Tim's trial balance for the year to 30th June 2019 was as follows: Trial Balance Dr (£) Cr (£) Motor vehicles at cost 42,000 Motor vehicles (accumulated depreciation) as at 1st July 2018 41,000 Freehold premises 50,000 Inventory as at 1st July 2018 50,800 Debtors 32,000 Bank / cash 112,765 Creditors 17,500 Provision for doubtful debts as at 1st July 2018 1,920 Long term loan (at 10% per annum) 50,000 Owners capital 50,640 Retained profits as at 1st July 2018 62,901 Sales 378,800 Purchases 185,000 Motor expenses 28,820 Loan interest (all relating to long term loan) 2,500 Insurance 58,500 Heating and lighting 24,500 Office expenses 15,376 Bad debts written off 500 Totals 602,761 602,761 Additional information Inventory as at 30th June 2019 was valued at £45,200. A motor vehicle repair carried out in September 2018 costing £300 was still unpaid at the end of the year. Insurance prepaid as at 30th June 2019 was £2,000. Heating and lighting expenses owing as at 30th June 2019 were £1,050. Reduce the provision for doubtful debts to 4% of debtors. Depreciation is to be provided at the rate of 10% p.a. on cost for motor vehicles.” Required “Prepare Tim's income statement for the year ending 30th June 2019 and a statement of financial position as at 30th June 2019.”
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 balances were taken from Tim's books who is a sole trader and operates a catering business.
Tim's
|
Trial Balance |
Dr (£) |
Cr (£) |
||
|
Motor vehicles at cost |
42,000 |
|||
|
Motor vehicles ( |
41,000 |
|||
|
Freehold premises |
50,000 |
|||
|
Inventory as at 1st July 2018 |
50,800 |
|||
|
Debtors |
32,000 |
|||
|
Bank / cash |
112,765 |
|||
|
Creditors |
17,500 |
|||
|
Provision for doubtful debts as at 1st July 2018 |
1,920 |
|||
|
Long term loan (at 10% per annum) |
50,000 |
|||
|
Owners capital |
50,640 |
|||
|
Retained profits as at 1st July 2018 |
62,901 |
|||
|
Sales |
378,800 |
|||
|
Purchases |
185,000 |
|||
|
Motor expenses |
28,820 |
|||
|
Loan interest (all relating to long term loan) |
2,500 |
|||
|
Insurance |
58,500 |
|||
|
Heating and lighting |
24,500 |
|||
|
Office expenses |
15,376 |
|||
|
|
500 |
|||
|
Totals |
602,761 |
602,761 |
||
Additional information
- Inventory as at 30th June 2019 was valued at £45,200.
- A motor vehicle repair carried out in September 2018 costing £300 was still unpaid at the end of the year.
- Insurance prepaid as at 30th June 2019 was £2,000.
- Heating and lighting expenses owing as at 30th June 2019 were £1,050.
- Reduce the provision for doubtful debts to 4% of debtors.
- Depreciation is to be provided at the rate of 10% p.a. on cost for motor vehicles.”
Required
- “Prepare Tim's income statement for the year ending 30th June 2019 and a
statement of financial position as at 30th June 2019.”
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