Accounting For Management Decisions: Accruals Assessment Answers

Discuss about the Accounting for Management Decisions of Accruals and Deferrals.

1 (a)

Journalizing the adjusting entries that were made by ABC Ltd on 30 September
				S.No.	Account Description	Debit ($)	Credit ($)
1	Depreciation Expense	910.00
Accumulated Depreciation– Equipment	910.00
2	Salary Expense	1,040.00
Salary Payable	1,040.00
3	Interest Expense	130.00
Interest Payable	130.00
4	Rent Expense	1,560.00
Rent Payable	1,560.00
5	Supplies Expense	520.00
Supplies	520.00
6	Commission Receivable	1,560.00
Commission Revenue	1,560.00
Total	5,720.00	5,720.00

1 (b)

a) Income statement of ABC Ltd. for the 3 months ending 30 September
			Particulars	Amount ($)	Amount ($)
Revenues
Commission	37,960.00
Rent	1,820.00
Total (A)	39,780.00
Less: Expenses
Salary expense	24,440.00
Rent expense	3,900.00
Depreciation Expense	910.00
Supplies Expense	520.00
Electricity Expense	1,326.00
Interest Expense	130.00
Total (B)	31,226.00
Net Profit	8,554.00

b) Statement of changes in equity for the 3 months ending 30 September
			Particulars	Amount ($)	Amount ($)
Balance as at 1 July 2014	36,400.00
Add: Retained Earnings	6,994.00
(8554-1560)
Balance as at 30 Sep 2014	43,394.00

c) Statement of financial position as at 30 September
			Particulars	Amount ($)	Amount ($)
Current Assets
Cash	17,420.00
Commission Receivable	2,600.00
Prepaid rent	2,340.00
Supplies	2,600.00
24,960.00
Non- Current Assets
Equipment Less Depreciation	38,090.00
Total Assets	63,050.00
Current Liabilities
Accounts Payable	3,926.00
Salaries Payable	1,040.00
Interest Payable	130.00
Rent revenue received in Advanced	1,560.00
6,656.00
Non-Current Liabilities
Bank Loan (Due 31.12.2018)	13,000.00
Equity
Share Capital	36,400.00
Retained Earnings	6,994.00
43,394.00
Total Liability and Equity	63,050.00

1 (c)

Accounts that should be closed on 30 September:
		S.No.	Account Name
1	Commission Revenue
2	Rent Revenue
3	Salaries Expense
4	Rent Expense
5	Depreciation Expense
6	Supplies Expense
7	Electricity Expense
8	Interest Expense
9	Dividends

1 (d)

The interest expense is $130 as at 30.09.2014. It can be observed that applying the rate of 12% per annum on the total loan outstanding of $13000, one month interest works out to be $130 (13000*12%/12). This means that the loan was taken one month ago from 30.09.2014 that is on 31.08.2014. Thus, it could be articulated that ABC Ltd took loan on 31.08.2014.

2 (a)

Trial balance comprises of a list of all accounts having closing balance. The accounts which show balance at the end of the accounting period are listed in the trial balance. The main purpose to prepare trial balance is to summarize and get all the accounts at one place so that the final accounts such as income statement and balance sheet could be prepared without difficulty (Needles and Powers, 2013). 

2 (b)

The two primary categories of adjusting entries are accruals and deferrals (Weygandt, Kimmel, and Kieso, 2009). The accrual category of adjustment entries covers the journal entries for the items of income/expense that have not been taken into books of accounts yet, but those items of income/expense have occurred and it is required to make adjustment to take them to the books of accounts. The example of accrual adjustments includes interest payable and salary payable. In contrast to this, the deferral category of adjustment entries covers adjustment entry for an item of income/expense that has already been entered in the books of accounts, but it is essential to classify the amount into two accounting periods. The example under this category includes prepaid expense and supplies expense (Weygandt, Kimmel, and Kieso, 2009). 

Referencing

Needles, B.E. and Powers, M. 2013. Principles of financial accounting. Cengage Learning.

Weygandt, J.J., Kimmel, P.D., and Kieso, D.E. (2009). Financial accounting. John Wiley & Sons.