Acconting adjustments

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  • Created on: 12-03-15 20:24
For a prepayment and accrual of expense how do you work out the figure that goes on the income statement?
Minus prepayments and add accruals to the trial balance figure, then use the new figure.
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For a prepayment and accrual of income how do you work out the figure that goes on the income statement?
Add accruals and minus prepayments to the trial balance, then figure use the adjusted figure
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For prepayment and accruals of expense which figure is used on the balance sheet and where does it go?
Put the prepayment in the current assets and the accrual in current liabilities.
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For prepayment and accruals of income which figure is used on the balance sheet and where does it go?
Put the prepayment in current liabilities and the accrual in current assets.
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What is a prepayment of income?
When payment is received in advance of the accounting period to which it relates
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What is an accrual of income?
An amount due in an accounting period that has not been received by the end of that period.
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What is a accrual of expense?
An amount due in an accounting period whcih is still unpaid by the end of the accounting period.
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What is an prepayment of expense?
A payment made in advance of an accounting period to which it relates.
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What is depreciation?
A measure of the amount of fall in value of a non-current asset over time.
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Give four reasons for depreciation?
Wear and tear, passage of time(lease), resource used up(mining industry), obsolescence.
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When depreciating which figure goes on the income statment?
The depreciation for the year.
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When depreciating which figure goes on the balance sheet?
The cumulative depreciation
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What is the formula for calculating straight line depreciation?
(Cost-estimated residual value)/No.of years useful life
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What is provision for depreciation?
The accumulated depreciation of an asset.
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What is put on the credit side of the provision for depreciation account?
Depreciation for the year
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What is put on the debit side of the provision for depreciation account?
Income statment figure
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What is the reducing balance method of depreciation?
When the annual depreciation is calculated on the net book value rather than the original cost.
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How do you calculate depreciation using the reducing balance method?
Subtract the provision for depreciation from the cost price them multiply the new figure by the depreciation rate.
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What is a bad debt?
A debt owed to a buisness that is considers will never be paid.
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For bad debts which figure goes on the income statement?
Total of Bad Debt account is show as an expense.
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For bad debts which figure goes on the balance sheets?
Total of bad debt account is taken away from the trade receivables
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How would failing to write off debts effect the income statement and balance sheet?
Profit will be overstated, reveivables will be overstaded reuslting in an inaccurate reflection of the business.
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How do you record bad debts recovered in the ledger?
Reinstate the receivables account by, debiting the receivable account, then credit bad debts recovered. NExt record the amount received by debiting the bank account, then credting the receivable account.
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Where are bad debts recovered recorded in the financial statements?
As additional income in the income statement.
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What can be entered as additional income of the income statement?
Bad debts recovered, rent received, discount received, commission received.
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Why might a debt go bad?
Customer may go bankrupt or disagree with the price.
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How do you record a bad debt in the ledgers?
Debit bad debts written off, Credit customers account.
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What do businesses have a provision for doubtful debts?
They have a duty to present a true and fair veiw of their accounts, businesses need to follow the prudence concept.
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What is a provision for doubtful debts?
An amount set aside from profit to take into account the likelyhood that some debtors may not pay.
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What is the provison for doubtful debts oftne based on?
Recent experience of the amount of bad debts in relation to toal credit sales.
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What are the enteries required to create a provision for doubtful debts?
Debit income statement, Credit provision for doubtful debts.
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Where does the provison for doubtful debts go in the income statement an balance sheet?
Expense on income statement, Current asset as less provsion for doubtful debts
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How can a business minimise the risk of bad debts occuring?
Get references before selling, set a credit limit-start low until trust is built up, moniter credit accounts, Sent invoices and statements prompltly, stick with time farmes to pay then follow up any breaches, chase debts- letters, phone calls, court.
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Hich enteries need to be made to increase the provision for doubtful debts?
Debit income statement with the increase, Credit provision for doubtful debts with the amount of increase.
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How do you calculate and enter an increase of doubtful debts in to the accounts?
Calculate the revised figure, calculate how much needs to be added onto the existing figure, make an entry in the doubtfuldebts account, balance the doubtful debts account, put a matching entry into the income statement,updated doubtful debts on B/S.
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Why would a business increase provision for doubtful debts?
Provision should be reviewed annually, if there is an increase in trade receivables then provision for doubtful debts should be increased to keep in step.
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Why would a buisness decreas it's provision for doubtful debts?
The toal of trade receivables could decrease during the year so the provision for doubtful debts should be kept in step with the decrease.
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Which accounts should be debited and creditied?
Debit provision for doubtful debts with the amount of decrease, Credit the income statment with the amount of decrease.
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How do you calculate and enter a decrease in provision for doubtful debts?
Calculate the new amount, calculate how much the provision has changed by, make a entry to alter the existing provision figure in the account, balance the provision account to show a revised figure, make a matching entry in the I/S, update B/S figure
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How do you record the sale of a non-current asset in the accounts?
Open a disposal account, transfer cost of asset into disposal account, transfer the accumulated depreciation to the disposal account, record cheque in disposal account, balance disposal account shows if there is a profit or a loss.
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If a loss is made when selling an asset were does the figure go on the income statement?
Recorded as an extra expense.
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Other cards in this set

Card 2

Front

For a prepayment and accrual of income how do you work out the figure that goes on the income statement?

Back

Add accruals and minus prepayments to the trial balance, then figure use the adjusted figure

Card 3

Front

For prepayment and accruals of expense which figure is used on the balance sheet and where does it go?

Back

Preview of the front of card 3

Card 4

Front

For prepayment and accruals of income which figure is used on the balance sheet and where does it go?

Back

Preview of the front of card 4

Card 5

Front

What is a prepayment of income?

Back

Preview of the front of card 5
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