chapter 12, principles of accounting, weygandt, kieso, kimmel
gnment of Final Accounts
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Final Accounts with adjustments - Principles Of Accounting
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Final Accounts with adjustments The Final Accounts of a sole trader ( With Adjustments)
The trading and profit & loss account and balance sheet prepared at the end of a year is known as Final accounts. While preparing the final accounts, there may be some items so far not adjusted. These items are to be adjusted in the final accounts for calculating the correct profit or loss of the business. The usual adjustments in the final accounts are:a. Expenses owing :- These are the expenses incurred during the year but not paid in cash. This amount will be paid in the near future (next year). The owing expense is to be added with the amount of same expense already paid given in the trial balance and it should be shown in the balance sheet
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The double entry for recording the expenses owing is Expenses account
Credit Expenses owing account This expense is also known a s outstanding expenses, expenses payable or expense payable. b. Prepaid expense. :- This is the expense paid during the year for the benefit of the next year. The portion of the expense which is prepaid is to be deducted from the total expenses already paid during the year (given in the trial balance) and shown as current asset in the balance sheet.
The double entry for recording the prepaid expense is Debit
Prepaid expense account and
Credit Expense account This expense is also known a s expense paid in advance or unexpired expense c. Accrued income:- The income earned during the year but not received in cash is known as accrued income. The amount of a ccrued income is to be considered as current year’s income and added
with the concerned income received during the year(given in the trial balance) and shown as a current asset in the balance sheet. The double entry for recording the accrued income is: Debit
Accrued income account and
Credit Income account The accrued income is also k nown as outstanding income.
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d. Income received in advance:- This is the income received during the year for the services to be rendered during the next year. Since this income is not related to the current year, it should be deducted from the concerned income (given in the trial balance) and shown as a current liability
in the balance sheet. The double entry for recording the income received in advance is: Debit
Income account and
Credit Income received in advance This is also known as unexpired income. e. Depreciatio Depreciation:n:- The part of the cost of a fixed asset that is consumed by a business during the period
of its use is known as depreciation. It is considered as an expense in the business therefore shown as an expense in the profit & loss account and deducted from the cost price of the concerned fixed asset in the balance sheet. The double entry for recording depreciation is: Debit
Profit & loss account and
Credit Depreciation account
Final Accounts with adjustments - Principles Of Accounting
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f. Bad debt:- The part of the amount of debtors which cannot be recovered is known as bad debt. It is an expense to be shown in the profit & loss account. If the bad debt appears in the trial balance, it is known as bad debt written off and shown in the profit & loss account only. If bad debt information appears among the adjustment points below the trial balance, then it should be shown as an expense in the profit & loss account and shown as a deduction from the debtors in the balance
sheet under the heading “current assets”. The double entry for recording the bad debt is: Debit
Bad debt account and
Credit Debtors account g. Goods drawings by the owner for his personal use:-
The amount of goods withdrawn by the owner for his personal use is to be considered as drawing. The double entry for recording the goods drawings is: Debit
Drawings account and
Credit Purchase account or sales account The amount of goods drawings should be deducted form purchases and capital in the balance sheet. MCQ
1. A company which can offer its shares for for subscription subscription to the public public is known as: A. Private company
B. Public limited company
C. Public corporation
D.Corporation
2. What is the authorized share capital of a limited company? A. The issued share capital
B. Issued share capital plus reserves
C. Issued share capital plus debentures D. The shares that a company is allowed to issue by law 3. The liability of share holders of a public limited company is limited to: A. paid up value of shares
B. nominal value of shares
C. extent of private assets
D. called up share capital
4. What is the other name of authorized capital? A. issued capital
B. Nominal capital
C. Uncalled capital
D. Calls in arrears
5. The debenture interest paid is recorded in which part of the final accounts of a limited company? A. Trading account
B. Profit and loss account
C. Profit and loss appropria appropriation tion account D. Balance sheet sheet 6. The dividend is calculated on which of the following values of shares? A. Authorized share capital C. Called up share capital
B. Issued share capital D. Paid up share capital
7. Which of the following is not included in the share holders’ funds? A. Debentures
B. General reserves
C. Ordinary share capital
D. Preference share capital
8. Retained profit of a limited company belongs to the: A. directors’
B. debenture holders’
C. shareholder shareholders s
D. company
9. Proposed dividends are; A. shown as a current liability on the balance sheet B. debited with other business expenses in the profit and loss account C. paid from capital reserves D. credited to the appropriation account 10. In the final accounts of a limited company, directors’ directors’ remuneration is: A. debited in the trading account
B. debited in the profit and loss account
C. debited in the appropriation appropriation account account
D. deducted deducted from share share capital in in the B.S
11. Under which heading is share premium account shown? A. Current assets
B. Current liabilities
C. Share capital
D. Reserves & Surplus
12. The interim dividend paid is shown in the: A. profit and loss account
B. profit and loss appropri appropriation ation account only
Final Accounts with adjustments - Principles Of Accounting
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C. profit and loss account and balance sheet D. profit and loss appropriation account and balance sheet Assignment Questions Q 1.
