Task 3 prepare final accounts from given trial balance figures adjusting for accruals, d epreciation, and prepayments

ABSTRACT INTRODUCTION .3 Task 1: Recording transaction using journal and ledges I What is financial accounting? II What is the Accounting Cycle? III Journal entry of AC&DC .5 IV "T" account Task 2: Produce a trial balance applying the use of the balance off rule to complete the ledger14 Task 3: Prepare final accounts from given trial balance figures adjusting for accruals, depreciation, and prepayments 15 I Depreciation 15 II Definition 15 Calculate depreciation straight-line method by using life of assets and rate 15 Prepayment 16 III Definition 16 Calculate prepayment 16 Accruals 17 Definition 17 Calculate Accrual 17 Task 4: Produce final accounts for a range of examples that include sole traders, partnerships, or limited companies 19 I Final Account 19 II Adjustment 19 III Final Account with adjustment and calculation .19 CONCLUSION 23 REFERENCES 24 ABSTRACT Financial accounting is essential for financial accountability, necessary for a prosperous society This report argues the importance of research that may provide more complete insights into financial accounting This article examines an innovative assessment task on college accounting students in an economic accounting course The mission requires students to research to identify current shifts and debates in the financial accounting field by tracking multiple sources and using a newsletter format to present their findings This mission, designed to increase student engagement and interest in accounting matters and accounting presentation as a dynamic, interactive social structure, is not the case Educators use legal practice and can in a wide variety of geographic disciplines and contexts Furthermore, it shows the importance of creativity as an effective tool for increasing student engagement and the advantages of this assessment task on the job Keyword: Accounting, Financial, Balance, Journal entry, Expense, T account, Accrual, Prepayment, Calculate, Account receivable INTRODUCTION I'm in a role of an assistant accountant preparing an accounting for AC & DC In this report, the reporter will display the definition of the accounting cycle, the test balance, the final Account, and so on The reporter will then show T account calculation, test balance, prepayment, etc., by AC & DC The following report contains information about the definition of financial accounting, what is the accounting cycle, and how to apply it, with examples Track information about depreciation, accrual, prepayment, and how it is calculated The final part of the report covers the preparation of a definitive account with adjustments Task 1: Recording transaction using journal and ledges I What is financial accounting? Financial accounting is an accounting discipline that focuses on drafting annual reports for shareholders on the company's overall operating results In accounting and financial accounting operations, it is the recording, reflecting, synthesizing data, preparing financial statements to serve the information needs of the subjects outside the unit, the leading enterprise The outside companies that need this information often include shareholders, authorities such as tax, inspector , creditors, banks and mainly serve the needs of macro-management This is the way of classifying accounting according to the content, nature, and purpose of providing information to meet the needs of accounting objects in the accounting profession II What is the Accounting Cycle? The accounting cycle is a collective process of identifying, analyzing, and recording the accounting events of a company The series of steps begin when a transaction occurs and end with its inclusion in the financial statements Additional accounting records used during the accounting cycle include the general ledger and trial balance (Investopedia) Steps of the Accounting Cycle There are Five steps to the accounting cycle: Source Documents: are documents, such as cash slips, invoices, etc that form the source of, and serve as proof for, a transaction In other words, they are the first documents that exist relating to a transaction Bookkeepers and accountants need to keep source documents for each transaction 2 Journals: Journal entries are that first basic entry of debit and credit for each transaction, chronological (date-order) records of transactions entered into by a business Ledger (T-Accounts): The ledger is a grouping of the accounts of a business The accounts are in the shape of a "T" and thus are often referred to as T-accounts In this step we take all the journal entries (debits and credits) relating to one account (in this example, bank) and draw up an account with all the transactions relating to it The Trial Balance: The trial balance is a sheet or report displaying all the accounts of a business, drawn up as a trial (test) of whether the total