10Jun, 2021

Salary outstanding journal entry in Accounting

What is salary?

Salary is an expense for the business. It is to pay to an employee in exchange for services taken from him.

When salary is not paid on time its becomes outstanding therefore it needs to show in the balance sheet as it is now a liability for the firm.

now when salary is paid on time its an expense an we have to make journal entry

Salary A/ dr	Xxxx
To cash / Bank A/c	Xxxx
Being salary paid

Rules follow when salary is paid .

Salary A/	Dr all expenses and losses Salary is expense by nature
cash A/c	Cr what goes out Cash is real accounts by nature
Bank A/c	Cr. The giver and bank is giver in this case.

Outstanding salary journal entry

Journal entry for salary outstanding

What is an outstanding salary?

An outstanding salary is a salary due or not paid.

outstanding salary is a liability for the business, therefore, it is shown on the liability side of the balance sheet.

The rule for assets and liability

Accounts	ADD	Deduct
Assets	Debit	Credit
Liability	Credit	Debit

it means + Assets in business we have to debit it.
When we have credit assets then we have to deduct – it from the business.
It means that when we have to Add means + liability in business we have credited it.
When we have Debit Liability then we have to deduct – it from the business.

Outstanding expense journal entry example

Suppose salary to be paid Rs 10000 but not paid the salary.

here our due date of payment of salary has arrived but the salary is not paid therefore we have shown our liability which is the outstanding salary in the books of Accounts.

Journal entry will be .

Salary A/c	10,000
To Outstanding Salary A/c	10,000
Being salary not paid on due date.

Salary A/

Salary is expense and Dr all expense and losses

Nominal Accounts

Outstanding salary

Outstanding salary is a liability and we are Increasing our liability therefore credit O/S

Salary.

When outstanding salary is paid

Outstanding salary in Profit and Loss Accounts

Note: only when outstanding salary not paid.

If outstanding salary not paid then it will be shown on the debit side of Profit and loss and loss accounts as it occurs in the current year and expense of this year not paid.

Particular	Amount	Particular	Amount
Outstanding salary	10000

Outstanding salary in balance sheet

outstanding salary is liability by nature, therefore, it is shown in the liability side of the balance sheet.

Liabilty	Amount	Assets	Amount
Outstanding salary	10000

Understand the outstanding salary with an example

January

Salary paid for the month Rs 5,000 actual salary Rs 10,000.

February

Salary paid for the month with adjustment of last month salary.

Solution:
January

Note : Salary paid for the month is Rs 10,000 but we are paying only Rs 10,000 therefore Rs 5000 is salary payable or outstanding salary.

Journal entry for the same will be .

Salary A/c	10,000
To Cash A/c	5000
To outstanding salary /Salary payable A/c	5000
(being salary paid and salary payable

Adjustment of Outstanding salary

February

In February we need to adjust the salary of January therefore we have to pay more cash in February as we pay less in January .

Journal entry for the same will be .

Salary A/c	10,000
Outstanding salary /Salary payable A/c	5000
To cash A/c	15000
(being salary paid and salary payable adjusted

When outstanding salary is paid

Adjustment of Outstanding salary

Now when we pay our outstanding salary then we have to make a new journal entry to deduct our liability which is on books with the name Outstanding salary.

Journal entry will be .

Outstanding Salary A/	10,000
To cash A/c	10000
Being outstanding salary paid

Outstanding salary in Trial Balance

If outstanding Salary is given in the trial balance.

Suppose if the outstanding salary is given in the Trial balance.

Example.

Trial Balance

Particular	Amount	Amount
Outstanding salary		xxxxx

If outstanding salary is given in the balance sheet under such condition it will be shown only in the balace sheet .It means it already adjusted .

Outstanding salary FAQ

Oustanding salary is under which account?

Answer: Outstanding salary is a personal representative account. As per the matching concept, salary is due but not yet paid. So, Unpaid salary to be shown as liability under ‘Expenses Payable’ or ‘Salary Payable’ in the Balance sheet on liabilities side and on another aspect of dual entry to be placed in Profit & Loss Account.

Where Outstanding Salary appearing in Trial Balance are shown:

Answer: On the liability side of the balance sheet.Its means its already adjusted no need to shown in Profit and loss Accounts.

What is the definition of outstanding salary?

Outstanding salaries are salaries that are due and have not yet been paid.

For example, the staff of Amar Traders has worked for the month of April.
It is now the 3rd of May and they still have not been paid,
so the salaries are “payable” or “owing” or “outstanding” (all the same thing) .

Complete Introduction to Microsoft Power BI

Outstanding salary vs prepaid Salary

the difference between outstanding salary and prepaid salary in a table:

Criteria	Outstanding Salary	Prepaid Salary
Definition	Unpaid wages/salaries for completed work	Advance payment for anticipated work
Financial Statement	Liability	Asset
Nature	Money owed to employees	Money owed to the company (from employees)
Occurrence	After work is performed	Before work is performed
Adjustment Requirement	Decreases profit (expense) on the P&L	Increases profit (revenue) on the P&L
Treatment in Accounts	Shown as a liability in the balance sheet	Shown as an asset in the balance sheet

It’s essential for businesses to keep track of both outstanding and prepaid salary to ensure accurate financial reporting and proper cash flow management.

Unfortunately, this quiz has a limited amount of entries it can recieve and has already reached that limit.

3Jun, 2021

Journal Entry of Bill of Exchange in Accounting

Example

Bills of Exchange Journal Entries

On 1 may 2015 Mr A sold of goods to Mr B for 50000 on Credit. Mr B ask for 3 month time .Mr A ask for security .Mr B say he ready to sign any document you like as security.Mr A on White paper an write following phrase.

“Pay to in the order of Mr. A rs 50000 3 month after the date.

He also write date and place of preparing th e bill signature on the paper.

