preparing the trading and profit and loss account in the...

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Prepare end-of-period financial reports Contents Key to resources 2 Introduction 3 Income statement 3 Balance sheet 12 Feedback to activities 20 This learning guide is based on the following resource(s): Textbook Duncan A (2006) Introductory Accounting, National Core Accounting Publications, Bondi Note A new edition of this textbook was being published at the same time as this resource. Where possible, we have provided a second Key to resource to this new edition. Prepare end-of-period financial reports 1 © NSW DET 2006 2006/053/12/2006 LRR 3877

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Prepare end-of-period financial reports

ContentsKey to resources 2Introduction 3Income statement 3Balance sheet 12Feedback to activities 20

This learning guide is based on the following resource(s):

Textbook

Duncan A (2006) Introductory Accounting, National Core Accounting Publications, Bondi

Note

A new edition of this textbook was being published at the same time as this resource.Where possible, we have provided a second Key to resource to this new edition.

Prepare end-of-period financial reports 1© NSW DET 2006 2006/053/12/2006 LRR 3877

Key to resources

Resource Textbook (2006 edition)

1 Chapter 16 ‘Closing entries’, section 16.7, p 498

2 Chapter 16, section 16.7, p 499

Resource Textbook (2007 edition)

1 Chapter 14 ‘Closing entries’, pp 448– 450 (periodic inventory)

2 Chapter 14, section 16.7, pp 451 – 453 (perpetual inventory)

2 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

IntroductionThe two key financial reports for management are the income statement and the balance sheet. There is another financial report—the statement of cash flows. However, that statement will be the subject of future studies.

Income statementThe income statement is prepared from the details in the general ledger for the trading account and profit and loss account. The income statement restates the information in the trading and profit and loss accounts and puts that information in a format more useful to management. It shows the results of the business operations for a given period. Recall that the following steps occurred for the preparation of the trading account and profit and loss account:

1 Balance day adjustments recorded in the general journal

2 Balance day adjustments posted into the general ledger

3 Closing general journal entries recorded in the general journal

4 Closing general journal entries posted to the general ledger including the trading and profit and loss accounts.

5 Net profit/loss transferred to the capital account from the profit and loss account.

Now go to Resource 1

Look at the income statement for W Kenny. This income statement is prepared for a business using periodic inventory. If W Kenny was using perpetual inventory, the income statement would appear as the one presented below.

Prepare end-of-period financial reports 3© NSW DET 2006 2006/053/12/2006 LRR 3877

Income statement of W Kennyfor year ended 30 June 20x7

Sales (net) 117 900

Less: Cost of goods sold 62 498

Gross profit 55 402

Add: Other operating income 306

Discount received 306

Total income 55 708

Less: Operating expenses 34 220

Marketing 7 300

Advertising 1 400

Cartage outwards 1 500

Sales commission 4 400

Administration 22 980

Insurance 800

Depreciation 7 000

General expenses 3 500

Salaries and wages 11 680

Financial 3 940

Discount allowed 720

Doubtful debts 220

Interest on mortgage 3 000

Net profit 21 488

Note: The heading of the income statement is for a given period. Also note particularly the sub-headings under the main heading of operating expenses. The sub-headings are:

marketing (also known as selling and distribution): includes any expense related to selling goods or services

administration (also known as general and administration): includes all expenses not involved in marketing (see above) or finance (see below)

financial: includes the expenses incurred in obtaining or maintaining funds to operate the business.

Note also that the amounts shown in the income statement include any adjustment required by the balance day adjustments.

4 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 1

From the records for the business In Sufficient presented below, prepare a classified income statement.

Feedback for this activity is provided at the end of this document.