of all the debit balances equal the total of all the credit balances Financial Statements: The purpose of the financial statements is to show the reader the financial position, financial performance, and cash flows of a business Journal entry is an accounting transaction, usually involves a financial accounting document such as an invoice, payment, a receipt, etc An entry always includes at least two accounts, described here as credits or debit to specific statements In a journal, the sum of the debit amounts must be equal to the credit sum Example: Materials account Dr 300£ Cash account Cr 300£ Ledger (T Account) is an essential thing in every Business The accountant will clearly and completely record the entire transaction process, such as revenues, expenditures, and debts of the company with customers and partners from time to time, from time to time, each stage Example: If AC&DC sold £20,000 worth of materials, it would debit its cash account £20,000 and credit its materials or inventory account £20,000 This double-entry system shows that the company now has £20,000 more in cash and a corresponding $20,000 less in inventory on its Materials The T-account will look like this: Assets Debit (Dr) Credit (Cr) Cash £20,000 Materials £20,000 Trial balance: The trial balance sheet is an accounting spreadsheet in which the proportions of all ledgers are made into two columns of Debit and Credit are equal Within an appropriate period, the parties of each Account will be aggregated and balances calculated These balances are often grouped on a trial balance sheet, which serves as a basis for reporting and balance sheet operations Use the trial balance test to detect any computational errors that have occurred in the doubleentry accounting system If the total debt is equal to the full credit, the trial balance sheet is considered balanced, and there will be no math errors in the ledger However, this does not mean that there are entirely no errors in the company's accounting system III Journal entry of AC&DC Number Account title and explanation Raw material Ref Debit £ 5.000 Credit £ 4.500 Account payable 10 11 12 Bought raw material Account receivable Received income on Account 2.000 Sold material Cash Account payable 4.000 Borrowed money from bank Cash Share capital 2.000 2.000 4.000 2.000 Issued share to investor Insurance expenses Cash 65 Paid insurance Cash Bad debt Account receivable 10.000 10.000 50% money received from Account receivable Tax expense Cash 65 20.000 500 500 Paid income tax to government Salary expense Cash 3.000 Paid salary to employees Insurance expense Cash 1.000 Paid as insurance expense Dividend expense Cash 1.000 Paid dividend to shareholder Depreciation on machine expense Cash 1.000 Depreciation on Machine 10% Interest bank loan 3.000 1.000 1.000 1.000 2.000 2.000 Cash 13 14 10% interest paid to bank Cash Dividend 300 Dividend received from company B Cash Account receivable Revenue account 900 2.100 300 Value product sold to customer on 70% credit and 30% cash Account payable Cash 15 Returned to bank £4.000 borrowed money Sale of machinery Cash 16 Machinery sold and got income loss Cash account Discount paid Revenue account 20% Discount paid to customer on the cash sales of £1000 product Rent account Outstanding rent expense 17 18 Outstanding rent expense £55 Cash Revenue account 19 Cash sold product sold by customer amount of £800 Cash Bad depts recovered Account 20 3.000 4.000 4.000 300 300 800 200 5.000 55 55 800 800 10.000 10.000 Bad debts recovered amount of £10,000 IV "T" account Cash account Bank loan from ACB bank £4,000 Insurance expense £65 Shared capital account Receivable account Dividend income Value product sold to customer on 70% credit and 30% cash 20% Discount paid to customer on the cash sales of £1000 product Cash sold product sold by customer Bad debts recovered Account £2,000 Tax expense £500 £10,000 £300 £900 Salary expense Insurance expense Dividend expense £3,000 £1,000 £200 £800 Interest expense £2,000 £800 Bank loan ACB bank from £4,000 £10,000 £28,800 £10,765 £18,035 Cash on debit: Borrow money from ACB bank, issued share to investor, receive 50% out of £20,000 from Account receivable, dividend received from Company B, receive 30% cash in £3,000 value product sold to customer, 20% Discount paid to customer on the cash sales of £1000 product, product sold to customer amount of £800 Cash on credit: Paid insurance £65, paid income tax to government amount of £500, paid salary to employees £3,000, £1,000 paid as insurance expense, dividend paid to shareholder amount of £200, 10% interest paid to bank on £20,000 borrowings, £4000 borrowed money, returned to ACB bank Material £5,000 Bought raw material (1) £5,000 (1): Bought raw material on credit from Mr X amount of £5,000 Account payable Bought raw material (1) £4,500 £4,500 (1): Bought raw material on credit from Mr X amount of £5,000 at 10% discount The Business only