The following trial balance balance was taken from the books of a sole trader for the the year ended
31st Dec 2003:Debit $
Account balances Purchase & sales
Carriage inwards Drawings Rent, rates & insurance Postage Stationery Capital Machinery Buildings Furniture & Fittings Debtors & Creditors Commission received Opening stock Cash at bank Cash in hand Discounts Bad debt Salaries & Wages Advertising Carriage outwards Returns in & out Total
Consider the following points at 31 st December 2003:1. The closing stock was valued at $ 12 400 2. Rent, rates & insurance was owing by & 500. `
3. Commission received in advance is $ 1 000.
4. Salaries & wages owing $ 880. 5. Advertisement expense is prepaid by $ 350. 6. Carriage inwards payable $ 800. From the above information, you are required to prepare at 31 st December 2003:a. The Trading & Profit & loss account b. The Balance Sheet Q 2.
The following account balances were extracted from the books of a sole trader
for the year ended 31 st December 2003:Stock on 1st Jan 2003
12 300
Sales
Purchases
1 58 000
Rent paid
7 000
Motor Car
10 500
Discount received
Fixture & fittings
1 200
Heating & lighting
Wages to assistant
6 000
Accountant’s fee
700 2 700
Bank overdraft
3 840
Drawings Capital Carriage inwards
13 500 1 960
1 120
Creditors
2 400
Advertising
Motor van expenses
Insurance
1 25 000
9 000 27 210
Debtors
3 100
Cash in hand Bank charges Interest received License & taxes
1 000
The following points are to be considered at
1 200
250 270 1 400 500
Carriage outwards 31 st
950
Dec 2003:-
1) The closing stock was valued at $ 10 500
2) Rent prepaid was $ 1 000
3) Motor van expenses owing
4) Interest earned but not received $ 600
$ 200
5) Wages to assistant outstanding $ 1 200
6) License and taxes payable $ 300
From the above information, you are required to prepare:a. The trading & profit & loss account for the year ended 31 st Dec 2003-05-03
Final Accounts with adjustments - Principles Of Accounting
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b. The balance sheet at 31st Dec 2003.
Q 3.
The following trial balance was extracted from the books of a sole trader for the year ended
31st March 2003:Account balances Purchases & Sales
Debit
Returns Carriage inwards Carriage outwards Opening stock Salaries Commission Wages Debtors & Creditors Discounts Plant & Machinery Rates Furniture & Fittings Bank overdraft Office expenses General expenses Cash in hand Bank Loan Capital Total
Adjustments:1) The stock on 31-3-2003 was valued at $ 6 500 3) Rates prepaid $ 150
2) Carriage Carriage outwards was was owing by by $ 100
4) Rent for the year was earned but not received $ 700
5) General expenses owing $ 180
From the above information you are required to prepare at 31 st March 2003:a. The Trading and profit & loss a ccount b. The Balance sheet Q 4.
The following trial balance was extracted from the books of Martin klin for
the year ended 31st Dec 2003:Debit balances Purchases
Stock on 1-1-2003 Cash in hand Discount allowed Returns in Carriage outwards Rent & insurance Fixtures & Fittings Delivery van Debtors Drawings Wages & salaries General office expenses Total Adjustments:-
1. The closing stock was valued at $ 6 7 00 at 31st Dec 2003-05-03 2. Wages & salaries was owing by $ 1 100 3. General office expenses owing $ 150 4. Rent prepaid is 280 5. Commission receivable $ 140 From the a bove information, Prepare:-
Final Accounts with adjustments - Principles Of Accounting
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a. The trading and profit & loss a ccount for the year ended 31 st Dec 2003 b. The balance sheet at 31st Dec 2003
Q 5.