Mr a send this paper and asked him sign on the revenue stamp. Mr b sign on the revenue stamp and writes the word accepted across the face of the bill.Paper now become valuable document called as bills of exchange.Mr A keeps the bills with him for next 3 month after that he goes to Mr B ask for payment.

Points to remember

Mr A is called as drawer of the bill.
Mr B is called as drawee of the bill.
Bill is an asset.

When A sold on credit to B Rs. 50000

BOOKS OF A		BOOKS OF B
B Dr.	Xxxx	Purchase A/c Dr.	Xxxx
To sales A/c	Xxxx	To A	Xxxxx
Being goods sold to B		Being goods purchased from A

When A draws a bills on B

BOOKS OF A		BOOKS OF B
Bills Receivable A/c	Xxxx	A	Xxxx
To B	Xxxx	To Bills Payable A/c	Xxxxx
Being bill to received		Being being bill to paid

After 3 month Mr. A goes to Mr B and take payment. Mr. B honors the bills

BOOKS OF A		BOOKS OF B
Cash A/c	Xxxx	Bills payable a/c	Xxxx
To Bills Receivable A/c	Xxxx	To Cash A/c	Xxxxx
Being cash received		Being cash paid

Journal entry of endorsement of Bill

Ram sold goods on credit Rs 50000 to Rahim On 1 april2014.Out of these goods Rahim sold some of the goods to on credit to Rajiv. Rs 50000.Rahim Drew a Bill on Rajiv for 50000 on the same day.Rajiv accepted it and return it to Rahim. On 4 may 2014 when Ram demanded payment Rahim endorsed the in favor of Ram.

Endorsement

Rahim is called as the endorser
Ram is called as the endorsee.

On the due date Rajiv honored the bill.

Ram sold goods on Credit to Rahim,

RAM BOOKS

RAHIM BOOKS

RAJIV BOOKS

Rahim A/c

To sales

Xxx

xxx

Purchase A/c

To Ram

Xxxx

xxxx

NO Entry

Being goods sold to Rahim

Being goods purchased from Ram

When Rahim sold goods to Rajiv

RAM BOOKS

RAHIM BOOKS

RAJIV BOOKS

No Entry

Rajiv

To sales

Xxxx

xxxx

Purchase A/C

To Rahim

xxxx

being goods sold to Rajiv

Being goods purchased from Rahim

When Rahim drew a bill on Rajiv

RAM BOOKS

RAHIM BOOKS

RAJIV BOOKS

No Entry

B/R a/c

To Rajiv

Xxxx

xxxx

Rahim A/C

To B/P A/c

Xxx

xxxx

Being bill receivable from Rajeev

Being bill payable to Rahim

When Rahim endorsed the bill in Favor of Ram

RAM BOOKS

RAHIM BOOKS

RAJIV BOOKS

B/R

To Rahim

Xxxx

xxxx

Ram A/c

B/R

Xxxx

xxxx

No entry

Xxx

xxxx

being bill endorse to Ram

On 4 may 2014 Rajiv Honors the bill

RAM BOOKS

RAHIM BOOKS

RAJIV BOOKS

Cash A/c

To B/R

Xxxx

xxxx

No Entry

Bills Payable A/c

To cash A/c

Xxx

xxxx

Being cash received

Being cash paid

Mr A sold goods on credit to B 1 April 2014 on the same day A drew a 3 month bill and A accepted it and return it.On 4 May 2014 A was in urgent requirement of money he approached bank and discounted the bill. Bank discounted the bill and charge a discounting @ 12% pa.

When A sold goods on credit to B

A Books

B

To sales

(being goods sold to B)

B Books

Purchase A/c

To A

(being goods purchased from A)

When A drew a bill on B

A Book

B/R A/c

To B

B Books
A
To B/P

When A Discounted the bill

A Books

Bank A/c

Discount A/c

To B/R

B Book

No Entry

4 July 2014 when B honors the bills

A Books

No Entry

B Books

B/P A/c Dr

To Bank A/c

3Jun, 2021

Journal Entry of Loss or profit on Sale of Asset in Accounting

Journal Entry of Loss or profit on Sale of Asset in Accounting

Sometime business need to sale their Fixed assets .Before we go further, we have to understand that what are Fixed Assets .

Fixed Assets : Fixed assets are the long-term tangible assets that are used by business in generating income. Example Land and building ,plant and Machinery furniture and fixture.

When we sale these assets it effects our Balance sheet Asset side as these assets are going out of business and in exchange of that either we increase our bank accounts or Cash accounts or either purchase new assets. Under such condition we sometime make profit or either loss.

The disposal of assets involves eliminating assets from the accounting records.

When a fixed asset or plant asset is sold, there are several things that must take place:

The fixed asset’s depreciation expense must be recorded up to the date of the sale
The fixed asset’s cost and the updated accumulated depreciation must be removed
The cash received must be recorded
The difference between the amounts removed in 2. and the cash received in 3. is recorded as a gain or loss on the sale of the fixed assets

When Loss is made on sale of Fixed Assets

Journal entry for loss on sale of Asset

Lets under stand its with example .

Sold Machinery (fixed Assets) book Value Rs 100000 for Rs 90,000 .

Note here the asset which we have in books have value Rs 100000 but we sold it for Rs 90,000 therefore we make a loss of Rs 10000 here hence we have to show that loss in the books of accounts .

To make the journal entry of the same in the books

Profit and loss Accounts	10,000
Cash A/c	90,000
To Machinery	100000
Being Machinery sold

Profit and loss Accounts	Debited	Nominal Accounts- expense or loss by nature
Cash A/c	Debited	Real Account -What comes in
Machinery	Credited	Real Account- What goes out out

Therefore, now this loss on sale of asset to be shown in the Profit and loss account and shown in the debit side

Particular Dr	Amount	Particular Cr	Amount
To loss on sale of Asset	10,000

Whereas in Balance Sheet In asset side a cash account will increase and Fixed asset machinery a/c will decrease .

