or dissolution of the firm.

    Since Accounting Standards require firms to record all the assets and liabilities in their books, it is therefore mandatory to record such unrecorded assets.

    There can be two cases for treatment of such unrecorded assets:

    • Unrecorded Asset entered into the business and recorded in books
    Unrecorded Asset A/c (Dr.) Amt
     To Revaluation A/c Amt

    The unrecorded asset is now debited since it has to be recorded in the books now and Revaluation Account is credited since it is again for the business which will eventually be transferred to Partners’ Capital Account.

    • Unrecorded Asset taken over by a partner and paid cash   
    Cash A/c (Dr.) Amt
     To Partners’ Capital A/c Amt

    If a partner decides to take over an unrecorded asset then his account is credited with that amount and since cash paid by the partner comes into business Cash Account is debited.

    • Unrecorded Asset discovered during Dissolution
    Cash/ A/c (Dr) Amt
     To Realization A/c Amt

    When an unrecorded asset is discovered during the dissolution of the firm, such an asset is sold directly to the outsider and as a result, cash A/c is debited since the cash is entering the business. The entry is made through the Revaluation A/c and it is hence credited.

    Example:

    At the time of revaluation, firms find a typewriter that has not been recorded in the books and is valued at Rs 10,000.  The journal entry to record that typewriter will be:

    Typewriter A/c (Dr.) 10,000
      To Revaluation A/c 10,000

     

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

    The journal entry for the dividend collected by the bank is as follows: Bank A/c                                                                Dr. Amt To Dividend Received A/c Amt Here, Bank Account is debited and the Dividend Received Account is credited. This treatment is explained below. The logRead more

    The journal entry for the dividend collected by the bank is as follows:

    Bank A/c                                                                Dr. Amt
    To Dividend Received A/c Amt

    Here, Bank Account is debited and the Dividend Received Account is credited. This treatment is explained below.

    The logic behind the journal entry

    This can be explained through the following rules of accounting:

    • Golden rules of accounting
    • Modern rules of accounting

    Golden rules of accounting

    A bank account is a real account and the golden rule of accounting for the real account is, “Debit what comes in and credit what goes out”

    Hence, the bank account is debited as the money is coming into the bank.

    Dividend is an income hence dividend received is a nominal account. The golden rule of accounting for a nominal account is “Debit all expenses and losses and credit all income and gains”

    Hence, the dividend received account is credited as income.

    Modern rules of accounting

    As per modern rules of accounting, a bank account is an asset account.

    The asset account is debited when increased and credited when decreased.

    Hence, the Bank account is debited here as it is increased.

    A dividend received account is an income account.

    The income account is credited when increase and debited when decreased.

    Hence, the dividend received account is credited here as it is increased.

    Treatment in the financial statements

    Since the dividend received is an income; it is shown on the credit side of the Statement of profit and loss.

    The bank account is an asset so it will be shown on the balance sheet.

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Anushka Lalwani
Anushka Lalwani
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  2. ShreyaSharma none
    This answer was edited.

    Ledger Folio A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term 'folio' refers to a book, particularly a book with large sheets of paper. In accounting, it's used to maintain ledger accounts. The use of ledger folio is generally seenRead more

    Ledger Folio

    A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term ‘folio’ refers to a book, particularly a book with large sheets of paper. In accounting, it’s used to maintain ledger accounts.

    The use of ledger folio is generally seen in manual accounting, i.e the traditional book and paper accounting as it is a convenient tool used for tracking the relevant ledger account from its journal entry. Whereas, in computer-oriented accounting (or computerized accounting), it’s not really an issue to track your relevant ledger account.

    Ledger folio, abbreviated as ‘L.F.’, is typically seen in journal entries. The ledger folio is written in the journal entries, after the ‘date’ and ‘particulars’ columns. It is really convenient when we’re dealing with and recording a large number of journal entries. As we will be further posting them into ledger accounts, thus, ledger folio comes in as a really useful component of journal entries.

    • The number in the ledger folio may be numeric or alphanumeric.
    • The ledger folio column in the journal has nothing to do with the accounting principles and rules. It’s used by us as per our methods and needs.

     

    Example

    We’ll look at how the ledger folio column is used while recording journal entries.

     

    We can find the relevant ledger accounts on the page numbers of the book as mentioned in the above entries, i.e. the cash and sales account on page – 1 whereas, the purchases and sundry creditors on page – 2 of the relevant ledger book.

     

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A_Team
A_Team
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  2. SidharthBadlani CA Inter Student
    This answer was edited.

    Bad debts mean the money owed by customers who have gone bankrupt or the likelihood of who's ever returning the money is significantly low. Bad debt is a nominal account. A nominal account is an account that records the business transactions belonging to a certain category of income, expense, profitRead more

    Bad debts mean the money owed by customers who have gone bankrupt or the likelihood of who’s ever returning the money is significantly low. Bad debt is a nominal account.

