2009_1 T03 S

2009_1 T03 S - ACCT2101 Financial Reporting Tutorial 3 -...

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ACCT2101 – Financial Reporting Tutorial 3 - Solutions 1 TOPIC 3: ACCOUNTING CYCLE COMPLETED Question 5.8 – Purpose of Accrual Accounting Adjustments The purpose of accrual accounting adjustments is to make the financial statements as reliable as possible. The intention is to identify with each accounting period the revenue earned in that period and to determine the expenses associated with generating the period’s revenue. The difference between the revenue and expense for the period then represents the profit or loss for the period. Thus the adjustments augment the cash-based figures to implement accrual accounting. Question 5.12 – Purpose of depreciating non-current assets The depreciating of noncurrent assets spreads the costs of the assets over their useful lives to match the consumption of those costs to the benefits (revenue) gained from their use. Question 5.15 – Difference between a bad debt and a doubtful debt At the end of the financial year companies estimate the accounts receivable that they do not believe are likely to be collected (doubtful debts) normally recorded as Dr Bad debts (or bad and doubtful debts) Cr Allowance for doubtful debts. Sometimes an organisation finds out that an account is definitely a bad debt (i.e. it will not be collected). As the expense has already been recognised, this amount is then written out of the accounts receivable balance (Dr Allowance for Doubtful Debts Cr Accounts receivable). Problem 5.13 – Adjusting Entry for Accrued Expense 1 a DR Wages expense $92 000 CR Wages payable $92 000 b Net profit will be overstated. Liabilities will be understated. c DR Wages payable $92 000 DR Wages expense $23 000 CR Cash $115 000 2 a DR Interest expense $6 000 CR Interest payable $6 000 b Net profit will be overstated. Liabilities will be understated. c DR Interest expense $6 000 DR Interest payable $6 000 CR Cash $12 000
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ACCT2101 – Financial Reporting Tutorial 3 - Solutions 2 Problem 5.9 part (2) – Adjustments 2. a. DR Insurance expense $1,600 CR Prepaid insurance $1,600 b. DR Dividend receivable $5,000 CR Dividend revenue $5,000 c. DR Commission expense $5,760 CR Commission payable $5,760 d. DR Sales $570 CR Unearned revenue $570 e. DR Supplies $490 CR Office supplies expense $490 f. DR Interest expense $175 CR Interest payable $175 Problem 5.26 - Journal, Posting to ledger, trial balance, adjustments, closing entries and financial statements Requirements 1 and 4 Status Cymbal Limited Journal entries Date Account DR CR $ $ a Prepaid insurance 72,000 Cash 72,000 (To record prepayment of insurance expense) b Accrued wages 36,000 Cash 36,000 (To record payment of outstanding wages)
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2009_1 T03 S - ACCT2101 Financial Reporting Tutorial 3 -...

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