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Hi
I will try to explain my confusion with a question:
In closing inventory, the entry is as follows:
Dr. Inventory Account (closing inv. value)
Cr. Income Statementmy question is:
Is there a physical account called “Income statement” in the Chart of Accounts?
I will elaborate on my confusion with another example:
During a write off of a bad debt, the entry is as follows:
Dr. Irrecoverable Debts
Cr. Receivable.So the T account shows a debit balance in the Irroverable Debts account.
when it is charged to the Income Statement,
we see a Cr to the Irrecoverable with the description ‘transfer to Income statement’
so does this mean that the Income Statement gets debited?
Of course, in all of the Chart of Accounts, i have not seen a chart that has explicitly an account called Income Statement.
Please not, I understand all the entries and the logic. am just trying figure out this Income Statement thing.
Appreciate all the help
Regards
Mansoor
Thank u for replying.
but then what does “Inventory Account SOFP” or “Inventory Account Income Statement” mean?
am i correct in assuming that it is just the Inventory Account that is physically present in the chart of accounts?
or there are 2 accounts which are called “Inventory Account SOFP” and “Inventory Account Income statement” present in the chart?
regards
You should not have posted this question on here – it is not an F6 problem.
Also, lilianafiott should not have replied – she/he is not a tutor.lilianafiott is wrong!
There is an account called Income Statement Account (which is rewritten at the end of the year in the standard format).
The double entry at the end of the year, DV Inventory A/C and CR Income Statement A/C.
If you watch my Paper F3 lecture on here (which is free) about Inventory, then you will see an explanation of the entries.
Dear John
It must have been a mistake because i didnt post it in f6.
now that i know there is an Income statement account, i assume that there is also an SOFP account?
I understand the entries.
in one of ur lectures on Receivable Allowance, the Irrecoverable Debt account has a final debit balance, lets say X.
you transfer this amount to the income statement by
Dr Income Statement
Cr Irrecoverable Debtso it is safe to assume that at year end, the income statement and sofp accounts are created in the chart of accounts or its just a formatting thing?
The inventory account appears in the SOFP.
As you will know from my lectures, the statement of financial position is just a list of the balances left on the accounts.
Dear John
Saw your lectures .. and as usual.. it solved my basic confusion.
for those who r doing self study … this service is truly in a class by its self!
congratualtions!!
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