Adjustments to Profit and Suspense Accounts (part c)

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  1. Avatar of williamansah williamansah says:
    September 5, 2012 at 6:46 pm

    in the test question 5, why is the answer c instead of D since you taught that lower closing inventory implies lower profits and higher inventory implies higher profits.

    • Avatar of williamansah williamansah says:
      September 5, 2012 at 6:48 pm

      @williamansah, in the test question 5, why is the answer C instead of A since you taught that lower closing inventory implies lower profits and higher inventory implies higher profits.
      ignore earlier question, i mean C instead of A

      • Avatar of johnmoffat johnmoffat says:
        September 6, 2012 at 8:58 am

        @williamansah, Because the goods were received on 29 June (before the year end) it was correct to include them in inventory. So the inventory figure is correct.

        However, they should have accrued for the invoice (which was not actually entered until after the year end). If they accrue for the invoice then it will make the purchases higher. This will make the profit lower (so the profit at the moment is overstated).

  2. Avatar of rhwesley rhwesley says:
    May 25, 2012 at 10:02 am

    what would be the entry for option A in question 1 ? thanks in advance

    • Avatar of johnmoffat johnmoffat says:
      August 2, 2012 at 10:19 am

      @rhwesley, The entry will be debit cash and credit irrecoverable debts expense account.
      (Instead, you can credit an account for irrecoverable debts recovered, but since this will appear in the income statement as a ‘negative’ expense, it is easier to simply credit irrecoverable debts expense account. The end result is the same.)

  3. Avatar of olivianyland olivianyland says:
    May 7, 2012 at 5:42 pm

    With question four because the customer didn’t come back until after the year end can the transaction not be left as is assuming that they will be buying and a return done in the next fiancial year accounts??

    • Avatar of johnmoffat johnmoffat says:
      May 7, 2012 at 7:29 pm

      @olivianyland, The sale does not actually take place until the customer informs the company that he is going to buy.

      Since he did not inform the company until November (i.e. next year), the sale did not take place until next year. At the end of this year, there has been no sale and the goods still belong to the company (and should therefore be included in the companys inventory).

      However, they have recorded the sale this year – they should not have done this and so this years statements need adjusting.

  4. Avatar of sedrak sedrak says:
    April 10, 2012 at 12:31 pm

    thank you

  5. Avatar of william010981 william010981 says:
    March 21, 2012 at 9:50 am

    lovely

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