When profit is made on sale of Fixed Assets

Sold Machinery (fixed Assets) book Value Rs 100000 for Rs 110,000 .

Note here the asset which we have in books have value Rs 100000 but we sold it for Rs 110,000 therefore we make a profit of Rs 10000 here hence we have to show that Profit in the books of accounts .

To make the journal entry of the same in the books

Cash A/c	110,000
To Profit and loss Accounts	10,000
To Machinery	100000
Being Machinery sold

Profit and loss Accounts	credited	Nominal Accounts – profit or Income by nature
Cash A/c	Debited	Real Account- What comes in
Machinery	Credited	Real Account -what goes out out

Therefore, now this loss on sale of asset to be shown in the Profit and loss account and shown in the credit side

Particular	Amount	Particular	Amount
		To Profit on sale of Asset	10,000

Whereas in Balance Sheet In asset a cash account will increase and Fixed asset machinery will decrease .

29May, 2021

How to make a journal entry of Sale in Accounting

Before we go further, we have to understand the what are goods. Goods are item which are purchased to be sold .

Sales accounts are made when goods purchase is sold.

Sales account is nominal by nature or some considered it as real account as goods can be feel and touch . So as per nominal account we credit all income and gains and sales are made by adding profit to the goods purchased . suppose we purchase goods for Rs. 400 and sold it for Rs 500 here we are adding profit of Rs 100 therefore sale is generally including profit.

Example Sold goods Rs 500.

Here we are selling goods which we have in business.

Journal entry of the above will be

Cash A/c

500

To sales A/c

5000

(being goods sold for cash)

When goods sold and it’s not mentioned how then the other account will be cash accounts as it assumes that goods sold are in cash .

Goods sold by adding profit 10% to its purchase price Rs. 1000.

Note : As we mention earlier goods are sold by adding profit means the goods which we have a value of Rs 1000 and if we add profit to it its value will be Rs 1100.therfore the journal entry of the above will be .

Cash A/c Dr.	1100
To sales A/c	1100
(being goods sold for cash)

Journal entry of goods sold on credit .

Its business practice to sold and purchase goods on credit .

Lets take an example here.

Sold goods to Mohan Rs 1000.

In this case we have to open two accounts Mohan and Sales A/c .

Mohan is Personal account by nature therefore as per Personal Account Mohan is debited because as per personal account Debit the receiver. Mohan is receiver of goods whereas

Sales is Nominal Account as per Nominal account credit all income and gain and Sales is income here.

Mohan Dr.	1000
To sales A/c	1000
(being goods sold to Mohan)

Journal entry of goods sold by cheque.

In Accounting when cheque is used Bank account need to be open .

Example .

Sold goods by cheque Rs 4000.

Note: Now two accounts need to be open sales account. and Bank Account.

Sales Account is Nominal and it’s a income therefore its credited as per rule of Nominal account.

Bank is Personal Account and therefore Debit the receiver therefore Bank is debited in the books of accounts.

Journal entry will be

Bank A/c Dr.	1000
To sales A/c	1000
(being goods sold by cheque no 1344)

Journal entry of sales return.

Sometime goods sold to party are return by them because of many reason such as goods are defective ,not as per specification and many such reason.

Under such condition we have prepare credit note which is enty of sales return as this credit note is give to the party to show that your accounts is debited in our books and you need not pay for the return goods and the buyer prepare debit note in his book .

Example :

Return goods by Mohan Rs 1000.

Now we have to open two accounts Sales return account and Mohan

Sale return is nominal accounts its our loss as we are not able to made sales and goods are return therefore, we debit Sales return account in our books.

Mohan is personal Account and here Mohan is giver therefore Mohan is credited in the books of accounts.

Journal entry for the above will be .

Sales return A/c Dr.	1000
To Mohan	1000
(being goods return by Mohan

26May, 2021

How to make Journal Entry of Purchase Accounts

Before we go further, we have to understand that what is purchase accounts. When goods are purchased by business to be sold are known as purchase and in accounting we have to write purchase as purchase accounts.

Purchase account is nominal accounts by nature means it’s an expense for the business .Therefore when goods are purchased, they are debited as per rule of nominal accounts we have debit all expenses and losses. Purchase account is expense for the firm.

Example . Mohan stationary purchase 100 box of pen for his shop in this case we have prepare Purchase accounts because Mohan purchase these boxes of pens to be sold .Note Purchase account can be considered as real account as we can feel and touch goods purchased .

Journal entry of purchase by cash.

When goods are purchased by cash under such condition, we have to open two accounts Purchase and Cash.

Example. Mohan Purchased 100 box of pens for Rs 10,000 for cash .

Accounts to be opened are Purchase A/c and Cash A/c and journal entry for the same will be .

Purchase A/c Dr.	10,000
To Cash A/c	10,000
(being goods purchase for cash

Note: Purchase Accounts is nominal account and debit all expense and losses as purchase is expense.

Cash is Real accounts as per Real account credit what goes our and in this entry cash goes out of businessr.

Journal entry of purchase by Cheque.

It’s a business practice to purchase goods by cheque during course of business.

When goods are purchased by Cheque under such condition, we have to open two accounts Purchase and Bank. (cheque are deposited and withdrawal from bank) as cheque effects our bank accounts.

Example. Mohan Purchased 100 box of pens for Rs 10,000 for Cheque .

Accounts to be opened are Purchase A/c and Bank A/c and journal entry for the same will be .

Purchase A/c Dr.	10,000
To Bank A/c	10,000
(being goods purchase for Cheque no 1256

Note: Purchase Accounts is nominal account and debit all expense and losses as purchase is expense.

Bank is personal accounts as per personal account credit the giver and in this entry bank is the giver.

