Importance Of Worksheets And Trial Balance In Accounting

What is a Worksheet?

Solution-1

Part-A

- Yes, the trial balance is an important report since it provides the bird’s eye view of entire transactions posted in the books. In the accounting, all the transactions are posted in the general journal and from there it is posted to the ledgers. From the ledgers, the trial balance is prepared which is basically a summarized report of the transactions. With the help of trial balance, the financial statements are prepared, without trial balance, the preparation of financials is almost impossible.

- No, it will be incorrect to assume that if the trial balance matches, then the books are correct. This is because the trial balance may contain the compensating errors or errors of omission. For example, any transaction omitted from the books to record or the transaction is recorded with the wrong amount on both the sides, and transaction wrongly posted in wrong vendors account, say instead of Ram’s account to Shyam’s account. All these transactions will not reflect in the trial balance making the trial balance incorrect.

Part-B

	Would the error cause the Trial Balance not to balance	Which accounts would be affected and how? Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	How would the error be corrected	Effect on Trial Balance totals
	Yes	No			Debit	Credit
Example A payment for wages of 500 was credited to cash correctly but debited to wages twice expense.	Yes		Wages expense	Debit side of Wages Expense reduced by 500	-500
1. The Accrued Wages account with a balance of $500 was omitted from the Trial Balance.	Yes		Accrued Wages	Credit side of Accrued Wages increased by 500		500
2. A payment of $490 for Prepaid Rent was only posted to the Cash at Bank account and not to Prepaid Rent	Yes		Prepaid Rent	Debit side of Prepaid rent account increased by 490	490
3. A debit of $458 to Cash at Bank was posted as $485. The credit entry was correct.	Yes		Cash at bank	Debit side of cash at bank account reduced by 27	-27
4. A credit of $600 to Accounts Payable should have been made to Fees Revenue		No	Accounts Payable and Fees revenue	Credit side of accounts payable reduced by 600, and credit side of fees revenue account increased by 600	–
5. A Dr for a cash receipt of $500 from customers in settlement of their accounts was posted twice as a DR to the Cash at Bank and a Dr to Accounts Receivable accounts	Yes		Cash at bank	Debit side of cash at bank account reduced by 500	-500
6. The Prepaid Expense balance of $7280 was listed in the Trial Balance as $7820	Yes		Prepaid Expense	Debit side of prepaid expense account reduced by 540	-540
7. A $5210 credit to Fees Revenue was posted as a $521 credit. The debit entry to Accounts Receivable was made correctly.	Yes		Fees revenue	Credit side of fees revenue account increased by 4,689		4,689
8. A purchase of office equipment for $3300 on credit was not recorded.		No	Office equipment, accounts payable	Debit side of office equipment increased by 3,300 & credit side of accounts payable increased by 3,300	3,300	3,300
9. A purchase of Furniture for $7500 using a loan was posted as a debit to the Loan Payable account and a debit to the Equipment account.	Yes		Loan Payable	Credit side of loan payable account increased by 15,000		15,000
10. The drawings account balance was listed as a credit for $1500.	Yes		Drawings	Debit side of the Drawings account increased by 3,000	3,000

Matching principle states that the expenses should be accounted for in the period in which revenue is recognized. Means the expenses relating to a particulars income should be booked in the same period. The matching principle suits with the accrual basis of accounting as the accrual basis of accounting also requires booking of expenses related to the particular income in the same period which the cash basis of accounting requires to book the expenses and incomes in the period in which they are earned or expended in cash.

