YEAR 12 ACCOUNTING
ACCRUAL ACCOUNTING (ES8)
Accountants and accounting practices comply with standards to ensure the credibility of the
profession and financial information produced. Two categories of concepts inherent in accounting
are:
•
•
accounting assumptions
qualitative characteristics.
All the major principles of accounting are based on these concepts and many of the criticisms
levelled at the usefulness of accounting reports result from a misinterpretation of these concepts.
ACCOUNTING ASSUMPTIONS
An assumption (or convention) is something that is generally accepted or taken for granted
without proof.
Assumptions are important underlying facets of any accounting report. An assumption is a
concept or theory that gives the general standard on which all other related ideas are based.
Assumptions are rules or regulations which the accountant follows and are viewed as good
practices. As assumptions are based on general agreement, they are not so fundamental that
they cannot be changed if the product of accounting, based on such assumptions, is no longer
useful.
ACCOUNTING ENTITY ASSUMPTION presumes that a business enterprise (entity) has an
existence separate from the private affairs of its owner/s. Accountants record transactions
from the viewpoint of the business. The owner’s private affairs do not appear in the accounting
records. Therefore the business is the accounting entity. The accounting entity may not always
be the same as the legal entity.
Example
William owns a private house valued at $400 000 and has invested $100 000 cash in
a new business. The $100 000 cash would form part of the accounting records for
the business but the $400 000 house would not.
MONETARY ASSUMPTION assumes all transactions are recorded in monetary terms, i.e.
dollars and cents, to enable many otherwise unlike terms to be added together. This assumption
allows unlike items to be quantified and recorded, enabling the calculation of profit (loss) figures,
preparation of the balance sheet, and analysis of these figures. This assumption does not allow
the recording of any data in accounting records and reports that cannot be quantified in money
terms.
Example
A business has two items to incorporate into its financial reports. The first is the
acquisition of a new plant site with $450 000. The second is the development of a
new improved employer/employee taskforce group which is viewed by management
as providing considerable current and future benefits to the firm. The new plant
would be recorded in the financial reports, the second, as it cannot be quantified,
could only be recorded as a note attached to the financial reports.
HISTORICAL COST (OBJECTIVITY) ASSUMPTION refers to the recording of items at their
original purchase price. This approach allows for an objective value, rather than a subjective
value, to be entered into the books of the enterprise. Therefore assets purchased years ago are
still recorded at their original cost even though their value is now higher. This assumes the value
of the dollar remains unchanged but this is not true, however historical cost provides objective,
verifiable evidence of a transaction rather than a subjective opinion liable to distortion.
1
Example
Land was purchased at a value of $240 000 two years ago. Its current value is
considered to be $300 000. For accounting purposes, the land would be recorded at
$240 000.
CONTINUITY (GOING CONCERN) ASSUMPTION assumes that the business is going to
continue its operations indefinitely and is not likely to be liquidated in the foreseeable
future. This allows for the calculation of profit (loss) figures and the valuation of assets at
historical cost as they will not be sold in the near future but will be utilised in the regular operations
of the business.
Example
A business has been operating for 20 years. It is anticipated that it will continue its
operations. The business’s assets should be valued at historical cost as these items
will be utilised in the regular operations of the business.
ACCOUNTING PERIOD ASSUMPTION assumes that the life of a business is divided into
arbitrary time periods, because it is assumed a business has a continuous life. However parties
with a financial interest in a business cannot wait until liquidation for profit to be determined.
Hence there is a need for a periodic calculation of profit applicable to a shorter period (generally
one year).
Example
Patricia commenced her business on 1 October 2011. The accounting period for her
business in the first year would be from 1 October 2011 to 30 June 2012. The
following year would be 1 July 2012 to 30 June 2013.
QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION
Qualitative characteristics are those attributes which financial information should possess if it is
to be included in financial reports.
These characteristics are:
RELEVANCE - Financial information must have value in terms of:
(a)
(b)
assisting users in making and evaluating decisions about the allocation of financial,
physical and human resources
reflecting accountability by preparers of financial information.
Example The local convenience store wishes to expand into take-away food as from next year.
The current number and type of items owned by this enterprise is relevant for users to
assess whether this expansion is possible and desirable.
RELIABILITY - Financial information must be free from bias (the information must be neutral) and
undue error and the information must be able to be depended on confidently. Independent audit is
important to ensure reliability.