Balance day adjustment general journal entries

General journal of In Sufficient

Date Account Folio Debit $ Credit $

20x7

June 30 General salaries 1 200

Expenses accrued 1 200

Salaries due – not paid

Expenses prepaid 1 600

Advertising 1 600

Advertising paid in advance

Bad debts 1 000

GST clearing account 100

Accounts receivable control 1 100

Bad debt written off

Income accrued 300

Commission income 300

Income due – not received

Depreciation – Plant and equipment 34 200

Accumulated depreciation 34 200

Plant and equipment

Depreciation charge for year

Prepare end-of-period financial reports 5© NSW DET 2006 2006/053/12/2006 LRR 3877

General ledger In Sufficient

Inventory

20x7

June 30 Balance 30 600

Bank

20x7

June 30 Balance 22 400

Accumulated depreciation – Plant and equipment20x7

June 30 Balance 33 000

Dep – Plant & equipment 34 200

67 200

GST clearing account

20x7 20x7

June 30 Account receivable 100 June 30 Balance 6 000

Balance c/d 5 900

6 000 6 000

Balance b/d 5 900

Sales

20x7 20x7

June 30 Trading 349 000 June 30 Balance 349 000

6 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Cost of goods sold

20x7 20x7

June 30 Balance 267 000 June 30 Trading 267 000

General salaries

20x7 20x7

June 30 Balance 51 800 June 30 Profit and loss 53 000

Expenses accrued 1 200

53 000 53 000

Accounts receivable

20x7 20x7

June 30 Balance 10 800 June 30 Bad debts 1 100

Balance c/d 9 700

10 080 10 080

20x7 Jul 1 Balance b/d 9 700

Plant and equipment

20x7

June 30 Balance 182 600

Accounts payable

20x7

June 30 Balance 10 200

Capital

20x7 20x7

June 30 Profit and loss 43 100 June 30 Balance 228 400

Drawings 22 600

Balance c/d 162 700

228 400 228 400

20x7 July 1 Balance b/d 162 700

Prepare end-of-period financial reports 7© NSW DET 2006 2006/053/12/2006 LRR 3877

Drawings

20x7 20x7

June 30 Balance 22 600 June 30 Capital 22 600

Commission income

20x7 20x7

June 30 Profit and loss 700 June 30 Balance 400

Profit and loss 300

700 700

Advertising

20x7 20x7

June 30 Balance 11 800 June 30 Expenses prepaid 1 600

Profit and loss 10 200

11 800 11 800

Electricity and phone

20x7 20x7

June 30 Balance 18 800 June 30 Profit and loss 18 800

General expenses

20x7 20x7

June 30 Balance 6 400 June 30 Profit and loss 6 400

Expenses accrued

20x7

June 30 General salaries 1 200

8 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Bad debts

20x7 20x7

June 30 Accounts receivable 1 000 June 30 Profit and loss 1 000

Depreciation – Plant and equipment

20x7

June 30 Accumulated depr.

Plant and equipment 34 200 20x7June 30

Profit and loss 34 200

Discount allowed

20x7 20x7

June 30 Balance 2 200 June 30 Profit and loss 2 200

Expenses prepaid

20x7

June 30 Advertising 1 600

Income accrued

20x7

June 30 Commission income 300

Trading account

20x7 20x7

June 30 Cost of goods sold 267 000 June 30 Sales 349 000

Profit and loss account 82 000

349 000 349 000

Prepare end-of-period financial reports 9© NSW DET 2006 2006/053/12/2006 LRR 3877

Profit and loss account

20x7 20x7

June 30 Advertising 10 200 June 30 Trading account 82 000

General salaries 53 000 Commission income 700

Electricity and phone 18 800 Capital account 43 100

General expenses 6 400

Discount allowed 2 200

Bad debts 1 000

Depreciation plant and equipment

34 200

125 800 125 800

10 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Closing general journal entries

