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    04 Accounting Study Notes

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    Jonas Scheck
    Accounting concepts and adjustments are made to prepare final accounts from a trial balance. Key adjustments include closing inventory, depreciation, accruals, prepayments, bad debts, disposal of assets, dividends, and corporate tax. Closing inventory is adjusted by debiting inventory and crediting cost of goods sold. Depreciation debits an expense and credits accumulated depreciation. Accruals debit an expense and credit an accrued liability. Prepayments credit an expense and debit prepaid expense.

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    04 Accounting Study Notes

    Uploaded by

    Jonas Scheck
    99 views4 pages
    Accounting concepts and adjustments are made to prepare final accounts from a trial balance. Key adjustments include closing inventory, depreciation, accruals, prepayments, bad debts, disposal of assets, dividends, and corporate tax. Closing inventory is adjusted by debiting inventory and crediting cost of goods sold. Depreciation debits an expense and credits accumulated depreciation. Accruals debit an expense and credit an accrued liability. Prepayments credit an expense and debit prepaid expense.

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    Study Notes - Accounting Week 4

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    Accounting concepts and adjustments are made to prepare final accounts from a trial balance. Key adjustments include closing inventory, depreciation, accruals, prepayments, bad debts, disposal of assets, dividends, and corporate tax. Closing inventory is adjusted by debiting inventory and crediting cost of goods sold. Depreciation debits an expense and credits accumulated depreciation. Accruals debit an expense and credit an accrued liability. Prepayments credit an expense and debit prepaid expense.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    99 views4 pages

    04 Accounting Study Notes

    Uploaded by

    Jonas Scheck
    Accounting concepts and adjustments are made to prepare final accounts from a trial balance. Key adjustments include closing inventory, depreciation, accruals, prepayments, bad debts, disposal of assets, dividends, and corporate tax. Closing inventory is adjusted by debiting inventory and crediting cost of goods sold. Depreciation debits an expense and credits accumulated depreciation. Accruals debit an expense and credit an accrued liability. Prepayments credit an expense and debit prepaid expense.

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    of 4
    At a glance
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    The key takeaways are the different concepts related to accounting such as categories of accounts in the trial balance, treatment of closing inventory and depreciation in the financial statements.

    The different categories of accounts in the trial balance are income statement accounts which are divided into debit balances for expenses and purchases and credit balances for income or revenues, and balance sheet accounts which are divided into debit balances for non-current/current assets and credit balances for liability and equity.

    Closing inventory is treated differently depending on the inventory method used. Under the periodic method, a physical count is done and it appears twice - as a current asset on the balance sheet and as cost of goods sold on the income statement. Under the perpetual method, there is no physical count.

    Accounting - 1

    Accounting – Trial Balance to Final Account

    Concepts
    First thing: Categories the T-Accounts
     Income Statement
    o Debit Balances – Expenses & Purchases
    o Credit Balances – Income or Revenues
     Balance Sheet
    o Debit Balances – Non-current/current assets
    o Credit Balances – Liability and Equity
    Adjustments
     Closing Inventory
    o Physical Counting
    o Appears twice:
     Dr Current Asset – Balance Sheet
     Cr Income Statement – COGS
    Periodic Method
     In perpetual method there is no physical count of inventory  bad

     Depreciation
    o Dr Depreciation expense
     For P&L - Account because it is an expense incurred during
    the period.
    o Cr Accumulated Depreciation/Provision for Depreciation
    Accounting - 2

     For Balance Sheet to balance out the effect of depreciation


     Because you do the p&l account first! Then with
    balance sheet

     Accruals
    o Financial statements need to contain the expenditure relating to
    the period  Therefore, if expenditure is owing or has been
    overpaid, an adjustment is needed.
    o Dr Expense – show in P&L Account
    o Cr Accrued Expense – Show as current liability in the Balance Sheet
    o Jonas note: Be careful when looking at the ledgers underneath
    because there are ledgers missing. E.g. We credit the accrued
    expense account and it will be shown in the Rent account as a
    referral. Don’t get confused!
    Accounting - 3

     Prepayments
    o Dr – Prepaid Expense (show in Balance Sheet)
     Asset
    o Cr Expense
     Expense
     Bad Debts (We know for sure that we wont receive money)
    o Businesses sell on credit  some cant pay back their debt (bad)
    o Asset shown in debtors account is worthless and eliminated
    o Business expense (also on income statement)
    o Dr Bad debts expense – P&L Account
    o Cr Receivables – reduce balance Sheet current asset
     Provision can already exist (It is an estimate we are not 100% sure)
    o Increase: Dr Bad debts; Cr provision for bad debt (BS)
    o Decrease: Dr Provision for bad debts (BS); Cr Bad debts
     Disposal of non-Current Assets
    o Remove the cost of the asset
     Dr Disposal of non-current asset
     Expense
     Cr Cost of non-current asset
     Asset
    o Remove the accumulated depreciation
     Dr Provision for depreciation
     Asset
     Cr Disposal of non-current asset
     Expense
    Accounting - 4

     Dividends
    o Calculate Dividends
    o Number of shares x dividend per share
     Proposed dividends – Balance Sheet

    o Record Entry:
     Dr Dividends – P&L Account
     Expense
     Cr Proposed Dividends - Balance Sheet

     Corporate Tax
    o Dr Taxation – P&L Account
     Expense
    o Cr Corp Tax due – Balance Sheet
     Asset

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