Journal entry of purchase On credit.

Goods purchased journal entry

It’s a business practice to purchase goods on credit during the course of business.

When goods are purchased on credit under such conditions, we have to open two accounts Purchase and the name of the party from whom goods are purchased.

Example. Mohan Purchased 100 boxes of pens for Rs 10,000 from Suresh.

Accounts to be opened are Purchase A/c and Suresh and journal entries for the same will be.

Note: Accounts is not used after the name

Purchase A/c Dr.	10,000
To Suresh.	10,000
(being goods purchase for Cheque no 1256

Journal entry of purchase return in books of accounts .

journal entry of purchase return

Sometimes goods purchased from the party return to the party because of many reasons such as goods not in good conditions, Goods supplied not as per specification, Goods given are out o date or many such reasons under such conditions goods are returned to the party.

Under this process, a debit note is to be issued by the party to its supplier and make a journal entry of purchase return.

Example. Return goods to Suresh Rs 2000.

Accounts to be opened are Purchase Return A/c and Suresh and journal entry for the same will be .

Suresh Dr.	2,000
To Purchase return A/c	10,000
(being goods purchase for Cheque no 1256

Note : Suresh Account is debited as Suresh is personal accounts as per personal account Debit the receiver and here Suresh is the receiver.

Purchase return is credited because we take purchase return as Real Accounts Cr. What goes out and goods are going away in this entry or if we treat Purchase returns as Nominal accounts, we are reversing our expense entry of purchase here.

Special Entry of Purchase

When goods goods are given away as charity and loss by fire or taken by employee under such condition we have to credit purchase account and the other account in the books of accounts.

Goods given away as charity Rs 4000.

Charity A/c Dr.	4,000
To Purchase A/c	4,000
(being goods purchase for Cheque no 1256

Goods taken by the proprietor for his personal use Rs 4000

Drawing A/c Dr.	4,000
To Purchase A/c	4,000
(being goods purchase for Cheque no 1256

Goods loss by fire Rs Rs 6000.

Loss by fire A/c Dr.	6,000
To Purchase A/c	6,000
(being goods purchase for Cheque no 1256

In all these entry the goods are going out of business but we are not selling them as we are reducing our purchase in the business therefore purchase accounts is credited in the books of accounts.

Ledger of purchase Accounts

Purchase ledger is the ledger in which all the accounting transactions related to the purchase of goods or services by the company during a period of time is recorded, showing the lists of the purchases along with the amount which the company has paid to its supplier or the amount due to the supplier.

Date	Particular	Amount	Date	Particular	Amount
1-4-2021	To cash	10000		By drawing A/c	2000
11-4-21	To Mohan	12000		By loss by fire A/c	1000
				By advertisement a/c	2000
				By trading a/c	17,000
		22000			22000

Balance of ledger is transfer to trading account in this case it is Rs. 17,000

23May, 2021

How to make Interest on Capital Journal entry

Interest on capital Journal Entry

What is Interest on capital ?

A Business invested money is business in exchange of that he will earn profit or sometime it is also possible there can be any loss in the business .

If in some case it he not invested that money in business he will keep that money in Bank or invested in some securities and exchange of that he will get profit but now the business has invested money in business therefore he has taken some risk his business may run or his business may fail. To avoid such circumstances the business give some interest to Businessman which is known as Interest on Capital.

Interest on capital is expensive by nature, therefore, it is shown in the debit side of the Profit and loss account and on the other hand it will be added to capital in the liability side of the Balance sheet.

Note:

Interest on capital is just an accounting entry that affects the profit and loss accounts of the business. It does not mean that a business gives interest on capital to the owner in cash or through a bank.

It increases the capital of the businessman at the end of the accounting year.

This entry of interest on capita is only made if its given the deed how much interest on capital to be paid to the owner of the company it is generally in the percentage of capital invested in business

Example of Interest on capital

Example of interest on capital

Mr. Mohan Invested Rs . 100000 in business on 1 April 2000 and interest in capital @ 5% is paid at the end of the accounting period.

When business is started, the accounting entry will be

Cash A/c Dr 100000

To capital A/c 100000

(being business started with cash)

Now the end of the accounting year, which is 31 March 2021, an entry of interest on capital to be made.

interest on capital journal entry

Interest on Capital A/c 5000

To Capital A/c 5000

(being interest on capital to be given to owner)

Interest on capital Account in Profit and Loss Accounts

Particular	Amount	Particular	Amount
To interest on capital A/c	5000

Interest on capital Accounts is shown in the debit side of Profit and loss accounts as it is an expense for the business because it has to be paid to the owner as adding it to the capital of the businessman.

Interest on capital Account in Balance sheet

Liability

Amount

Assets

Amount

Capital A/c 100000

+

interest on capital A/c

5000

Interest on capital is added to the capital of business as it is given to the owner of the business

22Apr, 2021

BUSINESS TRANSACTION AND EVENT IN ACCOUNTING

BUSINESS TRANSACTION

A business transaction is an economic activity of the business that changes its financial position .Wherever any business transaction takes place ,it results in a change In the value of some of the assets, liabilities or capital.

Features of business transaction

It involve some economic activities when goods are sold or purchased or some expense are paid
Transaction are of two types internal and external transaction .External transaction involves economic activities between two parties such as purchase sales etc. Whereas internal transaction involves transaction entirely within business such as depreciation on fixed assets
Only those activities are recorded which can be measure in terms of money only.

EVENTS:

An event is the consequence or result of transaction for example If A Purchase goods worth Rs 100000 and sold it to B for B Rs 150,000 . These are two transaction of purchase and sale and the profit or loss earned is the event of transaction here 50,000 is the profit which is the event of transaction

DIFFERENCE BETWEEN BUSINESS TRANSACTION AND EVENT

Transaction	Events
A business transaction is an economic activity of the busines	An event is the consequence or result of transaction
It changes its financial position	It may or may not changes its financial position
Transaction is measure in term of money	events may or may not be measurable in terms of money.
The scope of the transaction is limited.	The scope of the event is very wide.
Business transactions must be supported by evidence.	Transactions related to events are not always supported by evidence.

