The following trial balance was drawn up from the books of A Merchant at 31 December 20Х0 £ £ Capital account: A Merchant Capital account at 1 January 20X0: 90000 Introduced by A Merchant during the year 1,500 Drawings during the year 8,000 Gross profit for the year 27,0001 Stock, 31 December 20X0 23,600 Selling and distribution expenses 4,500 Motor vehicles at cost 20,000 Freehold premises at cost 30,000 Provision for depreciation of motor vehicles at 1 January 20X0 4,000 Debtors and creditors 52,000 31,100 Bank balance 8,750 Rates and insurances 6,000 Office salaries 3,000 Office expenses 1,250 Doubtful debts provision 2,500 Bad debts written off 500 Discounts 1,500 3,900 159,100 159,110 Required: Prepare a profit or loss statement and statement of financial position for the year ending 31 December 20X0, taking into account the following: Provision is to be made for depreciation of motor vehicles for the year at the rate of 20 per cent per annum on the cost of the vehicles. The doubtful debts provision is to be adjusted to an amount equal to 5 per cent of the outstanding debtors. The rates are £4,000 per annum and have been paid to 31 March 20X1.
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.
The following
|
|
£ |
£ |
|
Capital account: A Merchant |
|
|
|
Capital account at 1 January 20X0: |
|
90000 |
|
Introduced by A Merchant during the year |
|
1,500 |
|
Drawings during the year |
8,000 |
|
|
Gross profit for the year |
|
27,0001 |
|
Stock, 31 December 20X0 |
23,600 |
|
|
Selling and distribution expenses |
4,500 |
|
|
Motor vehicles at cost |
20,000 |
|
|
Freehold premises at cost |
30,000 |
|
|
Provision for |
|
|
|
vehicles at 1 January 20X0 |
|
4,000 |
|
Debtors and creditors |
52,000 |
31,100 |
|
Bank balance |
8,750 |
|
|
Rates and insurances |
6,000 |
|
|
Office salaries |
3,000 |
|
|
Office expenses |
1,250 |
|
|
Doubtful debts provision |
|
2,500 |
|
|
500 |
|
|
Discounts |
1,500 |
3,900 |
|
|
159,100 |
159,110 |
Required:
Prepare a profit or loss statement and
- Provision is to be made for depreciation of motor vehicles for the year at the rate of 20 per cent per annum on the cost of the vehicles.
- The doubtful debts provision is to be adjusted to an amount equal to 5 per cent of the outstanding debtors.
- The rates are £4,000 per annum and have been paid to 31 March 20X1.
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