Example
Kay Ltd had just won a contract with the potential to generate $2 million in income.
Kay Ltd would not record the potential income at this time but should give details of
the contract as a note in the financial reports. This approach guarantees compliance
with reliability.
MATERIALITY - refers to the importance of an item to a particular entity. Even though accounting
records must be kept in an accurate fashion, the published reports may delete immaterial
information. For example, in reports, cents are ignored or rounded to the nearest dollar.
Example
G & T Ltd wanted the accountant to report all financial information to the
shareholders on a developmental project worth $450 million. When the accountant
2
prepared the information, the figures were rounded to the nearest thousand. For the
size of the project, this approach would be a suitable application of materiality.
COMPARABILITY - It is desirable to compare aspects of an entity over a period of time or to
compare one entity with others and/or with industry averages at a point in time or over a period of
time. Consistent measurement and display is important if proper comparability is to be achieved.
Jo’s financial reports show comparative figures for the last two years. She has also
included notes when changes have been made to the basis of the valuation of the
figures. This approach allows for a valid comparison to be made.
Example
UNDERSTANDABILITY - Information should be presented in the most understandable manner
possible without sacrificing relevance or reliability. General purpose reports should be prepared
with the interests of users in mind and information should not be misstated by trying to oversimplify its presentation.
Example
Jim Carmen Ltd operates a small but profitable business. The accountant prepares
the normal financial reports. To assist with understanding, graphics are also
included.
Exercises:
Page 483, 12.28
1
List the accounting assumptions and explain each in your own words.
2
Explain objectivity versus subjectivity in relation to the historical cost assumption.
3
In each of the following independent situations, list the assumptions that apply:
(a) A computer network was sold with a guarantee covering parts and labour for the next
two years. An allowance was made to match the expected future cost relating to the
provision of this guarantee.
(b) Jane Farrow is a lawyer. Her practice has been very successful and consequently she
has been able to purchase an investment portfolio of shares and securities with some of
her earnings from the practice. The accounting records for Jane’s law practice do not
include this investment portfolio.
(c) Jack Kendall’s enterprise acquired a new computerised accounting system valued at
$500 000. This was recorded in the financial records of the enterprise.
(d) Sibyl felt that she should account for the impact of the economy in her accounting
reports. She has been advised by her accountant that this is not necessary and that all
items should be valued at their purchase price.
4
List the five qualitative characteristics and explain each of these.
5
State the assumptions and qualitative characteristics that apply to each of the situations
below. Each situation is to be treated independently.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
The financial data has been assessed as free from undue error.
All financial data in the reports has been rounded to the nearest thousand dollars.
There is concern over the changing value of money.
The private records of the owner are kept separate from the business’s records.
The users of the financial data were unable to decipher the information.
The information available to the users will take six months to absorb and analyse.
It was felt that the inclusion of some detailed information was not necessary.
All information collected is based on the price at which the goods were purchased.
Some information available did not assist with decision-making.
The company has decided to divide all financial data into quarters and has applied to the
Australian Taxation Office for authority for the annual figures to conclude on the 31
December of each year to comply with an overseas parent company’s request.
3
CASH AND ACCRUAL ACCOUNTING
Accrual accounting is a method of accounting which recognizes transactions and events
when they have an economic impact on the on the entity rather than when the associated
cash flow occurs.
The important point is when revenue is earned and expenses are incurred, not when they
are received or paid. The adoption of accrual accounting will result in balance day
adjustments being made to ensure that revenues and expenses are recognized in the
correct accounting period.
Accrual accounting is to be contrasted with cash accounting where the effects of
transactions are recognized when cash is received or paid out.
Exercises Page 451, 12.13, 12.14
BALANCE DAY ADJUSTMENTS
Because not all transactions fit exactly into an accounting period, certain adjustments have
to be made. All expenses must be matched against all revenue for the period so that the
profit is as accurate as possible. This is known as the ‘matching principle’. Balance day
adjustments are journal entries made at balance day in order to match the revenues and
expenses accurately so that profit can be determined.
TYPES OF BALANCE DAY ADJUSTMENTS
ACCRUED EXPENSES ____________________________________________________
________________________________________________________________________
The general journal entry for the adjustment of accrued expenses is:
Expense Account
Accrued Expenses
Dr
Cr
x
x
This entry has the effect of:
☺ Increasing the expense account to the amount it should have been
☺ Creating a liability account (Accrued Expenses) because at balance day this
amount is owed.