14Apr, 2021

Journal Entry Deferred Revenue Expenditure in Accounting

Journal Entry Deferred Revenue Expenditure

Journal Entry Deferred Revenue Expenditure

Deferred Revenue expenditure is that expenditure which is revenue in nature but the benefits of those are derived over a number of years. The benefits of such expenditure last generally for a period of 3 to 7 years.

Deferred revenue expenditure is not completely debited to to Profit and Loss Accounts but part of it is shown in Profit and Loss Accounts . The deferred revenue expenditure is spread over the number of years for which the benefits is likely to last. Thus, only a part of such expenditure is taken to Profit and Loss accounts every year the unwritten-off portion is allowed to stand on the assets side of the balance sheet.

Example :

A firm spent a huge amount of Rs 200000 on Advertisement to introduce a new product in the market and it is estimated that its benefits will last for 4 years. In such a case, Rs 50,000 will be charged in the profit and loss accounts of each year for four consecutive years.

Entry will be

Profit and loss accounts A/c	50,000
To Advertisement A/c	50,000
Being advertisement adjusted in Profit and loss accounts

Accounting Treatment Rs 50,000 will be shown in the debit side of profit and loss accounts as the expense of Advertisement and remaining Value of Advertisement which is Rs .150,000 is shown in the Asset side of the balance sheet which will be deducted every consecutive year by Rs 50000 in profit and loss accounts and in 1 year its will be Rs 100000 in Asset and Rs 50000 in Profit and Loss accounts similarly in 2 year

Rs 150,000 in assets and Rs 50,000 in Profit and Loss accounts.

Liabilities	Amount	Asset	Amount
–		Advertisement	150,000

In next year 50000 will be deducted from Asset side of Balance sheet and shown in the profit loss account .

Features of Deferred Revenue Expenditure

It is revenue in nature.
The benefit of this expenditure lasts for a period of more than one accounting year.
It pertains wholly or partly for the future years.
It is a huge amount of expense and thus, is deferred over a period of time.

Key points about deferred revenue expenditure:

Future Benefit:

The primary criterion for classifying an expenditure as deferred revenue is that it’s expected to provide benefits to the company for multiple accounting periods in the future.

Amortization:

Instead of being recognized as an expense all at once, deferred revenue expenditure is gradually expensed over the period during which the benefits are received. This is typically done through amortization, which involves spreading the cost evenly over the expected useful life of the expenditure.

Accounting Treatment:

Deferred revenue expenditure is initially recorded as an asset on the balance sheet under the “Deferred Revenue Expenditure” or “Deferred Revenue Expense” account. As the benefit of the expenditure is realized over time, a portion of the asset is gradually transferred to the income statement as an expense through amortization.

Examples:

Common examples of deferred revenue expenditures include expenses related to advertising, research and development, preliminary expenses for setting up a new business, promotional campaigns, legal fees for long-term contracts, etc. These expenses are expected to yield benefits over an extended period.

Matching Principle:

The concept of deferred revenue expenditure is in line with the matching principle in accounting. This principle aims to match expenses with the revenues they generate, ensuring that financial statements accurately reflect the company’s financial performance over time.

It’s important to note that the treatment of deferred revenue expenditure can vary based on accounting standards and regulations in different countries. Additionally, the specific criteria for recognizing and amortizing deferred revenue expenditures might differ from one company to another, depending on their business practices and industry norms. It’s recommended to consult with financial professionals or accountants to ensure proper accounting treatment for deferred revenue expenditures in a specific context.

Difference Capital Expenditure Deferred Revenue Expenditure

1. Capital expenditure benefit period Its benefits accrue for a long time to the business, say for 10 to 15 years.
Deferred expenditure benefits accrue to the business for a future period, say for 3 to 5 years.

2. Capital Expenditure can be conversion into Cash It can be converted into cash at any time as these are usually investments in assets.
We can never convert deferred revenue expenditure into cash.

3. Capital expenditure can be writing off We do not write off them over a period of time.
Deferred Revenue Expenditure can be write off these over a period of 3 to 5 years.

11Apr, 2021

HOW TO MAKE JOURNAL ENTRY OF LOAN IN ACCOUNTING

Loan is a liability for business hence f has to pay . It is accounting entry where loan is credited a sits liability to show in books of accounts and when loan is paid loan account is debited to adjust the loan paid

Example Amar Traders took a loan of Rs 100000 .

Journal entry for the same will be\

When Loan is taken from Bank

Particular	Amount
Bank A/c Dr	100000
To loan A/c	100000
Being loan taken from bank

Next when its installment will be due and paid

Now Amar pay the installment of loan is 12000 which include interest on loan Rs 7000 and Loan Rs 5000. Every month like in first month he pay Rs 5000 loan amount and Rs 7000 interest on loan therefore he has to first make due entry and then paid the interest and loan amount.

Loan and its interest payable entry

Particular	Amount
Loan A/c Dr.	5000
Interest on loan A/c Dr.	7000
To loan Payable A/c	5000
To Interest on Loan payable A/c	7000
(being on interest and loan due

After making a due entry when loan and interest is paid then in the books of accounts payble interest on loan and loan is debited so they are adjusted and payment is made.

Particular	Amount
loan Payable A/c	5000
Interest on loan Payable A/c Dr.	7000
To bank a/c	12000

(being on interest and loan due paid

Another example of understanding of loan .

Suppose A ltd took loan from bank on 1 Dec 2020 Rs 100000 and interest payable Rs. 12,000 financial year closed on 31 March 2021.

