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While I was doing the revision kit, I was confused with certain question
The following year?end adjustments are required to a set of draft financial statements:
? Closing inventory of $45,700 to be recorded.
? Depreciation at 20% straight line to be charged on assets with a cost of $470,800.
? An Irrecoverable debt of $230 to be written off.
? Deferred income of $6,700 to be recorded.
What is the impact on net assets of these adjustments?
A $55,390 increase
B $55,390 decrease
C $41,990 decrease
D $41,990 increaseWhat’s the double entry of deferred income ?
I guess the double entry is – DR cash account
– CR deferred income
So, this should be added with plus but, in the answers they have added this to minus in adjustments
How ???Deferred income is where we have received payment from a customer in advance. So we have received the cash this year, but the income is not going to be recorded as a sale until this year.
Although the question could be worded better, what will have happened is that they will have received the cash but will have credited sales.
So the adjustment needed to the draft accounts will be to debit sales and to credit deferred income.
The credit on deferred income will reduce the net assets.
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