Profit Determination free essay sample

Depreciation Schedule Units of production Assume cost $105 000 residual $ 5 000 estimated useful of 24 000 units Units Used 6 000 6 000 4 000 4 000 4 000 Depn. Charge 25 000 25 000 16 667 16 667 *16 666 Accum. Depn. 25 000 50 000 66 667 83 334 100 000 Carrying Amount 105 000 80 000 55 000 38 333 21 666 5 000 Date Asset Cost 1/7/XO 105 000 30/6/X1 30/6/X2 30/6/X3 30/6/X4 30/6/X5 * rounded down by $1 16 Accounting for Depreciation †¢ Standard entry to record depreciation charge for the period †¢ End of period adjustment , assuming straight line for y. e. 0/6/X1 June 30 Depreciation Expense 20 000 Accumulated Depreciation 20 000 to record depreciation expense for the period 17 Pre-collected/Unearned Revenue †¢ Amounts received before service is performed LIABILITY ACCOUNT Unearned Revenue Adjusting entry Debit Cash receipt REVENUE ACCOUNT Adjusting entry Credit revenue earned during the current period 18 6 Balance-day adjustment for precollected revenue †¢ Origin al entry – Cash – GST Collections – Unearned Revenue Dr Cr Cr 11 000 1 000 10 000 †¢ Balance day adjustment for revenue earned – Unearned Revenue – Revenue Dr Cr 5 000 5 000 19 Accrued/Unrecorded Expenses †¢ Expenses consumed but not yet paid for ASSET ACCOUNT Expense Payable Adjusting entry Credit EXPENSE ACCOUNT Adjusting entry Debit expenses incurred 20 Balance day adjustment for accrued expenses †¢ Balance Day – Wages Expense – Wages Payable Dr 6 000 Cr 6 000 †¢ Next year when wages of $15 000 are paid (no GST on wages) – Wages Payable – Wages Expense – Cash Dr Dr Cr 6 000 9 000 15 000 21 7 Accrued/Unrecorded Revenue †¢ Amounts due for services performed but not yet received ASSET ACCOUNT Accounts receivable Adjusting entry Debit REVENUE ACCOUNT Adjusting entry Credit evenue earned but not yet received 22 Balance day adjustment for accrued revenue †¢ Balance day adjustment for services performed but not yet received in cash – Fees Receivable Dr Service Fees Revenue Cr 30 000 30 000 †¢ When revenue is received in new year – Cash – GST Collections – Fees Receivabl e Dr Cr Cr 33 000 3 000 30 000 23 Disposal of Non-current Assets †¢ Remember how inventory is recorded when sold (perpetual inventory system) (Ignore GST) – Receivables/Cash – Sales – Cost of Sales – Inventory Dr Cr Dr Cr 5 000 5 000 3 200 3 200 24 8 Disposal of Non-current Assets †¢ When non-current assets are sold, we used to simply follow the inventory entries: – Receivables/Cash – Proceeds on Sale Dr Cr 5 000 5 000 – Carrying Amt of Asset Sold Dr 3 200 – Accumulated Depreciation Dr 6 800 – Non-current Asset Cr 10 000 25 Disposal of Non-Current Assets †¢ For the sale of non-current assets – Proceeds recorded at the ‘gross amount received’ (revenue) – Carrying amount of asset sold represents expense for the period – The difference between proceeds and carrying amount represents the gain or loss on sale 26 Disposal using a Sale of Assets Account, (which makes life more complex) Sale of non-current assets Date Cash at Bank Sale of Asset to record gross proceeds from sale Sale of Asset Accumulated Depreciation Non-current Asset to transfer the expense (carrying amount of the asset sold) 500 500 gain of $400 Date 100 900 1 000 27 9 Using a Sale of Asset account †¢ We need a third entry under this approach: (ignoring GST) – Sale of Asset Dr 400 – Gain on Sale of Asset Cr 400 28 Disposal of Non-Current Assets †¢ Sale of non-current assets – eg, carrying value more than the selling price Date Cash at Bank Proceeds on Sale of Asset to record gross proceeds from sale 50 50 loss of $50 Date Carrying Amount of Asset Sold 100 Accumulated Depreciation 900 Non-current Asset 1 000 to recognise as expense the carrying amount of the asset sold 29 Closing entries in the Accounting Cycle 1. We will write a custom essay sample on Profit Determination or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Recognise record transactions Source documents 2. Journalise transactions General journal 3. Post to ledger accounts General ledger 4. Prepare unadjusted trial balance of GL Trial balance (unadjusted) 30 Continued next slide 10 The Complete Accounting Cycle 5. Determine adjusting entries and/or journalise General journal 6. Post adjusting entries to general ledger General ledger (accounts adjusted) 7. Prepare adjusted trial balance of GL (adjusted) Trial balance (adjusted) 8. Journalise closing entries General journal 31 Closing Temporary Accounts †¢ Revenue expense accounts must be closed at the end of each period to determine profit/loss for the period †¢ They begin and end each accounting period with a zero balance †¢ Profit loss summary account used to facilitate closing process determination of profit 32 FLOWCHART of CLOSING PROCESS (CLOSE REVENUE ACCOUNT) REVENUE 28 500 12 000 7 500 9 000 (CLOSE EXPENSE ACCOUNTS) PL SUMMARY 4 450 24 050 28 500 24 050 SALARY EXP 1 500 1 800 3 300 (CLOSE P L SUMMARY) CAPITAL ACCOUNT 2 500 24 050 RENT EXP 800 800 DRAWINGS SUPPLIES EXP 350 350 2 500 2 500 33 (CLOSE DRAWINGS ACCOUNT) 11 The Closing Process †¢ Revenue accounts closed to P L summary †¢ debit revenue †¢ credit P L summary †¢ Expense accounts closed to P L summary †¢ debit P L summary †¢ credit expense 34 The Closing Process Profit Loss summary balances to determine profit/loss then closed to capital †¢ debit P L summary (assuming a profit) †¢ credit Capital account †¢ Drawings closed to capital †¢ debit Capital account †¢ credit Drawings account 35 After the Closing Process †¢ †¢ †¢ †¢ All revenue accounts have nil balances All expense accounts have nil balances The drawings account has a nil balance The capit al account has been increased/decreased by the profit/loss decreased by the owner’s drawings 36 12 Post Closing Trial Balance †¢ Reflects all accounts with balances after the closing process – Assets – Liabilities – Owner’s capital 37 13