Case 1

If interest paid Rs 2000

Interest on Loan A/c Dr. 4000

To Bank A/c 2000.

To Interest on Loan payable A/c 2000

(Being interest on Loan paid)

Case 2

If Interest paid Rs 8000

Interest paid Rs 8000

Under such condition our liability is to paid Rs 4000 but we
paid Rs 8000 means we paid loan in advance under such condition journal entry
for the same will be.

Particular	Amount
Interest on loan A/c Dr.	8000
To bank a/c	8000


(being on interest and loan paid)

Particular	Amount
Prepaid Interest on loan A/c Dr.	4000
To Interest on loan	4000
(being on interest and loan paid)

here

Case 3

If No Interest paid

Under such condition we have to make a entry of Rs 4000 in our books as interest payable

Particular	Amount
Interest on loan A/c Dr.	8000
To Interest on loan payble	8000
(being on interest on loan payable)

4Mar, 2021

Accounting for Companies Issue of Shares (ACCOUNTING FOR SHARE)

WHAT IS COMPANY ACCOUNTS BASIC CONCEPT (ACCOUNTING FOR SHARE)

What is company account ?

A company accounts are a report of an organization’s the financial activity over a period (12 months). For determining the financial performance of a company accounts.They are managed and they are prepared in corporate accounting.

It is a recording of shares, debentures, etc. of the company. Other routine accounts of the company are also reported. With all these details, every year the company prepares accounts comprising the Cash Flow Statement, the Profit and Loss Statement, and Balance Sheet.

If a business is started as a business under such conditions company accounts need to be maintained.

What is a company?

Definition :

“A company is an artificial person created by law having separate legal entity with a perpetual succession and common seal.”

A separate legal entity means it has a separate legal identity that follows certain laws prescribed by the government of India.

Artificial person means non leaving body.

perpetual succession means members can come and can go.

the common seal means decision and sign by its members on the company seal.

it means some person wants to start a business if they don’t want to star as a partnership the second option is to start a business like a company. which can be xyz company.

if A,B,C start a business and invested Rs 100,000 ,Rs 120,000, Rs 200000

hence there liability to the company is the money they invested in the business.

Therefore liability of A, B,C has liability is whatever money they invested in a business which is known as share capital.

Now A,B, C are known as Share holders or members..

Features of Company

Incorporation :

Registration of Company

for example in India Company act 1956 should be followed to legally form a company. We also have the company act 2013 also.

Separate Legal Entity

It is known by its name. It means it the company damages something the company is responsible not its shareholders.

Perpetual Existence.

It means has nothing to do with the entry or exit of its members or shareholder in the company.it keeps on going and working.

Limited Liability

it means the liabilities of the members are limited to the share capital (money they invested in the company). It means A, B, C’s liability to the company is only to the extend of money they invested in the business.

Whereas in Partnership and Sole partnership the liability of the person is not limited.

Transferability of shares

Shares are documented which contains the company name, seal, and name of the shareholders. They are made to raise share capital and if a person purchased them they have proof of holding shares.

Transferability of shares

if its a public company shares can be transferred but in the case of a private company shares cannot be transferred.

Common seal

The company has a seal where can, Shareholders, Directors, managers can sign and take decisions.

Difference between partnership and company

It is not mandatory to register under the partnership act whereas in the case of company registration of the company is mandatory.
The liability is of partnership is unlimited whereas the liability of the partner is limited.

Types of company

The company is of two types Private limited company and public limited company.
The members of a private limited company can be from 2 to 200 only and the share capital required in a private limited company is a minimum of Rs. 100000 whereas the members of a public limited company can trade their share publically. minimum members are 7.

Incorporation of company

A group of seven or more people can come together so as to form a public company whereas, only two are needed to form a private company. The following steps are involved in the incorporation of a company.
The first step in the incorporation of any company is to choose an appropriate name. A company is identified through the name it registers. The name of the company is stated in the memorandum of association of the company. The company’s name must end with ‘Limited’ if it’s a public company and ‘Private Limited’ if its a private company.
Preparation of Memorandum of Association and Articles of Association.
Printing, Signing and Stamping, Vetting of Memorandum and Articles
Power of Attorney
Other Documents to be Filed with the Registrar of Companies.
Payment of Registration Fees.
Certificate of Incorporation

What is company share ?

The share capital is the most important requirement of a business. It is divided into a ‘number of indivisible units of a fixed amount. These units are known as ‘shares’. According to Section 2 (46) of the Companies Act, 1956, a share is a share in the share capital of a company, and includes stock except where a distinction stock and shares is expressed or implied.

Example :

Total capital of a company is? 10, 00,000 divided in to 100,000 shares of Rs. 10 each, each unit of Rs. 10 is called share

The person who is the owner of the shares is called ‘Shareholder’ and the return he gets on his investment is called ‘Dividend’.

ISSUE OF SHARES AND TYPES OF SHARE CAPITAL

ISSUE OF SHARES

A company needs money to start a business.

IF A person wants to start a business it can start a business as sole proprietorship where he alone do the business and invest his own money but it if needs funds than it can convert it to partnership business where 2 or upto 50 people can do business But limit of the partnership is 50. Now If the person wants to have more funds than he can turn business of partnership into Company now it can have unlimited number of members and company can rase funds from bank or any financial institution and most important a company can raise money from public also.

Now if the public invest a money in company now the people who are invested in money is a capital and is known as share capital and in lieu of which a public will get a part known as share capital.

If a company needs 50,0000 lakhs rupees hence, they are divided into small part such as 500000 means 5000000/500000 = 10 value of share is Rs. 10.

This particular process is known as shares.

Now company can ask to pay money in installment of the share from public if they want or even in one go.

Share capital

Now company can ask to pay money in installment of the share from public if they want or even in one go.