General journal of In Sufficient

Date Account Folio Debit $ Credit $

20x7 June 30 Sales 349 000

Trading account 349 000

Balance transferred

Trading account 267 000

Cost of goods sold 267 000

Balance transferred

Trading account 82 000

Profit and loss 82 000

Gross profit transferred

Commission income 700

Profit and loss account 700

Balance transferred

Profit and loss account 125 800

Advertising 10 200

General salaries 53 000

Electricity and phone 18 800

General expenses 6 400

Discount allowed 2 200

Bad debts 1 000

Depreciation plant and equipment 34 200

Balance transferred

Capital 43 100

Profit and loss account 43 100

Net loss transferred

Capital 22 600

Drawings 22 600

Balance transferred

Prepare end-of-period financial reports 11© NSW DET 2006 2006/053/12/2006 LRR 3877

In SufficientAdjusted trial balance as at 30 June 20x7

Debit $ Credit $

Inventory 30 600

Accounts receivable 9 700

Bank 22 400

Plant and equipment 182 600

Accumulated depreciation – plant and equipment 67 200

Accounts payable 10 200

GST clearing account 5 900

Capital 162 700

Expenses accrued 1 200

Expenses prepaid 1 600

Income accrued 300

247 200 247 200

Commentary The balance day adjustments have affected expense and income

balances. In addition, two asset accounts (expenses prepaid and income accrued) and one liability account (expenses accrued) have been introduced.

The closing general journal entries have closed off all the income and expense accounts, after the balance day adjustments to trading and profit and loss accounts.

The balance of profit and loss account (a loss in this case) and drawings have been transferred to the capital account.

Then, the accounts left open in the general ledger with balances make up the adjusted trial balance. The accounts are assets, liabilities and owner’s equity (capital).

Balance sheetRecall that after the transfer of net profit or loss from the profit and loss account to the capital account and the transfer of drawings to the capital account the remaining accounts with balances in the general ledger are assets, liabilities and owner’s equity (capital).

These accounts form the balance sheet. The balance sheet sets out the financial position of the business as at a specified date, hence the heading is ‘as at’ a given date.

12 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Now go to Resource 2

In the balance sheet for W Kenny note that the heading should read ‘as at 30 June 20x7’ and not ‘for the year ended’.

The balance day adjustments affecting assets and liabilities, eg accrued salaries and prepaid advertising, are reflected in the balance sheet.

The headings must be in the format shown, that is:

Current assets—cash or assets generally convertible into cash within 12 months

Non-current assets—assets to be kept beyond 12 months

Total assets

Current liabilities—liabilities expected to be paid within 12 months

Non-current liabilities—liabilities expected to be paid beyond 12 months

Total liabilities

Net assets

Owner’s equity (not capital as shown)

Capital

Add: Profit

Less: Drawings

Note that under owner’s equity the capital account for the period is restated, that is:

Capital

Drawings xxxx Opening balance xxxx

Profit and loss (net profit) xxxx

Activity 2

Prepare a balance sheet from the adjusted trial balance of the previous example for In Sufficient.

Feedback for this activity is provided at the end of this document.

Prepare end-of-period financial reports 13© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 3

Prepare an income statement and balance sheet from the solution to Activity 1.

Feedback for this activity is provided at the end of this document.

Activity 4

From the following additional information and trial balance for the business Nightingale, prepare the following:

(a) general journal entries for the balance date adjustments

(b) closing general journal entries

(c) trading account

(d) profit and loss account

(e) balance sheet.

Additional information Advertising of $400 was prepaid.

Office wages owing are $1600.

Depreciation on delivery vans was $10 000.

Depreciation on building was $6000.

Provide for doubtful debts at 5% of accounts receivable.

A physical stocktake disclosed an inventory value of $21 700.

