- This topic has 7 replies, 2 voices, and was last updated 6 years ago by
.
- Posts
in the presentation of financial statements the question needed the entry to be recorded if the beginning balance of the inventory was overstated by 1000 $
the entry they recorded affected the profits of the current year and the retained earnings, my question is why has it affected the profit of the current year shouldn’t it have affected the inventory balance and the retained earnings ??Hi,
Opening inventory forms part of cost of sales, so if this balance needs adjusting then it will automatically impact the profit for the year, which then impacts the retained earnings.
Thanks
yes, but they are talking about beginning balance which should have gotten closed already on the retained earnings(beg balance) that’s why we (DR: Retained earnings) but the credit account should be the inventory (BS) not the profit of the current year, otherwise we would have double the effect on the retained earnings:
1- we adjusted the beg of RE
2- and we adjusted the profit of the current year ( which will affect end Retained earnings)Hi,
Without knowledge of the specific question it is a bit difficult to answer the question fully. Which question is it in the BPP material please?
Thanks
The accountant of Fiddles Co, a limited liability company, has begun preparing final accounts but the work is not yet complete. At this stage, the items included in the list of account balances are as follows
$000
Land 100
Buildings 120
Plant and machinery 170
Depreciation provision 120
Ordinary shares of $1 100
Retained earnings brought forward 380
Trade accounts receivable 200
Trade accounts payable 110
Inventory 190
Profit before tax 80
Allowance for receivables 3
Bank balance (asset) 12
Suspense 1Notes (i) to (v) below are to be taken into account.
(i) The accounts receivable control account figure, which is used in the list of account balances, does not agree with the total of the sales ledger. A contra of $5,000 has been entered correctly in the individual ledger accounts but has been entered on the wrong side of both control accounts. A batch total of sales of $12,345 had been entered in the double entry system as $13,345, although the individual ledger accounts entries for these sales were correct. The balance of $4,000 on the sales returns account has inadvertently been omitted from the trial balance though correctly entered in the ledger records.
(ii) A standing order of receipt from a regular customer for $2,000 and bank charges of $1,000 have been completely omitted from the records.
(iii) A receivable for $1,000 is to be written off. The allowance for receivables balance is to be adjusted to 1% of receivables.
(iv) The opening inventory figure had been overstated by $1,000 and the closing inventory figure had been understated by $2,000.
(v) Any remaining balance on the suspense account should be treated as purchases if a debit balance and as sales if a credit balance.
Required
(a) Prepare journal entries to cover items in notes (i) to (v) above. You are not to open any new accounts and may use only those accounts included in the list of account balances as given.
(b) Prepare final accounts for internal use within the limits of the available information. For presentation purposes, all the items arising from notes (i) to (v) above should be regarded as material.– My question is for the first requirement for note (iv)?
Hi,
So the opening inventory needs to be adjusted, which is a balance in cost of sales, so any adjustment here will impact the profit, as stated in the initial answer above.
The closing inventory adjustment will need us to adjust the inventory on the SFP and the closing inventory in cost of sales in profit and loss. So we will need to add in an additional $2,000 given that it is understated.
Thanks
- You must be logged in to reply to this topic.