Now if company want money in parts than this Rs 10 is further divided to raise the fund from public by breaking its amount such as 3+3+2+2

The money taken by company after certain period of time from public by dividing Rs 10 share are given in list below

*Division of share*	*Rs 10*
3	*Application money*
3	*Allotment money*
2	*Calls (first call)*
2	*Calls (second call)*
*Total 10*

Here take an example Rajesh purchased 100 share of company share value Rs 10 each total value of share 10X100=10000 now company will take money in the list given below

*Money invested in company*	*Date*	*Division of share*	*Rs 10*
*100X3=3000*	*1 Jan*	3	*Application money*
*100X3=3000*	*3 march*	3	*Allotment money*
*100X2=2000*	*6 June*	3	*Calls (first call)*
*100X2=2000*	*10 July*	2	*Calls (second call)*
*Total money paid 10,000*		10

Therefore, we can understand that Share capital is money in form of share collected from public

Types of share capital

Authorized share capital
Issued capital
Subscribed capital : a) Subscribed capital and fully paid b) Subscribed and not fully paid

Authorized share capital

is given in memorandum of association of company it gives information about how much money company can raised through public through share capital.

Issued capital :

It is the amount which company has issued to public for raising share capital.

Subscribed capital :

The share buy by pubic is called as subscribed capital

Subscribed and fully paid if the share is fully paid by public .Example suppose company issue share Rs 10 and paid by public in parts if it fully paid then it is subscribed and fully paid.

Example given below

*Division of share*	*Rs 10*	*status*
3	*Application money*	*paid*
3	*Allotment money*	*paid*
2	*Calls (first call)*	*paid*
2	*Calls (second call)*	*paid*
*Total 10*	*If its fully paid then*	*Subscribed and Fully paid*

Subscribed and not fully paid: if share is not fully paid by pubic such are known as subscribed an dnot fully paid.

example given below

*Division of share*	*Rs 10*	*status*
3	*Application money*	*paid*
3	*Allotment money*	*paid*
2	*Calls (first call)*	*Not paid*
2	*Calls (second call)*	*Not paid*
*Total 10*	*If its fully paid then*	*Subscribed and not Fully paid*

How share can be issued

Share at par
Share at premium

Share at par :

Suppose a company has a share of Rs. 10 each and is issuing it at Rs 10 each to the public it is known as share at par.

Share at premium

But some company has goodwill in the market they charge more for the share and the extra amount which the company gets is known as share at a premium. Example A company has a share value of Rs 10 but it issues to the public at Rs 15 this 5 Rs is a premium which is a profit for the company.

JOURNAL ENTRY ISSUE OF SHARE CAPITAL IN CAPIAL ACCOUNTS

As we lean earlier if company takes money it takes in parts.

Example like Share value Rs 10 in 3 parts 3+5+2 is to be received from the public it will be divided as given below

*Division of share*	*Rs 10*
3	*Application money*
2	*Allotment money*
5	*Calls (first call)*
*Total shares 10*

Example of issue of share in parts to public

If a company issued 100000 shares in market with share value Rs 10 each.

First of all, money ask for application money.

*Division of share*	*Rs 10*
**3 100000 = 300000***	*Application money*
*2 100000 = 200000**	*Allotment money*
*5 100000 = 500000**	*Calls (first call)*
**Total shares 10000010 = Rs. 10,00000***

When application is received.

Journal entry of Application money

Bank A/c Dr. Dr.	300000
To application Share A/c	300000
Being Application money received from the public

Note : It means company received Application for share in the beginning. We made this entry to show how money comes in business. We cannot make journal entry of due of application because we don’t know who to due.

As they invested the money by public, now they become owner of the company therefore it will be transfer to share capital accounts . As we know that capital is the money invested by its owners, therefore the money of the public in company is known by the name share capital.

Now this Application money is transfer to company share capital .

Application Share A/c Dr	200000
To share capital a/c	200000
Being Application money received form public

Automatically share capital accounts is adjusted in the journal entry by crediting in the first entry and debiting in the second entry.

Journal entry of Final call money

When first and final call is due .

Here we have a make entry of due in the beginning and then the other entry of received.

Share First and final call A/c Dr	500000
To Share Capital A/c	500000
Being first call due

When first and final call is received.

Bank A/c Dr.	500000
To Share First and final call A/c Dr	500000
Being first call received in bank

JOURNAL ENTRY OF SHARE ISSUE EXPENSES

Share issue expense is expense by nature therefore its journal entry will be :

Share issue expenses a/c Dr	XXXXX
To Bank A/c Dr	XXXXX
Being share issue expenses paid

JOURNAL ENTRY OF SHARE ARE ISSUED TO PROMOTERS

When share is issued to promoters .Promoters are those who form the company.

Incorporation A/c Dr	XXXXX
To share capital A/c	XXXXX
Being received from promoters.

JOURNAL ENTRY OF COMMISSION TO UNDERWRITES.

If share is issued to underwriters for his commission .

Underwriters : are those people who gives assurance to company to sell his share to public in lieu of commission .

Under writers Commission A./c Dr	XXXXX
To Underwriters.	XXXXX
Being underwriters commission due

When under writer commissions is paid .

Underwriters. A/c Dr	XXXXX
To shar capital a/c	XXXXX
Being underwriters’ commissions received

ISSUE OF SHARES AT PREMIUM

The shares of many successful companies which offer
attractive rates of dividend on their existing capitals fetch a
higher price than their face value in the market. When shares
are issued at a price higher than the face value, they are said to
be issued at a premium. Thus, the excess of issue price over
the face value is the amount of premium. For example, if a
share of Rs.10 is issued at Rs.12, Rs. (12 – 10) = Rs.2 is the
premium. the premium on issue of shares must not be treated
as revenue profits. On the contrary, it must be regarded as
capital receipt.
The Companies Act requires that when a company issues
shares at a premium whether for cash or otherwise, a sum
equal to the aggregate amount of the premium collected on
shares must be credited to a separate account called
“Securities Premium Account”. There are no restrictions in the
Companies Act on the issue of shares at a premium, but there
are restrictions on its disposal.

