Green water, a sole merchant, has prepared and handed the accountant the following Trial Balance for adjusting before preparing the Income Statement and Statement of Financial position for the year ended 31December 2021. Debit Credit K’000 K’000 Turnover 131,940 Purchases 33,000 Sales Returns 260 Purchase Returns 315 Opening Inventory 6,900 Trade Receivables 14,125 Trade Payables 16,070 Discounts Allowed 755 Discounts Received 599 Wages and Salaries 20,600 Water 1,000 General Expenses 2,340 Bank 13,710 Premises 70,000 Motor Vehicles 5,000 Equipment 3,500 Capital 25,000 Drawings 3,000 Suspense Account 306 TOTALS 174,190 174,190 Green water has given the accountant the following information: Discounts allowed of K55,000 were doubled but posted correctly to the ledger accounts. Purchases returns of K108,000 had been posted to the debit of sales returns. Green water’s bank informed him that a cheque for K400,000 from one of his customers was returned, marked: “insufficient funds”. The customer has, however, assured Green water that the debt will be settled. The bank balance includes a fixed deposit account of K8,000,000 on which interest of 6% has been credited by the bank. There is no record of this transaction in Greenwater’s books. A customer who is also a supplier has agreed to an account set-off of the amount owed of K630,000. Closing inventory was valued at K9,069,000. It had been discovered that an water bill of K90,000 that had been accrued on 31December 2020 was not brought down as an opening balance on the water account. Required: (a) Prepare the suspense account showing the correction of the errors above that would clear the suspense account. (b) Prepare Green water’s Income Statement for the year ended 31December 2021, after correcting all the errors and adjustments in 1 to 7 above. (c) Prepare Green water’s Statement of Financial Position as at 31December 2021.
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.
- Green water, a sole merchant, has prepared and handed the accountant the following
Trial Balance for adjusting before preparing the Income Statement andStatement of Financial position for the year ended 31December 2021.
Debit Credit
K’000 K’000
|
Turnover |
|
131,940 |
|
Purchases |
33,000 |
|
|
Sales Returns |
260 |
|
|
Purchase Returns |
|
315 |
|
Opening Inventory |
6,900 |
|
|
Trade Receivables |
14,125 |
|
|
Trade Payables |
|
16,070 |
|
Discounts Allowed |
755 |
|
|
Discounts Received |
|
599 |
|
Wages and Salaries |
20,600 |
|
|
Water |
1,000 |
|
|
General Expenses |
2,340 |
|
|
Bank |
13,710 |
|
|
Premises |
70,000 |
|
|
Motor Vehicles |
5,000 |
|
|
Equipment |
3,500 |
|
|
Capital |
|
25,000 |
|
Drawings |
3,000 |
|
|
Suspense Account |
|
306 |
|
TOTALS |
174,190 |
174,190 |
Green water has given the accountant the following information:
- Discounts allowed of K55,000 were doubled but posted correctly to the ledger accounts.
- Purchases returns of K108,000 had been posted to the debit of sales returns.
- Green water’s bank informed him that a cheque for K400,000 from one of his customers was returned, marked: “insufficient funds”. The customer has, however, assured Green water that the debt will be settled.
- The bank balance includes a fixed deposit account of K8,000,000 on which interest of 6% has been credited by the bank. There is no record of this transaction in Greenwater’s books.
- A customer who is also a supplier has agreed to an account set-off of the amount owed of K630,000.
- Closing inventory was valued at K9,069,000.
- It had been discovered that an water bill of K90,000 that had been accrued on 31December 2020 was not brought down as an opening balance on the water account.
Required:
(a) Prepare the suspense account showing the correction of the errors above that would clear the suspense account.
(b) Prepare Green water’s Income Statement for the year ended 31December 2021, after correcting all the errors and adjustments in 1 to 7 above.
(c) Prepare Green water’s Statement of Financial Position as at 31December 2021.
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