ACCRUED REVENUES ____________________________________________________
________________________________________________________________________
The general journal entry for the adjustment of accrued revenues is:
Accrued Revenues
Revenue Account
Dr
Cr
x
x
This entry has the effect of:
☺ Increasing the revenue account to the correct amount
☺ Creating an asset account (Accrued Revenues) to show the money owed to be
business on balance day.
4
PREPAID EXPENSES _____________________________________________________
________________________________________________________________________
The general journal entry for the adjustment of prepaid expenses is:
Prepaid Expenses
Expense Account
Dr
Cr
x
x
This entry has the effect of:
☺ Decreasing the expense account as the extra money paid does not belong to this
accounting period
☺ Creating an asset account (Prepaid Expenses) because the business has paid an
extra amount of money and is owed that money at balance day.
UNEARNED REVENUE ___________________________________________________
________________________________________________________________________
The general journal entry for the adjustment of revenue received in advance is:
Revenues Account
Unearned Revenue
Dr
Cr
x
x
This entry has the effect of:
☺ Decreasing the revenue account, as the extra money received does not belong in
this period
☺ Creating the liability account (Unearned Revenues) as, at balance date, this amount
is owed by the business.
INVENTORY ADJUSTMENT
It is usual to have a yearly stocktake so that inventory losses or shortages can be brought
in to the accounts. If the stocktake reveals fewer items in stock than are represented on
the stock ledger card, the card is adjusted and the following General Journal entry is
recorded:
Inventory Adjustment
Inventories Control
Dr
Cr
x
x
This has the effect of:
☺ Decreasing the gross profit figure, as the inventory shortage is an expense. This
account is closed off to Trading and appears with Cost of Goods Sold in the Income
Statement.
☺ Decreasing the Inventories Control account, as the inventories are no longer on
hand.
5
PROVISION FOR DOUBTFUL DEBTS
The Provision for Doubtful Debts shows the estimated amount of accounts receivable
which are unlikely to be received when due in the following period. Two balance day
adjustment entries are necessary:
1. The entry to transfer bad and doubtful debts to the Provision for Doubtful Debts
account set up to accommodate them. This is accomplished by the entry:
Provision for Doubtful Debts
Bad and Doubtful Debts
Dr
Cr
x
x
This entry has the effect of:
☺ Decreasing the Provision for Doubtful Debts account to make way for this
year’s estimate
☺ Decreasing the Bad and Doubtful Debts account to offset those bad debts
that occurred during the period against the provision that was originally set
up to provide for them.
2. Calculate the new Provision for Doubtful Debts balance and record the adjustment
to ensure this is the balance. This is accomplished by the entry:
Bad and Doubtful Debts
Provision for Doubtful Debts
Dr
Cr
x
x
This entry has the effect of:
☺ Increasing the expenses of the period (bad and doubtful debts).
☺ Increasing the Provision for Doubtful Debts account by the
amount that makes the closing balance equal to the estimated
doubtful debts on the present accounts receivable.
ACCUMULATED DEPRECIATION
The aim of providing for depreciation is to spread the cost of the asset over each of the
years it is used to earn revenue. Therefore the adjusting entry is:
Depreciation on …
Dr
Accumulated Depreciation on … Cr
x
x
This entry has the effect of:
☺ Creating an expense account (Depreciation) because part of the asset has been
used to earn revenue.
☺ Increasing the Accumulated Depreciation account to show the total Accumulated
Depreciation over the life of the asset.
6
GST CLEARING (PAYABLE) ADJUSTMENT
Although this is not a balance day adjustment because it does not affect
profit, it is necessary to clear the GST Collected and GST Credits Received
accounts to the GST Clearing account at the end of each month.
The General Journal entry to clear the GST Collected is:
GST Collected
GST Clearing
Dr
Cr
x
x
This entry has the effect of:
 Clearing the liability account (decreasing) GST Collected
 Increasing the liability account GST Clearing
The General Journal entry to clear the GST Credits Received is:
GST Clearing
GST Credits Received
Dr
Cr
x
x
This entry has the effect of:
 Clearing the asset account (decreasing) GST Credits Received
 Decreasing the liability account GST Clearing

Record General Journal entries for the following balance day adjustments.
1
2
3
4
5
6
7
8
9
Insurance is paid annually on 31 October for the following year. Premium is $6 000.