14 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Nightingale trial balanceas at 30 June 20x7

Debit $ Credit $

Sales 98 000

Commission income 4 000

Cost of goods sold 37 500

Advertising 2 000

Discount allowed 1 500

Discount received 500

Selling expenses 2 600

Office wages 1 750

Stationery 400

Insurance 800

Electricity 800

Cash at bank 16 000

Accounts receivable 18 000

Inventory 22 000

Land 40 000

Buildings 80 000

Accumulated depreciation – Building 20 000

Delivery vans 50 000

Accumulated depreciation – Delivery vans 10 000

Accounts payable 6 200

GST clearing account 7 800

Mortgage – Due 30 June 20x9 20 000

Capital – J Hopkins 108 850

Drawings 2 000

275 350 275 350

Feedback for this activity is provided at the end of this document.

Prepare end-of-period financial reports 15© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 5

From the following additional information and trial balance for the business Seal & Co, prepare the following:

(a) general journal entries for the balance day adjustments

(b) closing general journal entries

(c) income statement

(d) balance sheet.

Additional information relating to 30 June 20x7 Rent income received in advance was $600.

General wages due and unpaid was $1 200.

Insurance paid in advance was $500.

Depreciation of motor vehicles was $8800 and on office equipment was $1100.

Accounts receivable are considered doubtful to the extent of 4%.

Provide for long service leave of $5000 (due after 30th June 20x8).

16 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Seal and Co.Trial balance as at 30 June 20x7

Debit $ Credit $

Capital 137 900

Drawings 4 000

Bank 6 000

Inventory 17 200

Account receivable 26 000

Accounts payable 9 000

GST clearing 5 000

Land & buildings at cost 224 000

Fixtures & fittings at cost 11 000

Office equipment at cost 22 000

Accumulated dep. – Office equipment 2 300

Motor vehicles at cost 44 000

Accumulated dep. – Motor vehicles 5 200

Mortgage on freehold – Due 30 June 20x8 108 000

Sales 472 760

Cost of goods sold 247 900

Rent income 5 000

Salaries – Sales 43 000

Advertising 4 400

Salaries – Office 44 000

Insurance 1 700

Discount allowed 2 400

Discount received 2 240

General wages 46 000

Commission – Sales 3 000

Telephone 1 360

Bad debts 240

Motor vehicle expenses 4 700

Office expenses 6 500

753 400 753 400

Feedback for this activity is provided at the end of this document.

Prepare end-of-period financial reports 17© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 6

From the following trial balance and additional information for Acme Trading prepare the:

(a) general journal entries for balance day adjustment

(b) income statement

(c) balance sheet.

Feedback for this activity is provided at the end of this document.

Acme TradingTrial balance as at 30 June 20x7

Debit $ Credit $

Capital 29 956

Drawings 200

Sales 7 580

Travelling expenses for sales people 320

Wages – Sales 2 400

Inventory 6 000

Electricity 600

Cost of goods sold 1 420

Interest income 160

Interest expense 96

Rates 100

Buildings 6 000

Accounts receivable 4 000

Accounts payable 4 000

GST clearing account 1 600

Allowance for doubtful debts 140

Insurance 200

Bills receivable 600

Bills payable 500

10% Commonwealth bonds – Due 30 June 20x9 2 000

Bank 1 200

Loan from Blue Rory – Due 30 June 20x9 1 200

Machinery 20 000

$45 136 $45 136

18 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Additional information Provide for depreciation on: machinery $2000; buildings $300.

Bad debt to be written off is $220 including GST.

Allowance for doubtful debts is to be adjusted to 5% of current trade accounts receivable (after bad debt write-off).

Accrued wages at 30 June 20x7 were $70.

Insurance paid in advance is $60.

Accrued interest income on bonds is $40.