In the books of J. Jackson

Journal entries for the year ended 30^th June, 2018

(Amount in $)

Sr. No.	Particulars	Debit Amt	Credit Amt
(i)	Wages expense	8,400
	Wages payable		8,400
	(Being wages payable recorded at 21,000/5*2)

(ii)	Commission fees receivable	1,520
	Commission fees		1,520
	(Being income due not received recorded)

(iii)	Prepaid Rent	21,000
	Rent expense		21,000
	(Being prepaid rent recorded at 36,000/12*7)

(iv)	Interest receivable	375
	Interest income		375
	(Being interest earned recorded at 25,0006%1/4)

(v)	Unearned income	3,600
	Income		3,600
	(Being income earned recorded at 12000*30%)

(vi)	Office furniture	6,000
	Office expenses		6,000
	(Being the rectifying entry correctly transferred)

(vii)	Supplies expense	4,500
	Office supplies		4,500
	(Being consumption of office supplies recorded)

(viii)	GST Collected	7,960
	GST Paid		7,960
	(Being net amount of GST recorded)

Calculation of new profit figure

Particulars		Amount
Profit as stated		3,281,001
Adjustments
decrease in profit due to increase in expense
Wages expense	8,400
Supplies expenses	4,500	12,900

increase in profit due to reduced expenses
Rent expense	21,000
Office furniture purchased	6,000	27,000


increase in profit due to Increase in income
Commission fees	1,520
Interest income	375
income (from unearned)	3,600	5,495

Revised Profit		3,300,596

The four qualitative characteristics that enhance the usefulness of information are as below:

- Relevance– The presented information should be relevant and to the point.
- Understandability– The information presented in report should be simple and understandable and should be prepared from the layman point’s of view.
- Reliability– The presented information should be free from errors and mis-representations so that the information can be relied.
- Comparability– The information should be in the prescribed format and as per defined criteria’s so that it can be compared easily.

HARDYARDS ACCOUNTING SERVICES
Worksheet (partial) for period ended 30th June, 2018
Account	Adjusted Trial Balance	Income Statement	Balance Sheet
Debit	Credit	Debit	Credit	Debit	Credit
Cash at Bank	14,900				14,900
Accounts Receivable	25,825				25,825
Prepaid Expenses	2,200				2,200
Office Supplies	6,160				6,160
Accrued Revenue	2,540				2,540
GST Paid	26,000				26,000
Equipment	163,000				163,000
Accumulated Depreciation		28,000				28,000
Accounts Payable		6,320				6,320
Loan Payable		55,000				55,000
Salaries Payable		1,930				1,930
GST Collected		32,740				32,740
Unearned Revenue		2,750				2,750
B. Bright Capital		50,000				50,000
B. Bright Drawings	5,000				5,000
Painting Revenue		204,055		204,055
Wages Expenses	100,020		100,020
Rent Expense	6,550		6,550
Depreciation Expense	11,000		11,000
Marketing Expense	5,520		5,520
Office Supplies Expense	6,180		6,180
Interest on Loan Expense	5,900		5,900
	380,795	380,795	135,170	204,055	245,625	176,740
Profit						68,885
					245,625	245,625

Part-B (ii)

Closing entries in the journal

Sr. No.	Particulars	Debit Amt	Credit Amt
1	Painting Revenue	204,055
	Retained Earnings		204,055
	(Being amount transferred)

2	Retained Earnings	135,170
	Wages expense		100,020
	Rent expense		6,550
	Depreciation expense		11,000
	Marketing expense		5,520
	Office supplies expense		6,180
	Interest on loan expense		5,900
	(Being amount transferred)

3	B. Bright Capital	5,000
	To B. Bright Drawings		5,000
	(Being amount transferred)

The way of offering credits by the business will not change as the sale terms and conditions will remain same, what will change is the process of collections. Earlier the business used to collect money on their own, now they have hired the factors or third parties, who will collect the payment on their behalf. This will increase the collection costs of the businesses which they now need to pay to these factors.

- Now, the firms will not have to monitor their receivables as for these factors are responsible.

Factoring means to outsource the debts collection.

- If bad and doubtful debts are not allowed then it will increase the profit of the firm or will overstate the profit while lowering the provisioning of bad debts.

