A customer has purchased $5,000 vouchers for the cleaning service to be used in next few months. The total amount received was recorded as revenue by the company. (2) On 1 December 2021, the Company has purchased 3-month medical insurance policy for its staff
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
The following events occurred in Fresh Cleaning Company in December 2021:
(1) A customer has purchased $5,000 vouchers for the cleaning service to be used in next few months.
The total amount received was recorded as revenue by the company.
(2) On 1 December 2021, the Company has purchased 3-month medical insurance policy for its staff
amounting to $30,000. The total amount paid was recorded as insurance expense.
(3) On 1 December 2021, the owner of the Company has purchased a washing machine of $54,000
for his personal use but reported it as the Company’s transaction. The Company also recorded
the monthly
on 31 December 2021.
(4) A worker was injured when doing the cleaning work. The worker filed the lawsuit against the
Company for the compensation with significant amount. The Court hearing date is scheduled
on 31 March 2022. The management thought that the worker will be unlikely to win the case and
the amount cannot be estimated. The litigation has been disclosed as notes of the financial
statement.
(5) The Company bought the property for $2 million in year 2015 but now the value of the property
has been increased to $3 million. The Company recorded the property at $2 million at 31
December 2021 and did not make any
(iii) indicate the effect (with dollar amount) of the above accounting treatment on profit
for the month ended 31 December 2021. Use the following symbols: O = overstated,
U = understated and NE = no effect.
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