Two months Commission owing on 30 June. Annual commission is $900.
Rates are paid annually for the following year on 30 September, $1 200.
Wages are $3 000 per 10 day fortnight. Wages were paid on Monday, June 26.
Telephone expense owing $140.
Rent revenue earned but not yet received, $400.
Office wages paid in advance, $200.
Rates incurred but not yet paid, $700.
Calculate depreciation on Motor Vehicle. Motor Vehicle is valued at $50 000,
Accumulated Depreciation on Motor Vehicle $10 000, Diminishing Balance method
of 20% to be used.
Calculate depreciation on Furniture. Furniture is valued at $15 000, Accumulated
Depreciation on Furniture $1 000, Straight line method of 10% to be used.
Inventory recorded at $5 000 to be adjusted for a shortage of $450.
GST Collected $15 230, GST Credits Received $10 467.
Provision for Doubtful Debts to be 10% of Accounts Receivable balance of $6 700.
Bad Debts balance of $9 800, Provision for Doubtful Debts $1 230. New provision
to be $1 400.
Bad Debts balance of $1 800, Provision for Doubtful Debts $2 300. New provision
to be $1 200.
10
11
12
13
14
15
7
CLASSIFIED END OF YEAR ACCOUNTING REPORTS
INCOME STATEMENT is a report prepared outside the ledger for presentation to
interested parties, showing details of the profit (or loss) for the period.
Revenue: money earned through the operations of business from its day-to-day business
transactions.
Expenses: money paid out for business operations.
Cost of goods sold: all items incurred in getting goods ready for sale. Cost of goods
sold is calculated: opening inventories + purchases (net) + any expenses incurred in
getting goods into location and a useable condition – closing inventories.
Selling and distribution expenses:
activities of the business.
all expenses associated with the actual selling
General and administrative expenses: all expenses associated with running the office
and business generally.
Finance expenses: all expenses associated with obtaining or maintaining cash funds.
REVENUE
Sales
Sales Returns
Rent Revenue
Interest Revenue
Commission Revenue
Revenue from Legal Actions
EXPENSES
SELLING AND
DISTRIBUTION
GENERAL AND
ADMINISTRATIVE
FINANCIAL
Cartage Outwards
Advertising
Delivery Van Expenses
Petrol, oil
Salesperson’s Salary
Packaging Expenses
Wrapping Paper
Depreciation on Delivery Van
Electricity
Rates
Taxes
Telephone
Insurance
Commission Expense
Rent
Stationery
Depreciation on Furniture
Bad Debts
Interest Expense
Credit/Debit Card Fees
8
INCOME STATEMENT OF ____________________
For the Year Ended 30 June 2012
Sales
Less Sales Returns and Allowances
Less Cost of Goods Sold
Inventory Adjustment
GROSS PROFIT
x
x
x
x
ADD OTHER REVENUE
Commission Received
________________________
x
x
LESS OTHER EXPENSES
SELLING AND DISTRIBUTION EXPENSES
Advertising
Cartage Outwards
Depreciation on Delivery Vans
Salesmen’s Salaries
________________________
x
x
x
x
x
x
GENERAL AND ADMINISTRATIVE EXPENSES
Office Salaries
Insurance
Depreciation on Office Furniture
Printing and Stationery
________________________
x
x
x
x
x
x
FINANCE EXPENSES
Bad Debts
Interest Expenses
x
x
x
NET PROFIT
x
x
x
x
x
x
$ x
9
A BALANCE SHEET is a statement of assets, liabilities and owner’s equity balances at a
particular date in time.
Working capital is the net amount of liquid funds the firm will have available to meet its
commitments in the next accounting period, i.e. Current Assets – Current Liabilities. Most
businesses classify assets and liabilities so as to provide meaningful summaries of data.
The basis of classification is time. Classifications include –
Current assets are those which are in the form of cash or which will be normally be
converted to cash within one year after the firm’s balance sheet date.
Non-current assets are those assets, which will remain in the firm for a number of years
and will be used to help generate revenue. This category includes the following:
Property, plant and equipment consists of assets of a physical nature (tangible) that are
used in the normal operations of the firm to produce goods, sell goods or perform services
for customers. These assets are expected to be used by the business for a number of
years, and are not held for resale.
Investments are funds invested in other enterprises.
Intangible assets are those assets who existence or value or both is subject to some
doubt.
Current liabilities are short-term debts that will be repaid within the next accounting
period.