The following trial balance balance had been taken from the books of a sole trader trader for the year ended
31st Dec 2003:Account balances Purchases & sales
Returns in & out Carriage inwards Carriage outwards Discount received Telephone charges Rent paid Advertisement Debtors & Creditors Bank loan Cash in hand Power charges Salaries & wages Premises at cost Plant at cost Machinery at cost Motor car at cost Capital Drawings Stock on 1-1-2003 Total Additional information: information:--
Debit $
70 1 6 3
Credit $
000 500 000 000
1 46 000 1 60 0
6 100 2 000 700 1 100 7 700 3 1 12 40 35 15 38
2 00 0 10 000
750 000 000 000 000 000 000 75 800
1 250 3 500 2 41 500
2 41 500
1. The stock on 31 st Dec 2003 was valued at $ 4 750 2. Power charges unpaid at 31 st Dec 2003 was $ 2 000 3. Salary paid in advance at 31 st Dec 2003 was $ 3 000 4. depreciate all the fixed assets @ 10 % p.a. on cost 5 Provide the provision provision for bad debts at $ 500 From the above , you are required to prepare:The trading and profit & loss account for the year ended 31 st Dec 2003 and a balance sheet
Q 6.
The following trial balance was taken from the books of a sole trader for the
Year ended 31st March 2004:Account balances
Opening stock Purchases and Sales Carriage inwards Stationery Debtors & Creditors Plant & Machinery Buildings Furniture Repairs to building Carriage out Salaries & wages Office expenses General expenses Drawings & Capital Cash in hand Interest paid Discount allowed & received Commission paid Rent & rates Returns Bank Total Notes:-
1. The stock on 31-3-2004 was valued at $ 4 200 2. Salaries & wages owing for the year ended 31 st March 2004 was $ 1 200 3. 2.5% of the debtors should be written off as bad debt
Final Accounts with adjustments - Principles Of Accounting
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4. Provide provision for depreciation depreciation on all the fixed assets @ 10% p.a. 5. Rent & rates paid in advance $ 200 6 The owner had taken goods costing $ 600 for his own use not entered in the books of the business Required prepare :a. The trading and profit & loss account for the year ended 31 st March 2004. b. The balance sheet at 31st March 2004. Q7
Following is the trial balance extracted from the books of Mr. Young, a sole trader, for the
Year ended 31st Dec 2002:Account balances
Debit $
Capital on 1st Jan 2002 Debtors & Creditors Premises Loan ( payable after 5 years) Furniture & Equipment at cost Provision for depreciation on Furniture& equipment Cash in hand Maintenance cost of e quipment Stock on 1-1-2002 Drawings Rates Heating & lighting Postage &telegram Repairs to premises Purchases and sales Wages Total
Prepare Trading and profit & loss account for the year ended 31 st Dec 2002 and the balance as at that date aft er taking into account the following:following:1. The closing stock was valued at $ 2 700 2. Heating & lighting unpaid at 31-12-02 was $ 250 3. Depreciate furniture & equipment by 10% on cost. 4. Rates paid in advance at the year end was $ 100 5. Interest on loan for the whole year @ 10% p.a. is outstanding Q 8.
The following trial balance was taken from the books of a sole trader for the year ended
31st Dec 2002:Account balances
Purchase & sales Returns in & out Carriage General expenses Salaries & wages Commission Discount from creditors Discount to debtors Interest Rent Rates & taxes Advertisement Office expenses Bad debt Furniture Land & buildings Plant & Machinery Provision for depreciation on :Furniture Plant & machinery Land & building Debtors & creditors Drawings & capital Provision for bad debt Cash in hand Cash at bank Opening stock Total
Final Accounts with adjustments - Principles Of Accounting
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Adjustments:1. The stock at the end wa s valued at $ 6 250 2. Salaries and wages owing at the end of the year was $ 1 240 3. Commission accrued $ 200 4. Increase the provision for bad debts by $ 240 5. Provide the provision for depreciation on all the fixed assets @ 10% p.a. 6. $ 4 500 of the carriage represents carriage carriage on goods purchased 7. The owner had taken goods costing $ 900 for his own use, not recorded in the books Prepare the set of final accounts at 31 st Dec 2002 The trial balance shown below was extracted from the books of a sole trader for the year ended
Q 9.
31st
March 2003:-
Account balances Purchases & Sales
Debit $ Credit $ 60 00 0 1 26 000 1 500 1 600
Returns inwards and outwards Carriage inwards Carriage outwards Discount received Rent paid Communication expenses Advertisement Debtors and creditors Bank loan (long term) Cash in hand Power charges Salaries & wages Premises Plant Machinery Motor Car Capital Drawings Stock on 1-1-2003 Total Notes:-
2. Power charges unpaid at the end of the year was $ 2 000 3. Salaries paid in advance at the end of the year was $ 3 000 4. Depreciate all the fixed assets @ 10% p.a. 5. Interest on bank loan @ 7% p.a. is owing for the whole year 6. Create the provision for bad debt at 5% on debtors. Prepare the set of final accounts as at 31 st Dec 2003
Q 10.