Part-B(i)

Journal Entries for June

Sr. No.	Particulars	Debit Amt	Credit Amt

(i)	Allowance for Doubtful Debts	11,510
	Accounts Receivable		11,510
	(Being bad debts written off recorded)

(ii)	Cash	19,910
	Accounts receivable	79,640
	GST Collection		9,050
	Sales		90,500
	(Being sales for the month recorded)

(iii)	Cash	121,600
	Accounts receivable		121,600
	(Being cash collection recorded)

(iv)	Cash	1,870
	Allowance for Doubtful Debts		1,870
	(Being cash collected from doubtful debts recorded)

(v)	Accounts receivable	2,200
	Sales		2,200
	(Being rectified entry recorded)

(vi)	Bad debts expense	13,075
	Allowance for Doubtful Debts		13,075
	(Being record bad debts recorded)

Ledger Accounts

Accounts Receivable
Date	Particulars	Debit	Credit	Balance
01-Jun	Opening balance	265,400		265,400
	Allowance for doubtful debts		11,510	253,890
	GST Collection	7,240		261,130
	Sales	72,400		333,530
	Cash		121,600	211,930
	Allowance for doubtful debts	1,870		213,800
	Cash		1,870	211,930
	Sales	2,200		214,130

Allowance for Doubtful Debts
Date	Particulars	Debit	Credit	Balance
01-Jun	Opening balance		15,565	(15,565)
	Accounts receivable	11,510		(4,055)
	Accounts receivable		1,870	(5,925)
	Bad debts expense		13,075	(19,000)


Cash at Bank
Date	Particulars	Debit	Credit	Balance
01-Jun	Opening balance	106,000		106,000
	GST Collected	1,810		107,810
	Sales	18,100		125,910
	Accounts receivable	121,600		247,510
	Accounts receivable	1,870		249,380


Sales
Date	Particulars	Debit	Credit	Balance
01-Jun	Opening balance		878,490	(878,490)
	Cash		18,100	(896,590)
	Accounts receivable		72,400	(968,990)
	Accounts receivable		2,200	(971,190)


GST Collected
Date	Particulars	Debit	Credit	Balance
01-Jun	Opening balance
	Cash		1,810	(1,810)
	Accounts receivable		7,240	(9,050)


Bad debt expense
Date	Particulars	Debit	Credit	Balance
01-Jun	Opening balance
	Allowance for doubtful debts	13,075		13,075

Part-B(iii)

Classified Income Statement and Balance Sheet

Income Statement In the books of Homewares Company Ltd As at 30^th June, 2018 Amount in $
Particulars	Amount
Income
Sales	971,190
Expense
Bad debts expense	13,075

Balance Sheet In the books of Homewares Company Ltd As at 30^th June, 2018 Amount in $
Particulars	Amount
Assets
Current assets
Accounts receivables	214,130
Less: Allowance for doubtful debts	(19,000)
Cash	249,380
Total Assets	444,510

Liabilities
Current liabilities
GST Collected	9,050

Total Liabilities	9,050

The two methods that can be used to calculate allowance for bad debts are:

1. Percentage of Debtors method– The allowance for bad debts is calculated by taking a specified percentage of closing balance of debtors. This percentage is decided by the management.
2. Debtors Ageing method– The debtors outstanding for more than specified days are transferred to allowance for bad debts account. These specified days are decided by the management.

Calculation of the value of the machine for depreciation purposes

Particulars	Part of asset?	Remarks
Initial price paid to the supplier	Yes	Purchase cost
Cost to deliver the machine to the site	Yes	Transportation cost required to put asset to use
Amount to paint the company name on the machine	No	Not a cost since not a mandatory expense
Amount paid to an engineer to fit the machine ready for work	Yes	Installation cost required to put asset to use
Repairs to the factory door damaged when bringing in the machine	No	Not a cost related to asset
Repairs made to replace bolts which had dislodged during transit	No	Not a part of cost should be expensed off

Particulars	Amount
Initial price paid to the supplier	65,000
Cost to deliver the machine to the site	3,500
Amount paid to an engineer to fit the machine ready for work	14,500
Total Machine Cost	83,000

The available method of depreciation are SLM using life and SLM using hours.

- Depreciation using years as life (83,000-7,000)/10 = 7,600
- Depreciation using hours as life (83,000-7,000)/100,000*10,000 = 7,600

Note: The information as to hours consumed in respective years is missing, hence it is assumed that 10,000 hours are used in each year.

