Question 1 - 10 Marks: The Following Is The Unadjuste 585172
Question 1 - 10 Marks The following is the unadjusted trial balance for James Trading Pty Ltd as at the close of the financial year ended 30 June 2011
The task involves adjusting the unadjusted trial balance for James Trading Pty Ltd by incorporating various adjusting entries, then preparing the closing entries, and finally producing the statement of income and statement of financial position based on these adjusted figures.
Paper For Above instruction
James Trading Pty Ltd's financial operations at the close of the year required comprehensive adjustments to accurately reflect its financial position and performance. The initial unadjusted trial balance presented a snapshot of the company's accounts without account for accrued incomes, prepaid expenses, inventory, and unbilled legal fees. The process of adjusting entries is essential to align the financial statements with the accrual basis of accounting, ensuring revenues and expenses are recognized in the period they occur.
Adjustments to the Trial Balance
Firstly, prepaid rent needs adjustment since three months of rent was paid in advance on June 1st; at $1,000 per month, the total prepaid rent equals $3,000. Recognizing one month (June) as expense, the adjusting entry should debit Rent Expense and credit Prepaid Rent for $1,000.
Next, interest income earned on a loan to J Harris was not recorded. If the interest income accrued during the year was, for example, $2,000, it needs to be added by debiting Interest Receivable and crediting Interest Income.
Legal expenses of $20,000 were estimated but not invoiced. As this expense relates to the current period, it should be accrued by debiting Legal Expenses and crediting Accrued Expenses or Accounts Payable.
Inventory on hand at year-end was valued at $8,500, which represents a stock adjustment. The inventory account should be debited and Cost of Goods Sold adjusted accordingly to reflect this ending inventory.
The company received $20,000 for future services to be delivered over four months. As services were provided in June, an amount for the revenue earned should be recognized. The entry involves debiting Cash and crediting Unearned Revenue, then recognizing Revenue earned for the services delivered.
Closing Entries and Financial Statements
Once adjustments are recorded, closing entries are made to transfer temporary account balances (revenues and expenses) to Retained Earnings. The statement of income will summarize revenues and expenses, resulting in net profit or loss, and the statement of financial position will reflect the updated asset, liability, and equity balances, including adjusted balances for inventory, accrued income, and prepaid expenses.
Conclusion
Proper adjustments ensure compliance with accounting standards, provide stakeholders with accurate financial data, and facilitate informed decision-making. The process involves careful calculation and journal entry preparation, leading to reliable financial statements that truly represent the company's financial health at year-end.
References
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