True or False Questions on Balance sheet

Suppose a furniture-making company, Wood Ltd. sells furniture worth 30,000 to QRT Ltd. on credit. Therefore, QRT Ltd. will become a debtor for Wood Ltd., whereas Wood Ltd. will become a creditor for QRT Ltd. As per the golden rules of accounting, Sundry Creditor A/c is a personal account. Similarly, debit a decrease in Creditors and credit a decrease in debtors. In the ledger there are many personal accounts, some of them may show debit balances, some others may show credit balances.

  1. Let’s say a company that pays salaries to its employees on the first day of the following month for the services received in the prior month.
  2. Typically, vendors provide terms of 15, 30, or 45 days for a customer to pay, meaning the buyer receives the supplies but can pay for them at a later date.
  3. In other words, liabilities which fall due after a comparatively long period is known as fixed or long-term or non-current liabilities.
  4. Accrued expenses are liabilities that build up over time and are due to be paid.

All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. These are in the nature of long-term loans (e.g., 5-10 years) or debentures that are payable on or after the lapse of the term consented to in the borrowing agreement/document. Fixed liabilities are due to the owners/partners/shareholders of an enterprise, and they are payable only on dissolution/liquidation of the enterprise. Due to the intangible nature of fictitious assets, they are sometimes also categorized as intangible assets. Wasting assets are assets that get exhausted or reduce in value when used.

It is necessary for the balance sheet to show the enterprise’s assets and liabilities based on their characteristic features. Balance sheets are financial statements that companies use to report their assets, liabilities, and shareholder equity. It provides management, analysts, and investors with a window into a company’s financial health and well-being.

Sundry Debtors in Trial Balance

By contrast, imagine a business gets a $500 invoice for office supplies. When the AP department receives the invoice, it records a $500 credit in the accounts payable field and a $500 debit to office supply expense. As a result, if anyone looks at the balance in the accounts payable category, they will see the total amount the business owes all of its vendors and short-term lenders.

Sundry creditors are often listed under the category of “current liabilities” on a company’s balance sheet. They represent the sums that a company owes its suppliers for goods or services that were acquired on credit. In other words, when a business purchases products or services from a supplier on credit, the supplier’s debt to the firm is converted into a miscellaneous creditor.

Following is the Receipts and Payments Account of Bharti Club …

The buyers tend to pay money to the seller later, and sundry creditors become the liability of the business. Thus, they are recorded under the ‘liabilities’ head of the balance sheet. Banks, for example, want to know before extending credit whether a company is collecting—or getting paid—for its accounts receivables in a timely manner. On the other hand, on-time payment of the company’s payables is important as well. Both the current and quick ratios help with the analysis of a company’s financial solvency and management of its current liabilities.

Sundry Debtors

Answer – True, a balance sheet is prepared once every financial year and it shows the balance of assets and liabilities of the company as on particular date. Therefore, some investments cannot be categorized either as current assets or fixed assets. Fictitious assets are assets that are either past accumulated losses or expenses, which are incurred once in the lifetime of a business and are capitalized for the time being. The term accrued means to increase or accumulate so when a company accrues expenses, this means that its unpaid bills are increasing.

Finance is provided by the owners through investments, Banks, other financial institutions, suppliers. They can be related to a particular area within a business such as sundry office expenses, sundry retail expenses, etc. Accounts that require greater transparency often become a single line item, and accounts that are not essential to a firm’s core operations may be grouped together as “other.”

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As a result, accrued expenses can sometimes be an estimated amount of what’s owed, which is adjusted later to the exact amount, once the invoice has been received. Also called accrued liabilities, these expenses are realized on a company’s balance sheet and are usually current liabilities. Accrued liabilities are adjusted and recognized on the balance sheet at the end of each accounting period. Any adjustments that are required are used to document goods and services that have been delivered but not yet billed. When a company determines that it received an economic benefit that must be paid within a year, it must immediately record a credit entry for a current liability. Depending on the nature of the received benefit, the company’s accountants classify it as either an asset or expense, which will receive the debit entry.

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Part 2: Your Current Nest Egg

So for example, if plant and machinery are worth $ and accumulated depreciation on it is $20000 than in the balance sheet the value of plant and machinery will be shown as $80000 and not $100000. ‘Debtors’ refer to people or businesses who owe you money for goods or services provided on credit. As a result, such transactions usually lead to the addition of a debtor & a creditor in the books of the seller and buyer, respectively. In the above case, Axis Housing is a debtor for Daniel Constructions and the same is recorded in the books of Daniel Constructions (seller) for 60,000 due to credit sales. Suppose “Daniel Constructions” sold building material worth 60,000 to “Axis Housing” on credit, and Axis Housing (buyer) agrees to pay the related invoices in the future accounting period.

In financial reporting, provisions are recorded as a current liability on the balance sheet and then matched to the appropriate expense account on the income statement. Cash, bank balance, and other forms of current assets are readily available for use; hence they are called current sundry creditors is current liabilities assets. Examples of current liabilities include accounts payable (sundry creditors and bills payable), short-term bank overdrafts, and short-term temporary loans. Since sundry creditors are a liability to a firm, they will be shown on the right side of the balance sheet.