Non-current liabilities are obligations of a long-term nature which are not expected to be
repaid within the next accounting period.
ASSETS
CURRENT
cash at bank
cash in hand
petty cash
accounts receivable
inventories
accrued revenue
prepaid expenses
GST credits received
NON-CURRENT
PROPERTY, PLANT
AND EQUIPMENT
INVESTMENTS
INTANGIBLES
motor vehicle
furniture
land and buildings
machinery and equipment
computer equipment
delivery vans
bonds
shares in company
debentures
patents
goodwill
copyright
trademark
LIABILITIES
CURRENT
NON-CURRENT
bank overdraft
accounts payable
accrued expenses
unearned revenue
GST collected
GST clearing
mortgage
loans
10
BALANCE SHEET OF __________________________
As at 30 June 2012
ASSETS
CURRENT ASSETS
Cash in Hand
Petty Cash
Bank
Inventories
Accounts Receivable
Less Provision for Doubtful Debts
Prepaid Expenses
Accrued Revenue
_______________________
ADD NON-CURRENT ASSETS
PROPERTY, PLANT AND EQUIPMENT
Equipment
Less Accumulated Depreciation
Office Furniture
Less Accumulated Depreciation
Motor Vehicles
Less Accumulated Depreciation
Land and Buildings
________________________
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
INVESTMENTS
Shares in X Co.
________________________
x
x
x
INTANGIBLE ASSETS
Goodwill
Patents
Copyright
________________________
x
x
x
x
x
LESS LIABILITIES
CURRENT LIABILITIES
Accounts Payable
GST Clearing
Unearned Revenue
Accrued Expenses
________________________
x
x
x
x
x
x
NON-CURRENT LIABILITIES
Loan
Mortgage on Land
x
x
x
NET ASSETS
x
x
$x
OWNER’S EQUITY
Capital
Add Net Profit/Less Net Loss
Less Drawings
x
x
11
x
x
$x
EXERCISES: Pages 442 - 443, Ex 12.8 – 12.9, pages 449 – 450, Ex 12.11 – 12.12, pages 476 – 480, ex
12.20 – 12.25
Page 476, Exercise 12.20
J Nicholls’ trial balance at 30 June 2012 is set out below.
a) Show the general journal entries for each of the balance day adjustments and the GST Clearing
account.
b) Prepare a fully classified Income Statement and Balance Sheet.
TRIAL BALANCE OF J NICHOLLS
AS AT 30 JUNE 2012
Account
Building
Sales
Sales Returns
Drawings
Inventories
Cost of Goods Sold
Motor Vehicle
Accumulated Depreciation on Motor Vehicles
Land
Advertising
Interest Expense
Commission Revenue
Insurance
Rates
Telephone
Rent from Shops
Accounts Receivable Control
Accounts Payable Control
GST Collected
GST Credits Received
Cash at Bank
Government Bonds
Interest Received
Goodwill
Mortgage on Land and Buildings
Capital – J Nicholls
Salaries
Debit
55 000
Credit
40 000
1 746
3 000
17 000
14 486
10 000
2 000
15 000
3 000
2 000
1 560
1 600
400
235
4 600
8 000
6 600
400
150
5 650
7 850
200
12 000
55 000
54 757
8 000
$165 117
$165 117
Adjustments








Inventories by physical stocktake at 30 June 2012 are $16 800.
Rent received in advance is $100.
Accrued Insurance on motor vehicle is $200.
Salaries still owing are $640.
Telephone expense still owing is $40.
Prepaid Insurance on building is $300.
Provision for Doubtful Debts to be created at 2 per cent of Accounts Receivable.
Accrued Interest Received is $250.
12
Page 477, Exercise 12.21
The following trial balance has been extracted from the books of A Kent. On the basis of this,
prepare:
a) journal entries to record the adjustments
b) a fully classified Income Statement and Balance Sheet.