    A nominal account is an account that records the business transactions belonging to a certain category of income, expense, profit or loss. The balances on nominal accounts are normally written off at the end of each financial year. For example, sales A/c, purchases A/c, interest income, loss from the sale of assets etc.

    Why are bad debts A/c classified as a nominal account?

    First of all, let us understand the other two types of accounts – personal accounts and real accounts.

    Personal accounts deal with the records of the business’ transactions with a particular person or entity. For example Mukesh A/c, Mahesh A/c, Reliance A/c, Suresh and Co. A/c etc.

    Real accounts deal with transactions and records related to assets. The balance in these accounts is normally carried forward from one period to another. For example “Furniture A/c “, ” Building A/c ” etc.

    Now that we have understood the basic definitions of all three types of accounts, we can discuss the reason behind the classification of bad debts as nominal accounts.

    A bad debt is a loss that the company has incurred. It may be due to bankruptcy of customers, customer fraud etc. The company isn’t going to receive that money. The bad debts are written off at the end of the year by transferring them to profit and loss A/c.

    Thus, bad debts relate to loss and are normally not carried forward from one period to another. Hence, they are classified as nominal accounts.

    Treatment of Bad Debts

    Bad debts are written off at the end of each year by debiting them to the profit and loss A/c. The amount of bad debts is reduced from the amount of debtors that the company has.

    A company may also choose to create a provision for bad debts for the balance amount of debtors that the company has after adjusting for bad debts. This provision represents a rough estimate of the amount due to debtors that the business expects to not receive. In other words, it is an estimate of customer bankruptcy that the business expects.

    Conclusion

    We can conclude that

    • There are primarily three types of accounts – real, personal and nominal.
    • Bad debts are a nominal account.
    • Bad debts is a loss that the business has incurred
    • It may be due to bankruptcy of customers, fraud etc
    • Bad debts are written off each year by transferring them to the income statement
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Jayesh Gupta
Jayesh GuptaCurious
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  2. Saurav
    This answer was edited.

    Credit balance means excess of credit side over debit side. For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at the end there will be a creditRead more

    Credit balance means excess of credit side over debit side.

    For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at the end there will be a credit balance of 6,000 of trade payable at the end

    .A Credit balance signifies all income and gains and all liabilities and capital that is there in business.

     

    Liabilities and Capital

    • Account Payables– Account Payables means the amount that is due to the customer by the entity. Its credit balance will always increase when there is an increase in account payables and will decrease when there is a decrease in account payables. For eg-: The stock that has been purchased in credit from creditors of 10,000 will result in an increase in credit balance.
    • Bank Overdraft-Bank Overdraft means when the amount withdrawn from the bank is more than the balance left in the bank. For example, there is a bank balance of 2,000 in the bank but an amount of 4,000 has been withdrawn from the bank. So in such a case, there will be a credit balance of 2,000 which is in Bank Overdraft
    • Bonds– Bonds are the amount that is withdrawn from people for a specific time period which gets redeemed at a coupon rate after such a specific period. For example- A 10% bond of 10,000 is given to a group of people which will be redeemed after 5 years.
    • Income Tax Payables-Income Tax Payable means the amount the company left to pay to the government in earlier periods. For example- There is a tax liability of 10,000 in FY20-21 from which 8,000 was paid in the current year and 2,000 paid in FY21-22.
    • Notes Payable– Notes Payable is a type of promissory note in which a person pays some amount to an entity that the entity will write in a specific period. For example Notes payable of 1,000 given by a person to an entity which will be returned in 3 months with interest
    • Capital– Capital means the amount that is introduced by the company at the beginning of the business for the operations and survival of the business. For example- A capital of 10,000 has been introduced by the company.

     

    Income and Gains

    • Interest Received-Interest Received means the amount which is invested by the company in some other entity and interest received on it
    • Dividend Received– Dividend means the amount received from the entity in which amount invested by the company
    • Rent Received– Rent is the amount that the company receives by letting out their land to another person or entity for use
    • Gains on Sale of Furniture– Gain on Sale of Furniture means that the amount received from the sale of furniture is more than the amount of furniture. So the difference between the amount received from the sale and the cost of furniture is called a gain on the sale of furniture.

    So after seeing all the above points we can conclude that the credit balance includes all the income in the P&L account and all the liabilities in the Balance sheet. So its balance increases when there is an increase in its account.

     

    Debit Balance

    Debit balance means excess of credit side over debit side.

    For Example- At begining of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end there will be a debit balance of 6,000 of trade receivables at the end

    A Debit balance basically signifies all expenses and losses and all positive balances of assets. The debit balance increases when any asset increases and decreases when any asset decreases.

     

    Asset

    • Cash and Bank Balance
    • Account Receivables
    • Property, Plant, and Equipment
    • Inventory
    • Investments
    • Bill Receivables
    • Intangible Assets

     

    Expenses and Loses

    • Rent
    • Depreciation
    • General Expenses
    • Loss on Sale of asset
    • Printing and stationery
    • Audit fees
    • Outstanding fees
    • Salaries and Wages
    • Insurance
    • Advertising
    • Promotional expenses
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