ACC101 Fundamentals Of Accounting

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22-04-2021

Question:

Assuming that the accounting period is a calendar year, prepare general journal entries for ABC Constructions Ltd during April and May 2014. Ignore GST.

A.Using the following information, make the necessary adjusting entries. (12 mark)

Rent of office premises of $1,216 for the 4-month period ending 30 August is due to be paid in July.
The Supplies account had a $600 debit balance on 1 July of the preceding year. Supplies costing $1,400 were purchased during the year, and $400 of supplies are on hand as at 30 June.
The telephone expense of $400 is unpaid and unrecorded at 30 June.
Annual depreciation on equipment is estimated to be $14,000. The balance in Accumulated Depreciation at the beginning of the financial year was $18,000.
Newcastle Retail Services borrowed $60 000 from ABC Bank on 15 April. The principal, plus 8% interest, is payable on 15 August. Accrued interest on 30 June has not been recorded.
The office assistant earns $280 a day. He will be paid in July for the 5-day period ending 2 July.
Newcastle Retail Services purchased a 6-month insurance policy for $1,134 on 1 December. A 24-month policy was purchased on 30 May for $2,544. Both purchases were recorded by debiting Prepaid Insurance.
On 1 June, Newcastle Retail Services received 4 months’ rent in advance, totalling $1,792. This was recorded by a credit to Unearned Rental Revenue.
As you know, all adjusting entries affect one balance sheet account and one income statement account. Based on your adjusting entries prepared in requirement A
Calculate the increase or decrease in profit. (2 mark)
Calculate the increase or decrease in total assets, total liabilities and total equity. (4 mark)

Explain the difference between accounting standards, interpretations and the accounting framework. (7 marks)

Answer:

Using the following information, make the necessary adjusting entries. (12 mark)
Rent of office premises of $1,216 for the 4-month period ending 30 August is due to be paid in July.

Rent A/c…. …Dr	608
To Rent Payable A/c		608

The Supplies account had a $600 debit balance on 1 July of the preceding year. Supplies costing $1,400 were purchased during the year, and $400 of supplies are on hand as at 30 June.

Supplies A/c..Dr	400
Supplies Expense A/c..Dr	1600
To Bank		1400
To Supplies A/c		600

The telephone expense of $400 is unpaid and unrecorded at 30 June.

Telephone expense A/c..Dr	400
To Telephone Expense Payable A/c		400

Annual depreciation on equipment is estimated to be $14,000. The balance in Accumulated Depreciation at the beginning of the financial year was $18,000.

Depreciation A/c…Dr	14000
To Accumulated Depreciation A/c		14000

Newcastle Retail Services borrowed $60 000 from ABC Bank on 15 April. The principal, plus 8% interest, is payable on 15 August. Accrued interest on 30 June has not been recorded.

Interest A/c..Dr	4800
To Accrued Interest A/c		4800
(60000*8%)

The office assistant earns $280 a day. He will be paid in July for the 5-day period ending 2 July.

Salary A/c..Dr	840
To Salary Payable A/c		840

Newcastle Retail Services purchased a 6-month insurance policy for $1,134 on 1 December. A 24-month policy was purchased on 30 May for $2,544. Both purchases were recorded by debiting Prepaid Insurance.

Insurance A/c..Dr	1240
To Prepaid Insurance A/c		1240
(1134+2544/24)

On 1 June, Newcastle Retail Services received 4 months’ rent in advance, totalling $1,792. This was recorded by a credit to Unearned Rental Revenue.

Unearned Revenue A/c..Dr	448
To Earned Revenue A/c		448
(1792/4)

As you know, all adjusting entries affect one balance sheet account and one income statement account. Based on your adjusting entries prepared in requirement A (6 mark):
Calculate the increase or decrease in profit. (2 mark)

Decrease in Profit= -608-400-14000-4800-840-1240+448+1600 =19840

Calculate the increase or decrease in total assets, total liabilities and total equity. (4 mark)

Total Assets= -1240

Increase in Total Liability=608+400+14000+4800+840-448=20200

Question 3

Explain the difference between accounting standards, interpretations and the accounting framework. (7 marks)

Accounting standard are the standards, which are issued for financial reporting purpose and it generally issued by the governing authorities. It prescribes the accounting norms for a transaction taken place in a corporate world. For instance like change in foreign exchange rate, how to recognise revenue transaction, government grants. At the international level international accounting standard board issue the accounting standard known as now International Financial Reporting standard (IFRS) (frascanada, 2018)

Accounting interpretation interprets how the accounting standard should be used and applied .Accounting interpretation is issued by the accounting standard group for example by Financial Accounting standard Boards or by an International Accounting standard Board. Through accounting interpretation, it gives us a clarity and further explanation regarding accounting standard (MyAccountingCourse.com, 2018)

Accounting Framework is a set of standard that is used while preparing the financial statements. The financial statement of the company must be prepared on the basis of accounting framework otherwise the auditor of the company will not issue a clean audit report. (Bragg, 2018)

References:

Bragg, S., 2018. Accounting Framework. [Online]
Available at: https://www.accountingtools.com/articles/2017/5/7/accounting-framework
[Accessed 28 November 2018].

frascanada, 2018. What are Accounting Standards. [Online]
Available at: https://www.frascanada.ca/accounting-standards-board/what-we-do/about-the-acsb/item55939.aspx
[Accessed 28 November 2018].

MyAccountingCourse.com, 2018. What is an Accounting Interpretation?. [Online]
Available at: https://www.myaccountingcourse.com/accounting-dictionary/interpretation
[Accessed 28 November 2018].