Prepare the journal entries for the transactions that were not previously recorded, prepare and update the T-accounts and determine the ending balance on all accounts used by the company. Prepare the adjusted trial balance for the company. Prepare the 2019 company’s financial statements for presentation to the bank and to help address the first issue concerning Allan.
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.
One year ago, Allan Thorpe founded Alcazar Sales Company, and the business has prospered. Allan comes to you for advice. He wishes to know how much net income the business earned during the past year. The accounting records consist of the T-accounts in the ledger, which were prepared by an accountant who has resigned from the company. The accounts at December 31, are as follows:
|
Cash |
|
|||||||
|
Dec 31 Bal |
5,800 |
|
Dec 31 Bal |
12,300 |
|
|||
|
|
|
|||||||
|
|
|
|||||||
|
Prepaid rent |
Supplies |
|||||||
|
2-Jan |
2,800 |
|
2-Jan |
2,600 |
|
|||
|
|
|
|||||||
|
|
|
|||||||
|
Equipment |
|
|
||||||
|
2-Jan |
52,000 |
|
|
|||||
|
|
|
|||||||
|
|
|
|||||||
|
Accounts payable |
Salary payable |
|||||||
|
|
Dec 31 Bal |
18,500 |
|
|||||
|
|
|
|||||||
|
|
|
|||||||
|
Unearned service revenue |
Allan Thorpe, capital |
|||||||
|
|
Dec 31 Bal |
4,100 |
2-Jan |
40,000 |
||||
|
|
|
|
||||||
|
|
|
|||||||
|
Allan Thorpe, drawing |
Service revenue |
|||||||
|
Dec 31 Bal |
50,000 |
|
|
Dec 31 Bal |
80,700 |
|||
|
|
|
|||||||
|
|
|
|||||||
|
Salary expense |
Depreciation expense |
|||||||
|
Dec 31 Bal |
17,000 |
|
|
|||||
|
|
|
|||||||
|
|
|
|||||||
|
Advertising expense |
Utilities expense |
|||||||
|
|
Dec 31 Bal |
800 |
|
|||||
|
|
|
|||||||
|
|
|
|||||||
|
Supplies expense |
Rent expense |
|||||||
|
|
|
|||||||
|
|
|
|||||||
|
|
|
Apply Your Knowledge
Allan indicates that, at year-end, customers owe him $1,000 accrued service revenue, which he expects to collect early 0next year. These revenues have not been recorded. During the year, he collected $4,100 service revenue in advance from customers, but the business has earned only $800 of that amount. During the year he has incurred $2,400 of advertising expense, but he has not yet paid for it. In addition, he has used up $2,100 of the supplies. Allan determines that depreciation on equipment was $7,000 for the year. At December 31, he owes his employee $1,200 accrued salary. The rent paid in advance on Jan 2 for $2,800 relates to the period January 2019 through to February 2020. The owner made no capital investments during the year.
Allan expresses concern that drawing during the year might have exceeded the business’s net income. To get a loan to expand the business, Allan must show the bank that the business’s owner’s equity has grown from its original $40,000 balance. You and Allan agree that you will meet again in one week.
Requirement:
- Prepare the
journal entries for the transactions that were not previously recorded, prepare and update the T-accounts and determine the ending balance on all accounts used by the company.
- Prepare the adjusted
trial balance for the company.
- Prepare the 2019 company’s financial statements for presentation to the bank and to help address the first issue concerning Allan.
- Has the owner’s equity grown from its original $40,000 balance.? Can Mr. Thorpe expect to get the loan? Give your reason(s).
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
