Points to be Noted While passing Journal Entries: From Sr.No.21
21. Whenever cash is paid for repairing a property, say, furniture, machinery, motor vehicle or building, the two accounts involved in the transaction are (1) repairs account (and not the concerned asset account) and (2) cash account. The concerned property account is not at all involved, as cash is paid towards the repair charges of the property, and not towards the cost of the property.
22. Whenever some investments or securities, say, shares or debentures, are purchased, the two accounts involved in the transaction are (a) investments account (and not purchase account) and (b) cash account.
Another point to be noted in the context of the purchase of investments is that, while recording the investments purchased, and not the face value of the investments purchased. For instance, if shares of the face value of Rs.1,000 are purchased at a cost of Rs.950, the amount to be taken into account for the recording of the investments purchased is the cost price of the investment viz., Rs.950 and not the face value of the investment, viz., Rs.1,000.
One more point to be borne in mind, in the context of the purchase of investments, is the treatment of brokerage, if any, paid on the purchase of investments. The brokerage paid on the purchase of the investment should be added to the purchase price of the investment, and the entry for the purchase of investments should be passed with the total cost of the investments, i.e., the purchase price of the investments plus the brokerage paid on the purchase of the investments.
23. Whenever some investments or securities, say, shares or debentures are sold, the two accounts involved are (1) cash account (2) investments account (and not the sales account).
Another point to be noted in the context of the sale of investments is that, while recording the investments sold, the amount to be taken into account is the net sale price of the investments, i.e., the sale price of the investments minus the brokerage, if any, paid for the sale of investments.
24. Whenever cash is paid to a person for an expense, say, salary, rent or wages, the two accounts involved in the transaction are (1) concerned expenses account (and not the party'saccount) and (2) cash account. The personal account of the party to whom the payment is made on account of the expense is not at all involved, because payment is made to him for the service already rendered by him to us, and he is not liable to pay us any amount at a later date.
25. Whenever the business pays carriage, freight or transport charges of the goods despatched to a buyer, the two accounts involved in the transaction are (1) concerned expense account, say, carriage account or freight account and (2) cash account.
On the other hand, if the business pays carriage, freight or some other transport charges on the goods despatched to a buyer on the buyer's account, the two accounts involved in the transaction are (1) buyer's personal account (but not carriage or freight or any other transport charges account) and (2) cash account.
26. Whenever cash is received from a party on account, it means that the party already owes us some amount and now he is paying us some money. So, the two accounts involved in the transaction are (1) cash account and (2) party's personal account (i.e. the personal account of the party from whom the money is received on account).
Similarly, whenever cash is paid to a party on account, it means that we already owe him some money, and now we are paying him some amount. So, the two accounts involved in the transaction are (1) party's personal account (i.e., the personal account of the party to whom the payment is made) and (2) cash account.
27. Whenever an expense is paid in cash, say, salary paid in cash or rent paid in cash, the two accounts involved in the transaction are (1) concerned expense account, say, salary account or rent account, and (2) cash account.
On the other hand, if an expense is incurred, but is not paid (i.e., due to a party), the two accounts involved in the transaction are (1) concerned expense account, say, salary account or rent account and (2) outstanding expenses account, say, outstanding salaries account or outstanding rent account (or the party's account, i.e., the account of the party to whom expense is due).
Similarly, whenever an income is received in cash, say, interest received in cash or commission received in cash, the two accounts involved in the transaction are (1) cash account and (2) concerned income account, say, interest account or commission account. On the other hand, if an income is earned, but is not received, then, the two accounts involved in the transaction are (1) outstanding income account, say, outstanding interest account or outstanding commission account or the party's account, (i.e., the account of the party from whom the income is due) and (2) concerned income account, say, interest account or commission account.
28. If cash is received from a party, say, from B, on account, we can name that party's account (i.e., B's personal account) as B's Account. But if cash is received from a party, say, from B, as loan, then, we have to name the party's personal account, i.e., B's personal account as B's Loan Account, and not as B's Account.
Similarly, if cash is given to a party, say, A, on account, we can name that party's account (i.e., A's personal account) as A's Account. But if cash is given to a party, say, A, as loan, then, we have to name the party's personal account (i.e., A's personal account) as A's Loan Account (and not as A's Account).
29. Cash discount is a discount allowed by the business to its debtor, at the time of receipt of money from the debtor, for his prompt payment, or the discount received by a business from its creditor at the time of payment of money to the creditor, for the prompt payment made to him. It has to be recorded in the books of the business.
Whenever cash discount is allowed by the business to a debtor, the two accounts involved in the transaction are (1) discount allowed account and (2) debtor's account (but not cash account). Cash Account is not at all involved, as the discount is not paid in cash, but is just reduced from the amount due from the debtor.
Whenever cash discount is received by the business from a creditor, the two accounts involved in the transaction are (1) creditor's account (but not cash account) and (2) discount received account. Cash Account is not involved, as the discount is not received in cash, but is reduced from the amount due to the creditor.
30. Trade discount is a reduction in the selling price allowed by a manufacturer to a wholesaler, or by a wholesaler to a retailer to enable the buyer to sell the goods at the catalogue price (i.e., the price mentioned in the price list) and yet make some profit for himself. Trade discount is always deducted from the catalogue price, and only the net price is taken into account by both the seller and the buyer, while recording the transaction in their respective books. That means, trade discount should not be separately recorded at all either in the books of the seller or in the books of the buyer.
