Forum Replies Created
- Posts
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)?
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)