TRIAL BALANCE OF A KENT
AS AT 30 JUNE 2012
Account
Capital
Drawings
Cash at Bank
Cash in Hand
Accounts Receivable
Accounts Payable
GST Credits Received
GST Collected
Motor Vehicle
Accumulated Depreciation on Motor Vehicle
Premises
Land
Mortgage on Premises
Cost of Goods Sold
Salaries – Office
Salaries – Sales
Rates
Motor Vehicle Expenses
Advertising
Cartage on Sales
Provision for Doubtful Debts
Office Expenses
Bank Charges
Interest Revenue
Bad and Doubtful Debts
Rent Revenue
Sales
Inventories
Sales Returns
Debit
80
2 670
180
1 700
1 750
100
250
6 000
5 000
10 000
8 000
11 000
23 460
1 860
2 640
350
400
800
240
700
260
40
30
50
200
25 000
4 000
100
$62 930
Adjustments







Credit
19 000
Rent still owing to A Kent – only half of the rent has been received to date
Accrued Advertising is $200
Accrued Salaries – Office: $165
Accrued Salaries – Sales: $150
Rates still owing are $125
Depreciation on Premises is 12% straight line method
Provision for Doubtful Debts to increase to $800.
13
$62 930
Page 478, Exercise 12.22
On the basis of T Mellifont’s trial balance as at 31 December 2012, show the General Journal
entries for each of the balance day adjustments, classified Income Statement and Balance Sheet.
TRIAL BALANCE OF T MELLIFONT
AS AT 31 DECEMBER 2012
Account
Delivery Expenses
Accounts Receivable Control
Car Expenses – Sales
Sales
Telephone
Inventories
General Administrative Expenses
Commission – Sales
Cost of Goods Sold
Showroom Fittings
Sales Returns
Bad and Doubtful Debts
Electricity
Accounts Payable Control
GST Collected
GST Credits Received
Advertising
Manager’s Car
Interest Expense
Stationery
Accumulated Depreciation on Showroom Fittings
Petty Cash Advance
Insurance
Salaries – Sales
Provision for Doubtful Debts
Office Rent
Office Equipment
Cash at Bank
Capital – T Mellifont
Goodwill
Drawings
Commission Revenue
Gain on Sale of Non Current Assets
Debit
1 460
14 000
1 300
150 640
750
16 700
5 990
2 300
67 500
3 600
1 400
2 100
400
6 000
600
400
2 600
15 800
300
870
400
40
700
28 600
170
10 200
2 300
8 700
9 250
4 500
500
$184 310
Adjustments








Inventories as per physical stocktake at 31 December 2012 are $16 300.
Salaries outstanding are $50.
Accrued Electricity is $40.
Prepaid Insurance is $300.
Commission still to be received is $250.
Estimated Provision for Doubtful Debts is to be $200.
Depreciation to be written off: Showroom Fittings – 20% reducing balance
Manager’s Car – 25% straight line
Office Equipment – 10% straight line
Stock of Stationery at 31 December 2012 is $100.
14
Credit
8 300
250
$184 310
ADDITIONAL EXERCISES:
QUESTION 1
From the following information you are required to prepare:
(a)
General Journal entries for adjustments
(b)
Income Statement
(c)
Balance Sheet
TRIAL BALANCE OF R ROSE
AS AT 30 JUNE 2012
Capital.................................................................................
Drawings .............................................................................
Cash at Bank ......................................................................
Accounts Receivable Control ..............................................
Provision for Doubtful Debts ...............................................
GST Credits Received ........................................................
Land ....................................................................................
Motor Vehicle ......................................................................
Premises .............................................................................
Accumulated Depreciation on Premises .............................
Inventories .........................................................................
Shares ................................................................................
Accounts Payable Control...................................................
GST Collected ....................................................................
Mortgage on Premises ........................................................
Advertising ..........................................................................
Rates and Taxes .................................................................
Rent Expense .....................................................................
Bad and Doubtful Debts ......................................................
Stationery............................................................................
Credit Card Fees ................................................................
Insurance ............................................................................
Donations............................................................................
Cost of Goods Sold .............................................................
Office Salaries ....................................................................
Sales ...................................................................................
Sales Returns .....................................................................
Commission Revenue .........................................................
Interest Revenue ................................................................
Gain on Sale of Furniture ....................................................
14 386
50
2 500
128
10
60
5 200
2 500
10 500
1 500
560
2 500
145
80
5000
65
99
125
44
20
15
25
50
2 410
105
5 300
30
495
10
60
$
26 986
ADJUSTMENTS
(a)
Inventories on hand 30-6-12 $550
(b)
Rent owing $24
(c)
Office salaries in advance $55
(d)
Commission revenue in arrears - 5% of net sales (round to the nearest $)
(e)
6% pa interest on Mortgage on Premises. One month’s interest is owing.