paid £4,500 Discount received Bought raw material (1) £500 £500 (1): Bought raw material on credit from Mr X amount of £5,000 at 10% discount Because of 10% discount, the company is saved £500 Account receivable £2,000 Sold material (2) product sold £2,100 to customers (14) £4,100 Out of £20,000 £20,000 sales (6) £20,000 £15,900 (2): Sold material to Mr P on credit of £2,000 The Business received £2,000 on credit (6): Out of £20,000 sales, only 50% money received from the Account receivable amount (14): The Business sold product, which is value £3,000 on 70% credit and 30% cash Therefore, the Business was paid £2,100 on 70% credit Revenue account Sold material £2,000 to Mr P (2) Product sold £3,000 £3000 value (14) Sale £1000 £1,000 product (17) Sold product £800 amount of £800 (19) £6,800 (2) The Business collected £2,000 revenue on credit by sold material to Mr P (14) £3000 value product sold to the customer (17) Sold product with £1000 to customer (19) Cash sold product sold by customer amount of £800 Bank loan Returned money (15) £4000 Borrow money (3) £4,000 (3) Borrow money from ACB bank £4,000 (15) Returned £4,000 to ACB bank Shared capital £2,000 Issued share to investor (4) £2,000 (4) Issued share to investor amount of £$2,000 Expense Paid £65 insurance (5) Paid income £500 tax (7) Paid salary £3,000 (8) £1,000 Insurance expense (9) Depreciation £1,000 on machinery (11) interest paid to bank (12) £2,000 £7,565 (5): Paid insurance £65 (7): Paid income tax to government amount of £500 (8): Paid salary to employees £3,000 (9): £1,000 paid as insurance expense (11): Depreciation on machinery 10% of £10,000, therefore, depreciation only lost £1,000 (12): 10% interest paid to the bank on £20,000 borrowings, meaning The Business have to pay £2,000 from 10% interest Bad-debts account Out of £10,000 £20,000 sales (6) £10,000 (6): Out of £20,000 sales but only 50% money received from the Account receivable amount, which means there is £10,000 haven't been received Dividend expense £200 Dividend paid to shareholder (10) £200 (10): Dividend paid to shareholder amount of £200 Machine account Depreciation £1,000 on machinery (11) Machinery sold (16) £300 £1,300 (11): Depreciation on machinery 10% of £10,000 said the value of the machine is reduced £1,000 (16): Machinery sold and got £300 loss Loss on sales machine Machinery £300 sold (16) £300 (16): Machinery sold and got £300 loss Discount paid £200 Discount paid to customer (17) £200 (17): 20% Discount paid to the customer on the cash sales of £1000 product, it means the customer only paid £800 Rent account £55 Rent expense (18) £55 (18): Paid £55 for rent expense Outstanding rent expense Outstanding £55 rent (18) £55 (18): Outstanding rent expense £55 Bad debts recovered Account Bad debts £10,000 recovered (20) £10,000 (20): Bad debts recovered amount of £10,000 Dividend income Dividend received from Company B (13) £300 £300 (13): Dividend received from Company B, £300 Task 2: Produce a trial balance applying the use of the balance off rule to complete the ledger Dr Cr Cash £18,035 Material account £5,000 £4,500 Account payable £500 Discount received £15,900 Account receivable £6,800 Revenue account Bank loan £2,000 Shared capital account Expense £7,565 Bad debt account £10,000 Dividend expense £200 £1,300 Machine account Loss on sales machines £300 Discount paid £200 Rent account £55 £55 Outstanding rent expense £10,000 Bad debts recovered Account £300 Dividend income £41,356 £41,355 Task 3: Prepare final accounts from given trial balance figures adjusting for accruals, depreciation, and prepayments I Depreciation Definition Depreciation is the method of distributing the cost of a fixed asset over its useful life Fixed assets or tangible fixed assets are physical assets that can be touched Some examples of tangible fixed assets that are often depreciated are Houses, Equipment, Office Furniture, Vehicles, Land, Machinery For example: If a building is purchased from a company at the cost of $ 1,000,000 and an expected truck life of years, the Business can depreciate the property at a depreciation cost of $ 200,000 per year over time five years Calculate depreciation straight-line method by using life of assets and rate Book value−Residual value We have the formula: ������������ = Number of useful life Book value= 18,000 Residual value= 2,000 Number of useful life= years So, we have: 18,000−2,000 = £4,000 We also have the formula: ���� = �������� ���� ������ ������������ �� ���� x100 Book value−Residual value 4,000 18,000−2,000 x100 = 25% Declining balance method (Depreciation rate = 2* Straight-line depreciation percent =50%) Straight-line method 18,000 - 4,000 = £14,000 14,000 - 4,000 = £10,000 10,000 - 4,000 = £6,000 6,000 - 4,000 = £2,000 (1): 50% × £18,000 = £9,000 Income Statement Reducing balance method 18,000 - 9,000(1) = £9,000 9,000 - 4,500(1) = £4,500 4,500 – 2,250(1) = £2,250 2,250 – 250(2) = £2,000 