The following trial balance was taken form the books of Alfred for the year ended 31-12-03
Debit balances Returns inwards
Drawings Land & building Plant & machinery Debtors Purchases Rent Postage & telegram Advertising Cash in hand Stock on 1-1-03 Wages Telephone charges Salaries Printing & Stationery Commission Travelling Carriage inwards Motor van Cash at bank Total
Final Accounts with adjustments - Principles Of Accounting
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Adjustments:1. The closing stock was valued at $ 15 000 2. Rent owed by $ 600 3. Salaries Payable at the end of the year was $ 250 4. Commission paid in advance was was $ 1 100 5. Provide for the provision for bad debt a t 5% on the year end debtors 6. Depreciate land and building @ 5% , Plant and Machinery and Motor Van @ 10% p.a. on cost Required to prepare at 31 st Dec 2003:a. The trading & profit & loss account Q 11.
b. The balance sheet
The following trial balance was related to a sole trader at 31 st Dec 2003
Account balances Purchases & Sales
Opening stock Carriage outwards Carriage inwards Returns Salaries & wages Motor expenses Rent Sundry expenses Motor vehicles Fixtures & fittings Debtors & Creditors Provision for bad debts Prov: for depreciation : Motor vehicle Fixtures & Fittings Cash at bank Cash in hand Drawings and capital Total Adjustments:-
1) The closing stock was valued at $ 4 998 2) Salaries and wages unpaid at the end of the year was $ 533 3) Depreciate motor vehicle @ 10% and Fixture & fittings @ 5% p.a. on cost 4) Rent paid in advance was $ 176
5) Carriage inwards owing was $ 66
6) Increase the provision for bad debts to $ 800 From the above information, you are required to prepare prepare the set of final accounts at 31st Dec 2003
Q 12.
From the following trial balance, prepare trading and profit & loss a ccount and balance sheet
at 31st Dec 2001:Account balances Capital
Plant & machinery Salaries Repairs Wages Cash in hand Land & buildings Purchases & Sales Bank overdraft Discount allowed Commission received Provision for bad debt Debtors & Creditors Discount received Prov. For depreciation depreciation : Plant & machinery Land & Buildings Bad debts Stock on 1st Jan 2001 Advertising Office expenses Fixtures & fittings Stationery Interest
Debit $
18 000 8 500 1 600 28 000 2 500 74 500 1 23 500
Credit $ 50 000
2 49 000 3 800
1 500
45 000
1 000 37 000 600 1 000 4 000 400 2 000
1 500 500 26 300 8 000 500 1 500
Final Accounts with adjustments - Principles Of Accounting
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1 500
Rent & rates Bank loan ( long term ) Total Adjustments:-
9 500 350600
350600
1. The closing stock was valued at $ 30 000 2. Salaries owing amounted to $ 1 500 and repairs outstanding $ 400 3. Commission received in advance $ 300 4. The provision for bad debts should be at 1% of the year end debtors 5. Depreciate all the fixed assets @ 10% p.a. on cost 6. Rent & rates was prepaid by $ 200 7. Goods taken by the owner for his personal use not recorded in the books $ 1 000
Q 13.
T. Burton is a retailer whose trial balance at 31 st Dec 1999 is given below:-
Account balances Purchases & Sales
Debit $
Returns Carriage inwards Wages and salaries General expense Cash at bank Petty cash Premises Fixtures & Fittings Stock on 1st Jan 1999 Trade Debtors & Creditors Motor Vehicles at cost Provision for depreciation on Motor Vehicles
Capital at 1stJan 1999 3 000 Drawings 210 13 130 Total The following additional information is also available:-
4 850 2 630 82 500 210 13 13 0
1. Stock at 31st Dec 1999 was valued at $ 5 200 2. General expenses of $ 400 have been paid for the y ear 2000 3. A debt of $ 200 is to be written off as bad debt 4. A provision is to be made for doubtful debts of 5% on Debtors at 31 st Dec 1999 5. Depreciation for 1999 is to be provided as follows:Fixtures & Fittings at 10% using the straight line method Motor Vehicles at 20% using the reducing balance method Required to prepare:a. The Trading and Profit & loss account for the year ended 31 st Dec 1999 b. The Balance sheet at 31st Dec 1999 Incoming search terms:
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