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
$