Adjustments to Profits – ACCA Financial Accounting (FA) lectures
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I am also confused with C. Goods which had cost $2,000 had been sent to a customer. so why didnt we also deduct the $2,000 since it said they had sent it but the customer was yet to confirm they are received it? So if they received it, would we have deducted the cost? I am assuming we didnt deduct the $2,000 because there was no confirmation that the customer had received it
As I explain in the lecture. the goods are sent on sale or return and it is only when the customer confirms that they wish to keep the goods that we record it as a sale.
I still do not understand why the prepayment was added. From my understanding prepayments should be added in the current year. They said no adjustment had been made so why did we add it? Why didn’t we leave it as it is, since it shouldn’t be added in the current year?
If part of the cash paid is a prepayment, then it should be entered and reduces the expense for the year (as I show in my free lectures).
Dear Sir,
I am slightly confused after watching the lecture on prepaid rent. I thought that being a prepaid, we will have to reduce that from the profit instead.
As previously asked on adjusting the sales 2000 and profit 400 together instead of only the profit. Your answer mentioned that are not producing the a full statement. How does that differ from the draft financial statement? and will you know if the exam question will differentiate both? because for me, both are the same. of course one is a draft and the other is full FS
A draft of anything is a first version. It is then checked and any mistakes corrected before a final version is prepared.
As far as the prepayment is concerned, if it has not been entered then the whole of the cash paid will have been treated as an expense in this period. If some of it was a prepayment then only the rest of the payment should have been charged as the expense. Therefore the correct expense will be lower and therefore the correct profit will be higher.
For sale or return, Instead of (400), why dont we make the profit to 1600 ? (-400 + 2000 (increased closing inventory increases profit) by looking at the overall impact ?
Thank you for the clarification. So adjustments to profit focus only on the effect on profit. I had the same understanding earlier but it’s much clearer now.
You are welcome 馃檪
Hello Sir.
Your lectures have been very helpful thanks a lot. However, i thought prepayments shouldn’t be included in the current year’s financial statement? i don’t understand why the 490 was added to the profit. could you explain please.
They shouldn’t be included, so we need to remove them. Removing them reduces the expense which increases the profit.
Oh i see! it makes sense now. Thank you.
i still dont understand
You will have to say what you do not understand and then I will try and explain 馃檪 (I assume that you have actually watched the lecture?)
Where can I find partnership accounts
Partnership accounts are not in the syllabus for Paper FA and have not been for many years !!!
Hello there. Where can i find lectures on incomplete records?
‘Incomplete records’ is not a separate topic.
It is being able to deal with basic double entry and/or control accounts and/or mark ups and margins.
All the topics are explained in my free lectures. The lectures are a complete free course and cover everything needed to be able to pass the exam well.
Hello sir,
Lower value of closing inventory will increase the profit ,then why did you deduct the amount while adjusting the profit
please explain.
A lower value of closing inventory does not increase the profit. It increases the cost of sales which decreases the profit.
Thank you so much sir
You are welcome 馃檪
Hello Sir,
Requesting for some clarity in the video of adjustments to profit.
In my understanding, I thought that since sales have not been confirmed yet, then they should also be adjusted. Therefore sales 2000 plus profit 400 should both be deducted from the draft profit.
Please assist
If we were producing a full profit statement, then we would reduce the sales. But we would also increase the closing inventory because the goods still belong to the company (and this would have the effect of reducing the cost of sales). The net effect of the two would be that the profit would reduce by 400.