Professional, Practical, Proven

Academy 2019/2020

Subject : Financial AccountingLecture 13 (Corrected)

Topic: Adjustments to FinalAccountsLecturer: Frank Quinn

Financial Statements – Chapter 11 Book(Revision Chapter 5)

Income Statement Layout (page 239)

Statement of Financial Position Layout (page 240)

2

- Notes: (The following information is also provided)- *** Affect the Accounts in 2 places- (1) Closing Inventory

- (2) Accruals and Prepayments

- (3) Depreciation – Straight line method

- (4) Irrecoverable Debts (Additional bad debts)

- (5) Change (Increase or Decrease) in Allowance for Receivables

Adjustments to Financial Statements

3

- (1) Income Statement – Trading a/c part (Take away from Opening Inventory and Purchases)

- (2) Statement of Financial position – (Current Assets)

- ** May be asked to calculate it by Cost or NRV- Product Cost NRV Units- A €1,000 €1,800 15- B €2,600 €2,200 10- C €1,600 €1,900 10

- Closing Inventory = 15,000 + 22,000 + 16,000 = 53,000

(1) Closing Stock

4

Accruals at end of yearRent 20,000Notes:(31/12)Rent due 4,000(1) Income StatementRent 20,000+ due 4,000 24,000

(2) Statement of Financial PositionCurrent LiabilitiesRent due 4,000

(2) Accruals and Prepayments

5

Prepayments at end of yearInsurance 17,000Notes(31/12)Insurance prepaid 5,000(1) Income StatementInsurance 17,000- Prepaid 5,000 22,000

(2) Statement of Financial PositionCurrent AssetsInsurance prepaid 5,000

(2) Accruals and Prepayments

6

(3) Depreciation:

2 methods of Depreciation:(1)Straight line method(2)Reducing balance depreciation

2 effects of Depreciation:(1)Expense in the Income Statement (this years

depreciation)(2)Reduction in value of the Non-Current Asset

(Statement Financial position)7

(3) Depreciation:

Trial BalanceMachinery (Cost) 50,000Machinery (Acc. Depr.) 22,000Vehicles (Cost) 30,000Vehicles (Acc. Depr.) 10,000

Notes: (31/12)(1) Machinery is to be depreciated 10%Straight line method(2) Vehicles are depreciated 20%Reducing balance depreciation

8

(4) Irrecoverable Debts and (5) Change in Allowance for Receivables

Trial Balance Dr. Cr.Debtors 40,000Irrecoverable(Bad) debts 8,000Allowance for Receivables 2,000

Notes: (31/12)(1) A Debtor has been declared bankrupt owing the business

6,000.(2) The Allowance for Receivables is to be made 10% of

Receivables. 9

(4) Irrecoverable Debts and (5) Change in Allowance for Receivables(4) Increase the Irrecoverable debts expense by the new amount.

Debtors = 40,000 – 6,000 = 34,000(5) New Allowance = 34,000 * 10% = 3,400

New Allowance = 3,400 – Old Allowance 2,000 = 1,400.

Income statement:ExpensesIrrecoverable Debts (8,000 + 6,000) 14,000Increase in Allowance for Receivables 1,400

10

(4) Irrecoverable Debts and (5) Change in Allowance for Receivables

Statement of Financial Position:Current Assets:

Debtors 34,000Less:Allowance for Receivables (3,400) 30,600

11

Revision Question:

***Gina O’Halloran page 242 (Practice over and over)

** Rory Jameson page 246

12

DisclaimerCare has been taken to ensure that all data and information in Academy lectures is factual and that numerical values are accurate. To the best of our knowledge, all information in the Academy lectures is accurate at the time of publication. Accounting Technicians Ireland and its lecturers assume no responsibility for errors or misinterpretation of the information contained in these lectures or in its use.