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When full amount is due on any call but it is not received, then the shortfall is debited to-
- a)Calls in advance
- b)Calls in arrear
- c)Share capital
- d)Suspense account
Correct answer is option 'B'. Can you explain this answer?
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When full amount is due on any call but it is not received, then the s...
Yes it is known as call in arrear means the amount is still due
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When full amount is due on any call but it is not received, then the s...
Understanding Calls in Arrears
When a company issues shares, it often calls for payment from shareholders in installments. If the full amount due for any call is not received, the shortfall is recorded under "Calls in Arrears."
What are Calls in Arrears?
- Calls in Arrears represent the amount that shareholders owe but have not yet paid for their shares.
- When a company makes a call for the due amount on shares and a shareholder fails to pay, that unpaid amount is classified as Calls in Arrears.
Why Option B is Correct?
- Debiting to Calls in Arrears: When a call is made and the payment is not received, the company recognizes this shortfall as a liability. It indicates that the company expects to receive this amount in the future.
- Financial Reporting: On the balance sheet, Calls in Arrears will appear as a deduction from the total share capital, reflecting the amount that is still owed to the company.
Contrasting Other Options
- Calls in Advance: This refers to payments received before the due date of a call, which is the opposite of Calls in Arrears.
- Share Capital: This represents the total amount contributed by shareholders, which does not account for unpaid dues.
- Suspense Account: This is used for transactions whose nature is uncertain, which is not applicable in the case of unpaid calls.
Conclusion
In summary, when full payment on a call is not received, the shortfall is debited to Calls in Arrears. This accurately reflects the amount owed by shareholders and maintains the integrity of the financial statements.
When a company issues shares, it often calls for payment from shareholders in installments. If the full amount due for any call is not received, the shortfall is recorded under "Calls in Arrears."
What are Calls in Arrears?
- Calls in Arrears represent the amount that shareholders owe but have not yet paid for their shares.
- When a company makes a call for the due amount on shares and a shareholder fails to pay, that unpaid amount is classified as Calls in Arrears.
Why Option B is Correct?
- Debiting to Calls in Arrears: When a call is made and the payment is not received, the company recognizes this shortfall as a liability. It indicates that the company expects to receive this amount in the future.
- Financial Reporting: On the balance sheet, Calls in Arrears will appear as a deduction from the total share capital, reflecting the amount that is still owed to the company.
Contrasting Other Options
- Calls in Advance: This refers to payments received before the due date of a call, which is the opposite of Calls in Arrears.
- Share Capital: This represents the total amount contributed by shareholders, which does not account for unpaid dues.
- Suspense Account: This is used for transactions whose nature is uncertain, which is not applicable in the case of unpaid calls.
Conclusion
In summary, when full payment on a call is not received, the shortfall is debited to Calls in Arrears. This accurately reflects the amount owed by shareholders and maintains the integrity of the financial statements.
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