Mr. Slipshod started business as a provision merchant on 1st January, 2013. He opened a Bank Account for the business with $ 25,000 and immediately spent $ 12,500 on Fixtures and Fittings. The only records kept were of cash sales which amounted in 2013 to $ 37,500 and in 2014 to $ 45,000. There were no credit sales. Following facts were ascertained : (a) All expenses of the business had been met by cheques, and an analysis of the Bank Book showed the following payments in the two years : Purchases (of which $ 37,000 related to 2013) $ 63,750 ; Rent and Rates $ 5,100 ; Salaries $ 11,000; Advertising $ 1,400 ; Other Expenses $ 2,880. (b) Value of the stock on 31st December, 2014 was $ 15,000. No stock was taken on 31st December, 2013, but uniform rate of gross profit was assumed. (c) Liabilities outstanding at 31st December, 2014 were: Purchases $ 7,500 ; Advertising $ 500 ; Other Expenses (Light, Heat, Telephone, etc.) $ 170. (d) Amounts paid in advance at 31st December, 2014 were : Rates $ 100; Other Expenses (insurance) $ 50. (e) All business expenses arose equally in two periods. (f) Goods were taken from stock for private consumption, the estimated cost being $ 500 in 2013 and $ 750 in 2014. (g) Private drawings amounting to $ 6,620 were met out of cash receipts and the balance was banked. (h) Private income of $ 2,250 had been paid into the Bank. The fixtures and fittings are to be written off over 10 years in equal installments. On the basis of foregoing information, you are required to prepare (1) Trading and Profit and Loss Account for each of the year 2013 and 2014.
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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