......To be Continued in new post from Sr. No.31
21. Whenever cash is paid for repairing a property, say, furniture, machinery, motor vehicle or building, the two accounts involved in the transaction are (1) repairs account (and not the concerned asset account) and (2) cash account. The concerned property account is not at all involved, as cash is paid towards the repair charges of the property, and not towards the cost of the property.
22. Whenever some investments or securities, say, shares or debentures, are purchased, the two accounts involved in the transaction are (a) investments account (and not purchase account) and (b) cash account.
Another point to be noted in the context of the purchase of investments is that, while recording the investments purchased, and not the face value of the investments purchased. For instance, if shares of the face value of Rs.1,000 are purchased at a cost of Rs.950, the amount to be taken into account for the recording of the investments purchased is the cost price of the investment viz., Rs.950 and not the face value of the investment, viz., Rs.1,000.
One more point to be borne in mind, in the context of the purchase of investments, is the treatment of brokerage, if any, paid on the purchase of investments. The brokerage paid on the purchase of the investment should be added to the purchase price of the investment, and the entry for the purchase of investments should be passed with the total cost of the investments, i.e., the purchase price of the investments plus the brokerage paid on the purchase of the investments.
23. Whenever some investments or securities, say, shares or debentures are sold, the two accounts involved are (1) cash account (2) investments account (and not the sales account).
Another point to be noted in the context of the sale of investments is that, while recording the investments sold, the amount to be taken into account is the net sale price of the investments, i.e., the sale price of the investments minus the brokerage, if any, paid for the sale of investments.
24. Whenever cash is paid to a person for an expense, say, salary, rent or wages, the two accounts involved in the transaction are (1) concerned expenses account (and not the party'saccount) and (2) cash account. The personal account of the party to whom the payment is made on account of the expense is not at all involved, because payment is made to him for the service already rendered by him to us, and he is not liable to pay us any amount at a later date.
25. Whenever the business pays carriage, freight or transport charges of the goods despatched to a buyer, the two accounts involved in the transaction are (1) concerned expense account, say, carriage account or freight account and (2) cash account.
On the other hand, if the business pays carriage, freight or some other transport charges on the goods despatched to a buyer on the buyer's account, the two accounts involved in the transaction are (1) buyer's personal account (but not carriage or freight or any other transport charges account) and (2) cash account.
26. Whenever cash is received from a party on account, it means that the party already owes us some amount and now he is paying us some money. So, the two accounts involved in the transaction are (1) cash account and (2) party's personal account (i.e. the personal account of the party from whom the money is received on account).
Similarly, whenever cash is paid to a party on account, it means that we already owe him some money, and now we are paying him some amount. So, the two accounts involved in the transaction are (1) party's personal account (i.e., the personal account of the party to whom the payment is made) and (2) cash account.
27. Whenever an expense is paid in cash, say, salary paid in cash or rent paid in cash, the two accounts involved in the transaction are (1) concerned expense account, say, salary account or rent account, and (2) cash account.
On the other hand, if an expense is incurred, but is not paid (i.e., due to a party), the two accounts involved in the transaction are (1) concerned expense account, say, salary account or rent account and (2) outstanding expenses account, say, outstanding salaries account or outstanding rent account (or the party's account, i.e., the account of the party to whom expense is due).
Similarly, whenever an income is received in cash, say, interest received in cash or commission received in cash, the two accounts involved in the transaction are (1) cash account and (2) concerned income account, say, interest account or commission account. On the other hand, if an income is earned, but is not received, then, the two accounts involved in the transaction are (1) outstanding income account, say, outstanding interest account or outstanding commission account or the party's account, (i.e., the account of the party from whom the income is due) and (2) concerned income account, say, interest account or commission account.
28. If cash is received from a party, say, from B, on account, we can name that party's account (i.e., B's personal account) as B's Account. But if cash is received from a party, say, from B, as loan, then, we have to name the party's personal account, i.e., B's personal account as B's Loan Account, and not as B's Account.
Similarly, if cash is given to a party, say, A, on account, we can name that party's account (i.e., A's personal account) as A's Account. But if cash is given to a party, say, A, as loan, then, we have to name the party's personal account (i.e., A's personal account) as A's Loan Account (and not as A's Account).
29. Cash discount is a discount allowed by the business to its debtor, at the time of receipt of money from the debtor, for his prompt payment, or the discount received by a business from its creditor at the time of payment of money to the creditor, for the prompt payment made to him. It has to be recorded in the books of the business.
Whenever cash discount is allowed by the business to a debtor, the two accounts involved in the transaction are (1) discount allowed account and (2) debtor's account (but not cash account). Cash Account is not at all involved, as the discount is not paid in cash, but is just reduced from the amount due from the debtor.
Whenever cash discount is received by the business from a creditor, the two accounts involved in the transaction are (1) creditor's account (but not cash account) and (2) discount received account. Cash Account is not involved, as the discount is not received in cash, but is reduced from the amount due to the creditor.
30. Trade discount is a reduction in the selling price allowed by a manufacturer to a wholesaler, or by a wholesaler to a retailer to enable the buyer to sell the goods at the catalogue price (i.e., the price mentioned in the price list) and yet make some profit for himself. Trade discount is always deducted from the catalogue price, and only the net price is taken into account by both the seller and the buyer, while recording the transaction in their respective books. That means, trade discount should not be separately recorded at all either in the books of the seller or in the books of the buyer.
......To be Continued in new post from Sr. No.31
No comments:
Post a Comment