BALANCE DAY ADJUSTMENTS Write the correct term for each definition in the table below by selecting from the following list of terms: accrual accounting, accrued expense, accumulated depreciation, balance day adjustment, carrying value depreciation, prepaid expense. Term Definition The allocation of the cost of a non-current asset over its useful life. The total amount that a non-current asset has been depreciated over its life so far. An expense that has been paid but not yet incurred. Recognising revenues when they are earned and matching them against expenses when they are incurred to calculate profit. An expense that has been incurred but not yet paid. The value of a non-current asset that is yet to be depreciated. Completed at the end of a reporting period to ensure that revenue accounts reflect revenue earned in a period and expense accounts reflect expenses that have actually been incurred. Classify the following items. Item Classification Prepaid rent Rent Depreciation of vehicle Accumulated depreciation of vehicle Vehicle Accrued wages Wages With reference to an accounting principle, explain why balance day adjustments are necessary. Accounting principle Explanation Explain the effect on the Balance Sheet of Kev’s Killer Koffee Supplies as at 31 October 2014 if the balance day adjustment for depreciation had not been made. Kevin Kingsley is the owner of Kev’s Killer Koffee Supplies, a supplier of specialty coffee to cafes and restaurants. He has presented you with the following information. KEV’S KILLER KOFFEE SUPPLIES: BALANCE SHEET as at 30 September 2014 $ $ Current Assets GST Receivable $ Current Liabilities 150 Bank Debtors 1 200 Creditors Prepaid Rent 4 900 Loan—ES&A Stock 12 500 Less Acc. Depreciation Vehicle Less Acc. Depreciation TOTAL ASSETS 1 200 450 1 800 3 450 18 750 Non-current Assets Roasting Equipment $ Non-current Liabilities 24 000 3 000 Loan—ES&A 21 000 Owner’s Equity 32 000 9 600 32 000 22 400 Capital 26 700 62 150 TOTAL EQUITIES 62 150 KEV’S KILLER KOFFEE SUPPLIES - STATEMENT OF RECEIPTS AND PAYMENTS for the month ended 31 October 2014 $ $ Cash Inflows Cash Sales 22 500 GST Received 2 250 Receipts from Debtors 2 700 27 450 Less Cash Outflows Prepaid Insurance 6 000 Cartage Outwards 800 Wages 5 700 Phone and Internet 550 Interest 217 Loan Principal 150 Drawings Cartage Inwards Payments to Creditors GST Paid Net Increase/Decrease in Cash Position 4 000 800 3 000 815 22 032 5 418 Bank Balance at start (1 October 2014) (1 200) Bank Balance at end (31 October 2014) 4 218 Additional information Business records indicate the following: Credit sales $21 945 including GST Credit purchases $14 550 plus GST Cost of sales $21 225 Stock as per Stock Cards $5 825 A physical stocktake revealed stock on hand of $5900. The roasting equipment is to be depreciated using the straight-line method. It has an expected life of 6 years and is expected to be sold for $6000 at the end of its useful life. The vehicle is to be depreciated at 15% p.a. on cost. Yearly rent was paid on 1 May. Wages owing at 31 October are $870. Insurance was paid on 1 October for a 12-month policy. Question 1 Complete the following calculations. a. Depreciation of roasting equipment for October 2014 Calculation $ b. Depreciation of vehicle for October 2014 Calculation $ c. Rent expense for October 2014 Calculation $ d. Wages expense for October 2014 Calculation $ e. Stock loss or gain for October 2014 Calculation Stock loss/gain $ Question 2 Prepare an Income Statement for the month ended 31 October 2014. KEV’S KILLER KOFFEE SUPPLIES INCOME STATEMENT for the month ended 31 October 2014 $ Revenue $ Question 3 Prepare a Balance Sheet as at 31 October 2014. KEV’S KILLER KOFFEE SUPPLIES BALANCE SHEET as at 31 October 2014 $ $ $ Current Assets Current Liabilities Non-current Assets Non-current Liabilities Owner’s Equity TOTAL ASSETS Question 4 Define the term ‘accrual accounting’. TOTAL EQUITIES $