End of year reporting
What type of account is PREPAID EXPENSE?
Current asset
What type of account is UNEARNED REVENUE?
Current liability
What type of account is an ACCRUED EXPENSE?
Current liability
What type of account is an ACCRUED REVENUE?
Current asset
At 30 June, the business is owed $1000 for rent from their tenant. What is the balance day adjustment?
Accrued revenue DR
Rent revenue CR
At 30 June, the business owes $3000 in wages that will be paid on 2 July.
Wages DR
Accrued expenses CR
At 30 June, the business' term deposit has earned $500 in interest, but the money will not be received until 5 July.
Accrued revenue DR
Interest revenue CR
Rent expense DR
Accrued expenses CR
Which of the following account/s are closed to the Profit or Loss Summary at the end of the financial year?
Cost of goods sold, Furniture and fittings, Rent revenue, Cash at bank
Cost of goods sold
Rent revenue
Which of the following account/s are closed to the Profit or Loss Summary at the end of the financial year?
Accrued revenue, Sales, Insurance, Accounts Payable
Sales, Insurance
Which of the following account/s are closed to the Profit or Loss Summary at the end of the financial year?
Sales returns, Drawings, Unearned revenue, Wages
Sales returns, Wages
Which of the following account/s are closed to the Profit or Loss Summary at the end of the financial year?
Interest, Commission, Inventories, Loan from bank
Interest, Commission
Insurance of $2640 (incl GST) was paid on 1 March for 12 months. When it was paid, Insurance was debited and Cash at Bank was credited. At 30 June, what should be the balance day adjustment?
Prepaid expense DR 1600
Insurance CR 1600
Insurance of $2640 (incl GST) was paid on 1 March for 12 months. When it was paid, Prepaid insurance was debited and Cash at Bank was credited. At 30 June, what should be the balance day adjustment?
Insurance DR 800
Prepaid insurance CR 800
Insurance of $1320 (incl GST) was paid on 1 May for 12 months. When it was paid, Insurance was debited and Cash at Bank was credited. At 30 June, what should be the balance day adjustment?
Prepaid expenses DR 1000
Insurance CR 1000
Insurance of $1320 (incl GST) was paid on 1 February for 12 months. When it was paid, Prepaid Insurance was debited and Cash at Bank was credited. At 30 June, what should be the balance day adjustment?
Insurance DR 500
Prepaid Insurance CR 500
Explain why revenue and expense items are closed to the Profit or Loss Summary at the end of the financial period.
Closing all the expense and revenue accounts to the Profit or Loss Summary brings all these accounts back to zero. Revenue and expense accounts need to be reset to zero at the end of each financial period to enable the profit/loss to be determined for the next financial period. Transferring them to the Profit or Loss Summary also enables the net profit to be determined for the current financial period.
Explain why balance day adjustments are done.
Balance day adjustments are necessary under accrual accounting to match the revenues earned and the expenses incurred for an accounting period so that an accurate net profit figure can be determined and to bring into account the assets (PEAR) and liabilities (PRAE) not previously recorded.
What is a reversing entry and why is a reversing entry done?
A reversing entry is the contra/opposite of the original balance day adjustment. A reversing entry is done at the beginning of the new financial period to cancel the temporary asset and liability accounts (PEAR, PRAE) and to ensure the 'correct' amounts for revenue and expenses are taken into account in the period to which they actually refer.
Put these in order of the complete accounting process.
Balance day adjustments, source documents, end of period reports, journal, ledger and trial balance, reversing entries, closing entries, transactions
Transactions, source documents, journal, ledger and trial balance, balance day adjustments, end of period reports, closing entries, reversing entries.