(D) State the journal entries required to be passed for the following adjustments for preparation of final accounts.
•Closing Stock
•Outstanding expenses
•Pre-paid expense
•Accrued Income
•Provision for bad and doubtful Debt
•Provision for Discount.
Answers
•Closing Stock:
Debit : Closing Stock a/c
Assets are represented by real accounts. They carry a debit balance. By recording the journal entry for bringing the value of closing stock into books, we create the asset by name Closing Stock a/c.
•Outstanding expenses:
The outstanding expense is those which has been incurred and consumed during the accounting period and are due to be paid. The outstanding expense is a personal account and is shown on the liabilities side of the balance sheet.
•Pre-paid expense:
Prepaid insurance is the portion of an insurance premium that has been paid in advance and has not expired as of the date of a company's balance sheet. This unexpired cost is reported in the current asset account Prepaid Insurance.
The following list shows common examples of prepaid expenses:
1)Paying rent before using a commercial space.
2)Small business insurance policies.
3)Equipment paid for before use.
4)Salaries.
5)Taxes.
6)Some utility bills.
7)Interest expenses.
•Accrued Income:
In order to record these sales in an accounting period, create a journal entry to record them as accrued revenue. The debit balance in the accrued billings account appears in the balance sheet, while the monthly change in the consulting revenue account appears in the income statement.
•Provision for bad and doubtful Debt:
The provision for doubtful debts is an estimated amount of bad debts that are likely to arise from the accounts receivable that have been given but not yet collected from the debtors. The entry to write off a bad account affects only balance sheet accounts: a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. No expense or loss is reported on the income statement because this write-off is "covered" under the earlier adjusting entries for estimated bad debts expense.
•Provision for Discount:
Provision for discount on creditors refers to an amount kept aside by estimating a certain percentage on the sundry creditors that will be surely not paid to them.
Answer:
not received)
Accrued Rent Account 50,000
To Rent Account 50,000
2. January 10th 2019 – (Received cash in lieu of accrued rent from 2018)
Cash Account 50,000
To Accrued Rent Account 50,000
Treatment of Accrued Income in Financial Statements
After posting the journal entry for accrued income a business records it in the final accounts as follows;
Shows it on the credit side of the income statement as it is an income for the current accounting period (just not received yet).
Shows it on the asset side of the balance sheet under the head “Current Assets”.