Prepare end-of-period financial reports 19© NSW DET 2006 2006/053/12/2006 LRR 3877

Feedback to activities

Activity 1In Sufficient

Income statementfor year ended 30 June 20x7

$ $ $

Sales 349 000

Less: Cost of goods sold 267 000

Gross profit 82 000

Add: Other income

Commission income 700

Total income 82 700

Less: Operating expenses 125 800

Marketing 10 200

Advertising 10 200

Administration 112 400

General salaries 53 000

Electricity and phone 18 800

General expenses 6 400

Depreciation – Plant and equipment 34 200

Financial 3 200

Discount allowed 2 200

Bad debts 1 000

Net loss 43 100

20 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 2In Sufficient

Balance sheetas at 30 June 20x7

$ $ $

Current assets 64 600

Inventory 30 600

Accounts receivable 9 700

Bank 22 400

Expenses prepaid 1 600

Income accrued 300

Non-current assets 115 400

Plant and equipment 182 600

Less: Accumulated depreciation 67 200 115 400

Total assets 180 000

Current liabilities 17 300

Accounts payable 10 200

GST clearing account 5 900

Expenses accrued 1 200

Non-current liabilities _

Total liabilities 17 300

Net assets 162 700

Owner’s equity 162 700

Capital 1 July 20x6 228 400

Less: Loss 43 100

185 300

Less: Drawings 22 600

Prepare end-of-period financial reports 21© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 3Jack Straw

Income statementfor year ended 30 June 20x8

$ $ $

Sales 329 643

Less: Cost of goods sold 195 875

Gross profit 133 768

Add: Other income 3 700

Rent income 3 700

Total income 137 468

Less: Operating expenses 75 094

Marketing 2 862

Advertising 2 862

Administration 70 269

Office salaries 38 915

Rates and taxes 8 052

Light and power 10 329

Office cleaning 5 293

Depreciation – Buildings 2 600

Depreciation – Motor vehicles 5 080

Financial 1 963

Bad debts 1 059

Doubtful debts 904

Net profit 62 374

22 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Jack Straw

Balance sheetas at 30 June 20x8

$ $ $

Current assets 87 941

Inventory 58 565

Account receivable 18 080

Less: Allowance for doubtful debts 904 17 176

Cash at bank 11 200

Petty cash 1 000

Non–current assets 255 061

Land and buildings 239 941

Less: Accumulated depreciation 5 200 234 741

Motor vehicles 25 400

Less: Accumulated depreciation 5 080 20 320

Total assets 343 002

Current liabilities 17 942

Accounts payable 9 280

GST clearing account 8 087

Income received in advance 575

Non–current liabilities –

Total liabilities 17 942

Net assets 325 060

Owner’s equity 325 060

Capital 280 000

Add: Profit 62 374

342 374

Less: Drawings 17 314

Prepare end-of-period financial reports 23© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 4General journal

Nightingale Products balance day adjustments

Date Details Fol Debit $ Credit $

20x7 Expenses prepaid 400

June 30 Advertising 400

Advertising paid – not due

Office wages 1 600

Expenses accrued 1 600

Office wages due – not paid

Depreciation – Delivery vans 10 000

Depreciation – Buildings 6 000

Accumulated depreciation –Delivery van 10 000

Accumulated depreciation – Buildings 6 000

Depreciation charge for year

Doubtful debts 900

Allowance for doubtful debts 900

Allowance for doubtful debts created

Inventory variance 300

Inventory 300

Adjusting inventory to physical stocktake

Cost of goods sold 300

Inventory variance 300

Balance transferred

24 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Nightingale Products Closing journal entries

Date Details Fol Debit $ Credit $

20x7 Sales 98 000

June 30 Trading account 98 000

Balance transferred

Trading account 37 800

Cost of goods sold 37 800

Balance transferred

Trading account 60 200

Profit and loss account 60 200

Gross profit transferred

Discount received 500

Commission income 4 000

Profit and loss 4 500

Balance transferred

Profit and loss 27 950

Advertising 1 600

Discount allowed 1 500

Selling expenses 2 600

Office wages 3 350

Stationery 400

Insurance 800

Electricity 800

Depreciation – Delivery van 10 000

Depreciation – Buildings 6 000

Doubtful debts 900

Balances transferred

Profit and loss 36 750

Capital 36 750

Net profit transferred

Capital 2 000

Drawings 2 000

Balance transferred

Prepare end-of-period financial reports 25© NSW DET 2006 2006/053/12/2006 LRR 3877