50% × £9,000 = £4,500 50% × £4,500 = £2,250 (2): AC & DC expects the machine to have a salvage value of £ 2,000 when its 4-year life expires But from 2014 to 2016 = £2,250 => 2017 is £250 Straight line method £18,000 - £4,000 = £14,000 £18,000 - £8,000(3) = £10,000 £18,000 - £12,000(3) = £6,000 £18,000 - £16,000(3) = £2,000 (3): £4,000 + £4,000 = £8,000 Balance sheet Reducing balance method £18,000 - £9,000 = £9,000 £18,000 - £13,500(4) = £4,500 £18,000 - £15,750(4) = £2,250 £18,000 - £16,000(5) = £2,000 £8,000 + £4,000 = £12,000 £12,000 + £4,000 = £16,000 (4): 50% of £9,000 = 4,500 => 4,500 + 9,000 = £13,500 50% of £13,500 = 6,750 => 6,750 + 9,000 = £15,750 (5): AC & DC expects the machine to have a salvage value of £ 2,000 when its 4-year life expires II Prepayment Definition Following Investopedia prepayment is an accounting term for the settlement of a debt or installment loan in advance of its official due date A prepayment may be the settlement of a bill, an operating expense, or a non-operating expense that closes an account before its due date A prepayment may be made by an individual, a corporation, or any other type of organization Some examples include Expenses for buying insurance, paying rent in advance, renting property and services Costs for establishing a business, moving business locations, and reorganizing companies Training costs for managers and technical workers Research costs are of great value; the cost of implementation does not qualify as intangible fixed assets (fixed assets)—the cost of buying the technical documents during the downtime Calculate prepayment The firm pays an insurance premium of £5 000 to cover April 1, 2020, to March 31, 2021, but the firms' accounting year ended on December 31, 2020 Therefore, January to March is prepaid for the year 2021 Because of paying £5 000 to cover 12 months So, we have month = £5,000/12 =£1,250/3  months the firm pays on prepayment is (£1,250/3) x3 = £1,250 Prepaid-insurance account Prepaid insurance expense account Dr: £1,250 Cr: £1,250 Prepayment account Insurance £1,250 £1,250 Insurance expense account Prepaid insurance expense £1,250 £1,250 III Accruals Xin (the salesperson of AC & DC) receives a commission for services which is payable every quarter The commission receivable for each quarter of the year 2014 is as follows: £3 000 for the first quarter; £3,300 for the second quarter; £2,600 for the third quarter; and £3,700 for the fourth quarter Xin closes her books for the year on December 31 The commission revenue for the fourth quarter, £3,700, has not been received by December 31, 2020, how Xin will record this transaction into his Account Definition The accounting and bookkeeping term accruals refer to adjustments that must be made before a company's financial statements are issued (accountingcoach) Accruals involve the following types of business transactions:   Expenses, losses, and liabilities that have been incurred but are not yet recorded in the accounts, and Revenues and assets that have been earned but are not yet recorded in the accounts For example, in December the company used electricity in December However, the utility did not bill its customers for that electricity until they read the meter in January Therefore, the utility's financial statements will need accrual adjustment Calculate Accrual Commissions receivable for each quarter of 2014 are as follows: £ 000 for the first quarter; £ 3,300 for the second quarter; £ 2,600 for the third quarter; and £ 3,700 for the fourth quarter But commission revenue for the fourth quarter, £ 3,700, has yet to be received by December 31, 2020 For these reasons, cumulative revenue is £ 3,700 Account receives commission accrual revenue Commission £3,700 £3,700 Commission receives commission accrual revenue Account receives commission £3,700 £3,700 Task 4: Produce final accounts for a range of examples that include sole traders, partnerships, or limited companies I Final Account Final Accounts gives an idea about a business's profitability and financial position to its management, owners, and other interested parties It combines the following statement: trading account, profit and loss Account, and balance sheet The final accounts are prepared to throw light on the Business's financial results during the accounting period and the Business's financial position at that period (Kaur, 2018) II Adjustment An adjusting entry is simply an adjustment to your books to make your financial statements more accurately reflect your income and expenses, usually — but not always — on an accrual basis Adjusting entries are made at the end of the accounting period This can be at the end of the month or the end of the year (nerdwallet) III Final Account with adjustment and calculation Revenue (COGS) £71,286 (£60,486) Gross profit (Operation expense) £10,800 (£7,712) Net income £3,088 CoGS = Opening stock + purchase + carrier inward – closing stock = 8,760 + 60,426 + 1,500 – 10,200 = £60,486 Gross profit = Sales – CoGS =£71,286 - £60,486 = £10,800 Net income = Gross profit - Net income = 10,800 - 7,712 = £3,088 Revenue (£) Sales £70,176 Discount £360 Discount receivable £120 Apprentice premium £630 (Sales return) (£1,260) Total revenue: £71,286 In apprentice premium £120 are unearned so £750 – £120 = £630 Total revenue = Sales + Discount + Discount receivable + Apprentice premium = 70,176 + 360 + 120 + 630 = £71,286 Stock Cost of goods sold £8,760 Purchase £62,172 Carriage £1,500 (Closing inventory) (£10,200) (Returns) (£1,746) Total COGS: £ 60,486 Total COGS = Stock + Purchase + Carriage - Closing inventory – Returns = 8,760 + 62,172 + 1,500 - 10,200 - 1,746 =£ 60,486 Operation expense Salaries £2,640 Rent £880 Rates and taxes £880 Interest on capital £1,350 Bad debts £1,392 Depreciation £570 Operation expense £7,712  Outstanding rent was £160 => £720 + £160 = £880  Taxes paid in advance was £320 so you have to pay £320 next year => 1,200 - £320 = 880  Interest on capital was 5% => £27,000 x 5% = £1,350  Provision for bad debts is 5% on accounts receivables => £19,200 x 5% = £960 (1)  Provision for bad debts: £600 (2)  So, from (1) and (2) we have Bad debts = £1,032 + £960 – £600 = £1,392  Depreciation on furniture was 10% => £5,700 x 10% = £570  Operation expense = Salaries + Rent + Rates and taxes + Interest on capital + Bad debts Depreciation = £2,640 + £880 + £880 + £1,350 + £1,392 + £570 = £7,712 Balance sheet assets on 31 December 2020: Assets (£) Non-current assets: Furniture Current assets: Cash Accounts receivables Bills receivables Prepaid expense Closing stock Total assets £5,130 £288 £18,240 £1,440 £320 £10,200 £35,618  Non-current assets = Furniture – Depreciation = £5,700 - £570 = £5,130  Accounts receivables – bad debts = £19,200 – £960 = £18,240  Prepaid expense is £320 because taxes paid in advance was £320, meaning until the ended of this year £320 is still your asset  Then, the current assets will help to find the total asset more clearly  Total current assets = £288 + £18,240 + £1,440 + £320 + £10,200 = £30,488  Total asset = £30,488 + £5,130 = £35,618 Liability and equity Non-current liability 0 Current liability Account payable £5,880 Outstanding rent £160 Apprentice premium £120 (unearned) Bills payable £1,080 Bank overdraft £1,200 Total current liability £8,440 £8,440 Equity Capital £27,000 Net income £3,088 (Drawing) (£4,260) Income statement capital £1,350 Total equity £27,178 £27,178 Total liability and equity £35,618 Discount on account payable was 2% => £6,000 x 2% = £120 So, account payable decrease £120 => £6,000 – £120 = £5,880 We have Additional information: Outstanding rent was £160, in apprentice premium £120 are unearned, and interest on capital (£27,000) was 5% => £27,000 x 5% = £1,350 The total current liabilities is the sum of current liabilities in AC&DC Total current liabilities = £5,880 + £160 + £120 + £1,080 + £1,200 = £8,440 Total equity = £27,000 + £3,088 - £4,260 + £1,350 = £27,178 Total liability and equity = £8,440 + £27,178 = £35,618 AC&DC Balance sheet For the year ended on December 31 2020 Assets Current assets Cash Account Receivable Bills Receivable Prepaid expense Closing stock Total current assets £ 288 £ 18,240 £ 1,440 £ 320 £ 10,200 £ 34,480 Non-current assets Furniture Total non-current assets £ 5,130 £ 5,130 Total assets £ 35,618 Liabilities Current Liabilities Account Payable Outstanding Rent Apprentice Premium Bills payable Bank overdraft Total current liabilities Non- current liabilities Total non- current liabilities £ 5,880 £ 160 £ 120 £ 1,080 £ 1200 £ 8,440 £ Total Liabilities £ 8,440 Equity Capital Net income Drawing Income statement capital Total equity £ 27,000 £ 3,088 (£ 4,260) (£ 1,350) £27,178 Total Liabilities & Equity £35,618 CONCLUSION The accounting department plays an indispensable role in any organization or Business Therefore, the job market and the demand for human accounting resources are always good career opportunities for young people to orient their future careers Financial accounting systematically records all business transactions, but it also provides information to the company's owner or manager about the company's current financial status, strong or weak This is very important for decision-making for the future development of the Business through financial accounting, which is the financial statement REFERENCES AccountingCoach.com 2021 What are accruals? | AccountingCoach [online] Available at: [Accessed May 2021] Investopedia 2021 Accounting Cycle [online] Available at: [Accessed 28 April 2021] Investopedia 2021 Prepayment: Satisfying Debts Before They Are Due [online] Available at: [Accessed May 2021] NerdWallet 2021 What Are Accounting Adjustments? - NerdWallet [online] Available at: [Accessed May 2021] Tutor's Tips 2021 Final Accounts: Definition and Explanation - Tutor's Tips [online] Available at: [Accessed May 2021]