The Securities Premium Account may be applied by the
company–
(a) towards the issue of unissued shares of the company to the
members of the company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or
discount allowed on, any issue of shares or
debentures of the company;
(d) in providing for the premium payable on the redemption of
preference shares or of any debentures of
the company; or
(e) for the purchase of its own shares or other securities.
It is to be noted here that utilization of the amount of Securities
Premium Account except in any of the modes
specified above, will attract the provisions relating to the
reduction of share capital of a company.
We must show the Securities Premium Account as “Securities
premium reserves” separately in the liabilities,
side of the balance sheet under the head “Reserves & Surplus”.

Journal Entry of Issue of Shares at a Premium

When Allotment money become due

Share Allotment A/c

To security premium A/c

To Share capital A/c

(With money due on allotment, including premium)

Example issue of Shares at a Premium

XYZ Company Limited issued 35,000 equity shares of Rs.10
each at a premium of Rs.2 payable as follows: On Application
Rs.3 On Allotment Rs.5 (including premium) Balance on First
and Final Call The issue was fully subscribed. All the money
was duly received. Record journal entries in the books of the
Company.

Books of XYZ Ltd.

Particular

Amount

Bank A/c dr.

To Equity share capital A/c

(Money received on application

Of 35000 shares @ 3 per share)

105,000

Equity shares application A/c dr.

To equity share capital A/c

(Transfer of allotment money on

Allotment of share capital)

105,000

Equity share Allotment A/c dr.

To equity share capital A/c

To security premium A/c

175,000

105,000

70,000

Bank A/c dr.

To equity share Allotment A/c

(Money received including premium)

175,000

Equity shares first and final call A/c

To equity share capital A/c

(Amount due on first and final call of RS

4 per share on 35,000 shares)

1.40,000

140,000

Bank A/c dr.

To equity share first and final call A/c

(Money received on first and final call)

140,000

Issue of Shares at A Discount

When shares are issued at a price lower than the face value,
they are said to be issued at discount. Thus, the excess of the
face value over the issue price is the amount of discount. For
example, if a share of ` 10 is issued at Rs.9 then Rs.(10 – 9) =
Rs.1 is the discount. As per companies Act 2013, a company
shall not issue shares at a discount except as provided in
section 54 for issue of sweat equity shares. Any share issued
by a company at a discounted price shall be void. Where a
company contravenes the provisions of this section, the
company shall be punishable with fine which shall not be less
than one lakh rupees but which may extend to five lakh rupees
and every officer who is in default shall be punishable with
imprisonment for a term which may extend to six months or
with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees, or with both

Category Archives: Accounting

Salary outstanding journal entry in Accounting

Outstanding salary journal entry

Journal entry for salary outstanding

Outstanding expense journal entry example

When outstanding salary is paid

Outstanding salary in Profit and Loss Accounts

Outstanding salary in balance sheet

Understand the outstanding salary with an example

Adjustment of Outstanding salary

When outstanding salary is paid

Adjustment of Outstanding salary​

Outstanding salary in Trial Balance

Outstanding salary FAQ

Oustanding salary is under which account?

Where Outstanding Salary appearing in Trial Balance are shown:

What is the definition of outstanding salary?

Outstanding salary vs prepaid Salary

Journal Entry of Bill of Exchange in Accounting

Example

Bills of Exchange Journal Entries

When A draws a bills on B

After 3 month Mr. A goes to Mr B and take payment. Mr. B honors the bills

Journal entry of endorsement of Bill

Endorsement

Ram sold goods on Credit to Rahim,

When Rahim sold goods to Rajiv

When Rahim drew a bill on Rajiv

When Rahim endorsed the bill in Favor of Ram

On 4 may 2014 Rajiv Honors the bill

When A sold goods on credit to B

When A drew a bill on B

When A Discounted the bill

4 July 2014 when B honors the bills

When Loss is made on sale of Fixed Assets

Journal entry for loss on sale of Asset

When profit is made on sale of Fixed Assets

How to make a journal entry of Sale in Accounting

Journal entry of goods sold on credit .

Journal entry of goods sold by cheque.

Journal entry of sales return.

How to make Journal Entry of Purchase Accounts

Journal entry of purchase by cash.

Journal entry of purchase by Cheque.

Journal entry of purchase On credit.

Journal entry of purchase return in books of accounts .

journal entry of purchase return

Special Entry of Purchase

Ledger of purchase Accounts

Interest on capital Journal Entry

Example of Interest on capital

interest on capital journal entry

Interest on capital Account in Profit and Loss Accounts

Interest on capital Account in Balance sheet

BUSINESS TRANSACTION AND EVENT IN ACCOUNTING

BUSINESS TRANSACTION

EVENTS:

DIFFERENCE BETWEEN BUSINESS TRANSACTION AND EVENT

Journal Entry Deferred Revenue Expenditure

Features of Deferred Revenue Expenditure

Key points about deferred revenue expenditure:

Future Benefit:

Amortization:

Accounting Treatment:

Examples:

Matching Principle:

Difference Capital Expenditure Deferred Revenue Expenditure

HOW TO MAKE JOURNAL ENTRY OF LOAN IN ACCOUNTING

When Loan is taken from Bank

Next when its installment will be due and paid

Loan and its interest payable entry

Another example of understanding of loan .

Another example of understanding of loan .

WHAT IS COMPANY ACCOUNTS BASIC CONCEPT (ACCOUNTING FOR SHARE)

What is company account ?

What is a company?

Features of Company

Incorporation :

Perpetual Existence.

Limited Liability

Adjustment of Outstanding salary