(f)
Depreciation on Premises 5% pa diminishing balance
(g)
Provision for Doubtful Debts to be $15
(h)
Clear accounts to GST Clearing
15
$ 26 986
QUESTION 2
You are required to prepare General Journal entries to record the adjustments, a fully
classified Income Statement and Balance Sheet of B Burman.
THE TRIAL BALANCE OF B BURMAN
AS AT 30 JUNE 2012
Capital.................................................................................
Drawings .............................................................................
Cash at Bank ......................................................................
Land and Buildings .............................................................
Office Furniture ...................................................................
Plant and Equipment...........................................................
Inventories .........................................................................
Accounts Receivable ..........................................................
Provision for Doubtful Debts ...............................................
GST Credits Received ........................................................
Accounts Payable ...............................................................
GST Collected ....................................................................
Mortgage on Premises ........................................................
Advertising ..........................................................................
Bank Charges .....................................................................
Cartage Outward ................................................................
Cleaning..............................................................................
Bad and Doubtful Debts ......................................................
Credit Card Fees ................................................................
General Expenses ..............................................................
Insurance ............................................................................
Interest on Mortgage ...........................................................
Lighting ...............................................................................
Cost of Goods Sold .............................................................
Rates and Taxes .................................................................
Rent ....................................................................................
Repairs ...............................................................................
Salaries and Wages ............................................................
Sales Returns and Allowances ...........................................
Interest Received ................................................................
Sales ...................................................................................
106 536
1 840
18 800
81 840
12 480
29 920
59 440
51 820
300
500
65 600
1 000
40 000
11 760
200
4 096
1 176
500
2 220
5 720
1 080
2 040
1 000
100 796
720
7 000
3 008
28 440
900
1 960
211 900
$ 427 296
$ 427 296
The following adjustments are necessary:
(a)
Interest on Mortgage accrued for one month. Interest rate is 12% pa.
(b)
Insurance is paid twelve months in advance. This was paid on 1 September 2011.
(c)
Two months’ Rent owing. Rent is $650 per month.
(d)
Salaries and Wages owing $1 160
(e)
Commission of 2% of net sales pa is owed to the business.
(f)
Rates paid in advance $120
(g)
Inventories at 30 June 2012 are valued at $57 888
(h)
Provision for Doubtful Debts to be 1% of Accounts Receivable (rounded to nearest dollar)
(i)
10% straight line depreciation to be recorded for Office Furniture and Plant and Equipment
(j)
Clear accounts to GST Clearing
16
QUESTION 3
From the following information you are required to prepare General Journal entries to record the
adjustments, Income Statement and Balance Sheet.
TRIAL BALANCE OF EDWARD MOTORS
AS AT 30 JUNE 2012
Capital ........................................................................................
Drawings .....................................................................................
Cash at Bank .............................................................................
Inventories .................................................................................
Accounts Receivable ..................................................................
Provision for Doubtful Debts .......................................................
GST Credits Received ................................................................
GST Collected ............................................................................
Accounts Payable .......................................................................
Furniture .....................................................................................
Motor Vehicles ............................................................................
Accumulated Depreciation on Motor Vehicles .............................
Government Bonds .....................................................................
Cost of Goods Sold .....................................................................
Rates and taxes ..........................................................................
Insurance ....................................................................................
Salesman’s Salaries ...................................................................
Sales...........................................................................................
Sales Returns .............................................................................
Bad and Doubtful Debts ..............................................................
Bank Charges .............................................................................
Interest Revenue.........................................................................
Office Expenses ..........................................................................
Commission Revenue .................................................................
Donations Paid ...........................................................................
Gain on Sale of Furniture ............................................................
35 300
31
1 000
2 300
200
10
100
200
166
3 000
30 000
3 000
3 000
1 163
24
120
366
5 240
310
20
10
2
150
400
74
50
$ 44 868
ADJUSTMENTS
 Inventories (30-6-12) $2 190
 Rates and taxes owing $10
 Insurance is paid twelve months in advance. Insurance was paid on 31/8/11.
 Commission received in advance $50
 Interest on Government Bonds owing 7.5% pa.
 Provision for Doubtful Debts to be 6% of Accounts Receivable
 Depreciation of 10% reducing balance to be recorded for motor vehicles
 Depreciation of 10% straight line to be recorded for furniture
 Clear accounts to GST Clearing
17
$ 44 868