Assume it is now December 31, 2018, and Nicole has just completed her first year of operations at Nicole’s Getaway Spa. After looking through her trial balance, she noticed that there are some items that have either not been recorded or are no longer up-to-date. Nicole’s Getaway Spa is renting its space at a cost of $680 per month. On September 1, 2018, Nicole paid eight months’ rent in advance using cash. This prepayment was recorded in the account Prepaid Rent back in September. The building, purchased at the beginning of the year for $55,000 cash, has estimated depreciation of $2,800 for 2018, but none has been recorded yet. Salaries and wages to the support staff at Nicole’s Getaway Spa have been paid up to December 26, 2018. The support staff worked both December 27 and 28 and will be paid on January 5, 2019. Salaries and wages Payable amount to $1,200 per day. The spa was closed December 29–31. The insurance policy, purchased on June 1 for $3,480 cash, provides coverage for 12 months. The part of the insurance coverage for June-December has now been used up. The unadjusted amount in the Spa Supplies account was $2,800 at December 31, 2018, for supplies purchased on account. A year-end count showed $780 of supplies remain on hand. On the last day of December, a customer obtained spa services by using a $70 gift certificate that was purchased earlier in the month. Use of the gift certificate to pay for these services had not yet been recorded. Required: For each of the items listed above, identify whether an accrual adjustment, a deferral adjustment, or no adjustment is required. For each of the deferral adjustments, prepare the initial journal entry that would have been recorded. Prepare the adjusting journal entries that should be recorded for Nicole’s Getaway Spa at December 31, 2018, assuming that the items have not been adjusted prior to December 31, 2018.
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.
Assume it is now December 31, 2018, and Nicole has just completed her first year of operations at Nicole’s Getaway Spa. After looking through her
- Nicole’s Getaway Spa is renting its space at a cost of $680 per month. On September 1, 2018, Nicole paid eight months’ rent in advance using cash. This prepayment was recorded in the account Prepaid Rent back in September.
- The building, purchased at the beginning of the year for $55,000 cash, has estimated
depreciation of $2,800 for 2018, but none has been recorded yet. - Salaries and wages to the support staff at Nicole’s Getaway Spa have been paid up to December 26, 2018. The support staff worked both December 27 and 28 and will be paid on January 5, 2019. Salaries and wages Payable amount to $1,200 per day. The spa was closed December 29–31.
- The insurance policy, purchased on June 1 for $3,480 cash, provides coverage for 12 months. The part of the insurance coverage for June-December has now been used up.
- The unadjusted amount in the Spa Supplies account was $2,800 at December 31, 2018, for supplies purchased on account. A year-end count showed $780 of supplies remain on hand.
- On the last day of December, a customer obtained spa services by using a $70 gift certificate that was purchased earlier in the month. Use of the gift certificate to pay for these services had not yet been recorded.
Required:
- For each of the items listed above, identify whether an accrual adjustment, a deferral adjustment, or no adjustment is required.
- For each of the deferral adjustments, prepare the initial journal entry that would have been recorded.
- Prepare the
adjusting journal entries that should be recorded for Nicole’s Getaway Spa at December 31, 2018, assuming that the items have not been adjusted prior to December 31, 2018.
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