During the course of your examination of the financial statements of a company for the year ended December 31, Year 1, you discover net income in Year 1 is $42,000 but no adjusting entries have been prepared. To prepare adjusting entries, you discover the following items: a. An insurance policy covering three years was purchased on January 1, Year 1, for $7,200. The entire amount was debited to insurance expense. b. During Year 1, the company received a $900 cash advance from a customer for services to be provided in Year 2. The $900 was credited to sales revenue. c. All purchases of supplies were debited immediately to supplies expense. However, you discover that supplies costing $970 were on hand on December 31. d. The company borrowed $27,000 from a local bank on October 1, Year 1. Principal and interest at 12% will be paid on September 30, Year 2. No accrual was recorded for interest. Required: Determine the proper amount of net income for Year 1. Note: Amounts to be deducted should be indicated by a minus sign. Unadjusted net income Adjustments: a. Insurance expense overstated b. Sales revenue overstated c. Supplies expense overstated d. Interest expense understated Adjusted net income $ $ 42,000 42,000
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.
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