Preparation of Financials Assignment
Added on 2021-06-14
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Solution-1Part-A(i)Yes, the trial balance is an important report since it provides the bird’s eye view ofentire transactions posted in the books. In the accounting, all the transactions areposted in the general journal and from there it is posted to the ledgers. From theledgers, the trial balance is prepared which is basically a summarized report of thetransactions. With the help of trial balance, the financial statements are prepared,without trial balance, the preparation of financials is almost impossible.(ii)No, it will be incorrect to assume that if the trial balance matches, then the books arecorrect. This is because the trial balance may contain the compensating errors orerrors of omission. For example, any transaction omitted from the books to record orthe transaction is recorded with the wrong amount on both the sides, and transactionwrongly posted in wrong vendors account, say instead of Ram’s account to Shyam’saccount. All these transactions will not reflect in the trial balance making the trialbalance incorrect.Part-BWould the errorcause the TrialBalance not tobalanceWhich accounts would be affected and how?How would the error be corrected Effect on TrialBalance totals YesNo Debit Credit Example A payment for wages of 500 was credited to cash correctly but debited to wages twice expense.YesWagesexpenseDebit side ofWages Expensereduced by 500 -5001. The Accrued Wages account with a balance of $500 was omitted from the Trial Balance.YesAccruedWagesCredit side ofAccrued Wagesincreased by 500 5002. A payment of $490 forPrepaid Rent was only posted to the Cash at Bank account and not to Prepaid RentYesPrepaidRentDebit side ofPrepaid rentaccount increasedby 490 4903. A debit of $458 to Cash at Bank was posted as $485. The credit entry was correct.YesCash atbankDebit side of cashat bank accountreduced by 27 -274. A credit of $600 to Accounts Payable should have been made NoAccountsPayable andFeesCredit side ofaccounts payablereduced by 600, -
to Fees Revenuerevenueand credit side offees revenueaccount increasedby 6005. A Dr for a cash receiptof $500 from customers in settlement of their accounts was posted twice as a DR to the Cash at Bank and a Dr to Accounts Receivable accountsYesCash atbankDebit side of cashat bank accountreduced by 500 -5006. The Prepaid Expense balance of $7280 was listed in the Trial Balance as $7820YesPrepaidExpenseDebit side ofprepaid expenseaccount reducedby 540 -5407. A $5210 credit to Fees Revenue was posted as a $521 credit. The debit entry to Accounts Receivable was made correctly.YesFeesrevenueCredit side of feesrevenue accountincreased by4,689 4,6898. A purchase of office equipment for $3300 on credit was not recorded.NoOfficeequipment,accountspayableDebit side of officeequipmentincreased by3,300 & credit sideof accountspayable increasedby 3,300 3,300 3,3009. A purchase of Furniture for $7500 using a loan was posted as a debit to the Loan Payable account and a debit to the Equipment account.YesLoanPayableCredit side of loanpayable accountincreased by15,000 15,00010. The drawings account balance was listed as a credit for $1500.YesDrawingsDebit side of theDrawings accountincreased by3,000 3,000
Solution-2Part-AMatching principle states that the expenses should be accounted for in the period in whichrevenue is recognized. Means the expenses relating to a particulars income should be bookedin the same period. The matching principle suits with the accrual basis of accounting as theaccrual basis of accounting also requires booking of expenses related to the particular incomein the same period which the cash basis of accounting requires to book the expenses andincomes in the period in which they are earned or expended in cash.Part-B (i)In the books of J. JacksonJournal entries for the year ended 30th June, 2018(Amount in $)Sr. No.ParticularsDebit AmtCredit Amt(i)Wages expense 8,400Wages payable8,400(Being wages payable recorded at 21,000/5*2)(ii)Commission fees receivable1,520Commission fees1,520(Being income due not received recorded)(iii)Prepaid Rent 21,000Rent expense21,000(Being prepaid rent recorded at 36,000/12*7)(iv)Interest receivable375Interest income375(Being interest earned recorded at 25,000*6%*1/4)(v)Unearned income3,600Income3,600(Being income earned recorded at 12000*30%)(vi)Office furniture6,000Office expenses6,000(Being the rectifying entry correctly transferred)(vii)Supplies expense4,500Office supplies4,500
(Being consumption of office supplies recorded)(viii)GST Collected7,960GST Paid7,960(Being net amount of GST recorded)Part-B (ii)Calculation of new profit figure(Amount in $)PARTICULARS AMOUNT PROFIT AS STATED3,281,001ADJUSTMENTSDECREASE IN PROFIT DUE TO INCREASEIN EXPENSEWAGES EXPENSE8,400SUPPLIES EXPENSES4,50012,900INCREASE IN PROFIT DUE TO REDUCED EXPENSESRENT EXPENSE21,000OFFICE FURNITURE PURCHASED6,00027,000INCREASE IN PROFIT DUE TO INCREASE IN INCOMECOMMISSION FEES1,520INTEREST INCOME375INCOME (FROM UNEARNED)3,6005,495REVISED PROFIT3,300,596
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