Nightingale Products

Trading account

Date Particulars Fol Amount Date Particulars Fol Amount

20x7June 30

Trading account 37 800 20x7June 30

Sales 98 000

Profit and loss 60 200

98 000 98 000

Profit and loss account

Date Particulars Fol Amount Date Particulars Fol Amount

20x7June 30

Advertising 1 600 20x7June 30

Trading Account 60 200

Discount allowed 1 500 Discount Received 500

Selling expenses 2 600 Commission Income 4 000

Office wages 3 350

Stationery 400

Insurance 800

Electricity 800

Depreciation – Delivery van 10 000

Depreciation – Buildings 6 000

Doubtful debts 900

Capital (Net profit) 36 750

64 700 64 700

26 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Nightingale Products

Balance sheetas at 30 June 20x7

$ $ $

Current assets 55 200

Inventory 21 700

Accounts receivable 18 000

Less: Allowance for doubtful debts 900 17 100

Cash at bank 16 000

Expenses prepaid 400

Non–current assets 124 000

Land 40 000

Buildings 80 000

Less: Accumulated depreciation 26 000 54 000

Delivery vans 50 000

Less: Accumulated depreciation 20 000 30 000

Total assets 179 200

Current liabilities 15 600

Accounts payable 6 200

GST clearing account 7 800

Expenses accrued 1 600

Non-current liabilities 20 000

Mortgage 20 000

Total liabilities 35 600

Net assets 143 600

Owner’s equity 143 600

Capital 108 850

Add: Net profit 36 750

145 600

Less: Drawings 2 000

Prepare end-of-period financial reports 27© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 5General journal

Seal and CoBalance day adjustments

Date Details Fol Debit $ Credit $

20x7 Rent Income 600

June 30 Income received in advance 600

Rent income received – not due

General wages 1 200

Expenses accrued 1 200

General wages due – not paid

Expenses Prepaid 500

Insurance 500

Insurance paid – not due

Depreciation – Motor vehicle 8 800

Depreciation – Office equipment 1 100

Accum. depre. – Motor vehicle 8 800

Accum. depre. – Office equipment 1 100

Depreciation charge for year

Doubtful debts 1 040

Allowance for doubtful debts 1 040

Allowance for doubtful debts created

Long service leave 5 000

Provision long service leave 5 000

Providing for long service leave

28 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Seal and Co Closing general journal entries

Date Details Fol Debit $ Credit $20x7 Sales 472 760

June 30 Trading account 472 760

Balance transferred

Trading account 247 900

Cost of goods sold 247 900

Balance transferred

Trading account 224 860

Profit and loss account 224 860

Gross profit transferred

Rent income 4 400

Discount received 2 240

Profit and loss account 6 640

Balances transferred

Profit and loss account 173 940

Salaries – Sales 43 000

Advertising 4 400

Salaries – office 44 000

Insurance 1 200

Discount allowed 2 400

General wages 47 200

Commission – Sales 3 000

Telephone 1 360

Bad debts 240

Motor vehicle expenses 4 700

Office expenses 6 500

Depreciation – Motor vehicle 8 800

Depreciation – Office equipment 1 100

Doubtful debts 1 040

Long service leave 5 000

Balances transferred

Profit and loss account 57 560

Capital 57 560

Net profit transferred

Capital 4 000

Drawings 4 000

Balance transferred

Prepare end-of-period financial reports 29© NSW DET 2006 2006/053/12/2006 LRR 3877

