Account 1 Marks Question

Depreciation is allocation of cost of fixed assets in a systematic manner over their estimated useful life. It is thus, a cost. Financial Statements must show true and fair view of the financial performance and position of the business. If Depreciation is not provided, both fixed asset and profit will be shown at higher amounts.

It is Input GST because it is paid on purchases and can be set-off against GST Collected.

No, because Unearned Income means amount that has been received against which goods will be sold or services will be rendered in the next year.

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1. Old R.D.D.

Explanation:

Doubtful debts are those debts whose recovery is doubtful. It is not certain whether they will be recovered or not. It is anticipated loss. Therefore, suitable provisions should be made for bad and doubtful debts, so as to calculate true net profit of the business. Provision for doubtful debts is created on debtors balance (not on bad debts) at a fixed percentage. Firms make provisions for expected losses base on their prior experience. Provision for doubtful debts is made to cover for possible losses from debtors going bad. If RDD already exists in the trial balance, then the same is credited to profit and loss account since this is the old R.D.D and needs to be reversed. The effect for R.D.D appearing as an adjustment are as follows:

A. Profit and loss A/c-Debt side (add to old bad debts)

B. Balance Sheet-Asset side (deduct from sundry debtors)

The journal entry for same is as follows:

Reserve for Doubtful Debts A/c Dr.

To Sundry Debtors A/c

Unearned Income means an income that has not been earned but is received in advance. Sometimes an amount is received during a year in respect of an income that relates partially or fully to the next year. For example, rent for the month of April, 2019 is received in March, 2019. It is an income for the year ending on 31st March, 2020 but is received in the current year, it is Unearned income or Income received in advance. It adjusted in the Final Accounts: Example: Rent received during the year ₹ 36,000 including ₹ 6,000 for the is next year. Rent Received Account (₹ 30,000) is closed by transferring to the credit side of the Profit and Loss Account and Rent Received in Advance (₹ 6,000) will be shown as a liability in the Balance Sheet. This is shown as below:

No, Provision for Discount on Debtors is calculated after deducting Provision for Doubtful Debts. It is so because discount is not allowed on debtors which are doubtful of recovery.

They are accounted at purchase cost because it is not a sale but advertisement expense.

The sale is intra-state sale, therefore, both CGST and SGST will be charged.

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They are recorded at purchase cost because it is not a sale but drawing.

Capital Expenditure because it is taken only at the time of starting a business.

Accrual Concept of accounting requires that revenue be recognised when goods or services have been sold whether the amount has been received or not. Since income is credited to Profit and Loss Account. it is credited to the Profit and Loss Account. And since, the amount is due to the enterprise, it is shown as a current asset in the Balance Sheet.

Closing Stock is valued at lower of cost or net realisable value (market value) because of the Prudence Concept of accounting, whereby anticipated losses are accounted while anticipated profits are not.

₹ 1,000

Mehar will charge IGST because it is inter-state sale.

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Deducted from Purchases in Trading Account and shown on Dr. side of Profit & Loss Account.

Prudence Concept.

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Need of Adjustment:

1. To ascertain the true Net Profit or loss of the business.
2. To ascertain the true financial position of the business.
3. To make a record of the transactions omitted from the books.
4. To rectify the errors committed in the books of accounts.
5. To make a record of such expenses which have accrued but have not been paid.
6. To make a record of such incomes which have accrued but have not been received
7. To provide for depreciation and other provisions.

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Prepaid Expenses are segregated from current year's expenses and taken to Balance Sheet as a current asset because such expenses relate to next year, which have been paid in advance.

Outstanding Expenses are provided following the Accrual Concept of Accounting, i.e., expenses for the year, whether paid or not, should be accounted.

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No, because Bad Debts when written off are debited to Bad Debts Account by crediting Debtor's Account and the Debtor's Account is closed. Therefore, when Bad Debts are recovered, they are credited to Bad Debts Recovered Account and becomes an income.

Prudence Concept.

		adjustment entry	Treatment in P & L A/C	Treatment in Balance Sheet
i.	Accrued Income.		Added in income on credit side of Profit & Loss A/c.	Shown on the Assets side.
ii.	Unearned Income.		Deducted from income on the credit side of Profit & Loss A/c.	Shown on the Liabilities side.

On the one hand, they will be added to the concerned expenses on the debit side of Trading or Profit and Loss Account and on the other hand, will also be shown on the Liabilities side of the Balance Sheet.

Accrued Income: This refers to those incomes which have been earned during an accounting period but have not been actually realised in the current period. These are also called earned incomes.

It is credited because GST credit is allowed only when goods are sold. Goods taken by proprietor is not a sale but drawings.

Methods of recording depreciation are:

1. Depreciation being credited to respective Asset Account.
2. Depreciation credited to Provision for Depreciation Account.

These are the expenses which have been paid in advance for the next period during the current period itself. In other words, benefit of such payments will be available in the next accounting period.

1. Purchase of Goods.
2. Salary, Rent etc.

Wags include ₹ 10,000 spent on the installation of New Machine, In order to rectify the mistake, ₹ 10,000 will be deducted from Wages and added in Machinery.

1. Profit and Loss Account will not show correct profit or loss and Balance Sheet will not show true financial position.
2. Accrual Concept and Matching Concept will be violated.

These are the expenses which have been incurred during the year but have been left unpaid on the date of preparing the final accounts.

Yes.

Outstanding Expenses are added to the relevant expense and shown either in the Trading Account or the Profit and Loss Account. They are also shown in the Balance Sheet on the Liabilities side under the main head Current Liabilities.