Seal and Co

Income statementfor year ended 30 June 20x7

$ $ $

Sales 472 760

Less: Cost of goods sold 247 900

Gross profit 224 860

Add: Other operating income 6 640

Rent income 4 400

Discount received 2 240

Total income 231 500

Less: Operating expenses 173 940

Marketing 50 400

Salaries – Sales 43 000

Advertising 4 400

Commission sales 3 000

Administration 119 860

Salaries office 44 000

Insurance 1 200

General wages 47 200

Telephone 1 360

Motor vehicle expenses 4 700

Office expenses 6 500

Depreciation – Motor vehicle 8 800

Depreciation – Office equipment 1 100

Long service leave 5 000

Financial 3 680

Discount allowed 2 400

Bad debts 240

Doubtful debts 1 040

Net profit 57 560

30 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Seal and Co

Balance sheetas at 30 June 20x7

$ $ $

Current assets 42 660

Inventory 17 200

Account receivable 26 000

Less: Allowance for doubtful debts 1 040 24 960

Expenses prepaid 500

Non-current assets 283 600

Land and buildings 224 000

Fixtures and fittings 11 000

Office equipment 22 000

Less: Accumulated depreciation 3 400 18 600

Motor vehicles 44 000

Less: Accumulated depreciation 14 000 30 000

Total assets 326 260

Current liabilities 21 800

Accounts payable 9 000

GST clearing 5 000

Bank (overdraft) 6 000

Income received in advance 600

Expenses accrued 1 200

Non-current liabilities 113 000

Mortgage on freehold 108 000

Provision long service leave 5 000

Total liabilities 134 800

Net assets 191 460

Owner’s equity 191 460

Capital 137 900

Add: Net profit 57 560

195 460

Less: Drawings 4 000

Prepare end-of-period financial reports 31© NSW DET 2006 2006/053/12/2006 LRR 3877

Activity 6General journal

Acme Trading CoBalance day adjustments

Date Details Folio Debit $ Credit $

20x7 June 30 Depreciation – Machinery 2 000

Depreciation – Buildings 300

Accumulated depreciation –Machinery 2 000

Accumulated depreciation – Buildings 300

Depreciation charge for year

Bad debts 200

GST clearing account 20

Accounts receivable 220

Bad debt written off

Doubtful debts 49

Allowance doubtful debts 49

Adjusting allowance for doubtful debts

Wages – Sales 70

Expenses accrued 70

Wages due – not paid

Expenses prepaid 60

Insurance 60

Insurance paid – not due

Income accrued 40

Interest income 40

Income due – not received

32 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877

Acme Trading Co

Income statementfor year ended 30 June 20x7

$ $ $

Sales 7 580

Less: Cost of goods sold 1 420

Gross profit 6 160

Add: Other operating income 200

Interest income 200

Total income 6 360

Less: Operating expenses 6 275

Marketing 2 790

Travelling expenses 320

Wages sales 2 470

3 140

Administration

Electricity 600

Rates 100

Insurance 140

Depreciation – Machinery 2 000

Depreciation – Buildings 300

345

Financial

Interest expense 96

Bad debts 200

Doubtful debts 49

Net profit 85

Prepare end-of-period financial reports 33© NSW DET 2006 2006/053/12/2006 LRR 3877

Acme Trading

Balance sheetas at 30 June 20x7

$ $ $

Current assets 11 491

Inventory 6 000

Account receivable 3 780

Less: Allowance for doubtful debts 189 3 591

Bills receivable 600

Bank 1 200

Expenses prepaid 60

Income accrued 40

Non-current assets 25 700

Buildings 6 000

Less: Accumulated depreciation 300 5 700

Machinery 20 000

Less: Accumulated depreciation 2 000 18 000

10% Commonwealth bonds 2 000

Total assets 37 191

Current liabilities 6 150

Accounts payable 4 000

GST clearing account 1 580

Bills payable 500

Expenses accrued 70

Non-current liabilities 1 200

Loan from Blue Rory 1 200

Total liabilities 7 350

Net assets 29 841

Owner’s equity 29 841

Capital 29 956

Add: Profit 85

30 041

Less: Drawings 200

34 Prepare end-of-period financial reports© NSW DET 2006 2006/053/12/2006 LRR 3877