No impact on depreciation, however, if above assumption as regards to hours consumed changes, than the depreciation calculated taking hours as basis will also change.

According to accounting standards, the assets should reflect true and fair view. Hence, the assets should be revalued so that the value of assets as shown in financials will be correct and matches with the market value.

Journal Entries

(Amount in $)

Sr. No.	Particulars	Debit Amt	Credit Amt

01-Mar-18	Truck 3	130,000
	GST paid	13,000
	Cash		30,000
	Loan payable		113,000
	(Being purchase of truck recorded)

31-Mar-18	Depreciation	8,543
	Accumulated Depreciation		8,543
	(Being depreciation recorded upto the date of sale)

31-Mar-18	Accumulated Depreciation	70,980
	Truck 2		70,980
	(Being accumulated depreciation adjusted)

31-Mar-18	Cash	44,000
	Truck 2		37,020
	Profit on sale (WN-1)		2,980
	GST collected		4,000
	(Being sale of truck recorded)

30-Jun-18	Depreciation	3,900
	Accumulated Depreciation		3,900
	(Being depreciation recorded at 130,0009%/124)

WN-1 Calculation of Profit on sale of Truck -2

Year ended on	Opening WDV	Dep	Closing WDV
30 Jun, 15	108,000	27,000	81,000
30 Jun, 16	81,000	20,250	60,750
30 Jun, 17	60,750	15,188	45,563
30 Jun, 18	45,563	8,543	37,020
		70,980

WDV as on 31st March, 2018	37,020
Sale value	40,000
Profit on sale		2,980

Part-B (ii)

Calculation of depreciation charges if the method of dep is change to SLM for Truck 2

Depreciation on Truck 2 – WDV method
Year ended on	Opening WDV	Dep	Closing WDV
30 Jun, 15	108,000	27,000	81,000
30 Jun, 16	81,000	20,250	60,750
30 Jun, 17	60,750	15,188	45,563
30 Jun, 18	45,563	8,542.97	37,020
		70,980
Depreciation on Truck 2 – SLM method
Year ended on	Opening WDV	Dep	Closing WDV
30 Jun, 15	108,000	12,000	96,000
30 Jun, 16	96,000	12,000	84,000
30 Jun, 17	84,000	12,000	72,000
30 Jun, 18	72,000	9,000	63,000
		45,000

Calculation of depreciation rate

Depreciation rate = ((108000-12000)/8)/108000

= 11.11%

Calculation of difference of the two methods of depreciation

Particulars	WDV	SLM	Diff.
Revenue as on 30th June, 2017	212,000	212,000	0
Depreciation for the year	15,188	12,000	3,188
Revenue after depreciation	196,813	200,000	3,188

Journal Entries

Perpetual	Periodic
Trans	Particulars	DR	CR	Trans	Particulars	DR	CR
1	Inventory (32*55)	1,760		1	Purchases (32*55)	1,760
	Accounts payable		1,760		Accounts payable		1,760

2	Accounts payable	110		2	Accounts payable	110
	Inventory (2*55)		110		Purchase return (2*55)		110

3	Accounts receivable (58*180)	10,440		3	Accounts receivable (58*180)	10,440
	Sales		10,440		Sales		10,440

	Cost of goods sold (58*48)	2,784
	Inventory		2,784

4	Sales return (2*180)	360		4	Sales return (2*180)	360
	Accounts receivable		360		Accounts receivable		360

	Stock loss (2*48)	96			Inventory (ending)	3,570
	Cost of goods sold		96		COGS	2,880
					Inventory (opening)		4,800
5	Stock loss (2*48)	96			Purchases		1,650
	Inventory		96

Income Statement under Perpetual Method

Sales	10,440
Less: Sales return	(360)
Less: Cost of goods sold	(2,688)
Less: Stock loss	(192)
Gross Profit	7,200

Income Statement under Periodic Method

Sales	10,440
Less: Sales return	(360)
Less: Cost of goods sold	(2,880)
Gross Profit	7,200

Perpetual method is preferable because it reflects the inventory value at real time.

The financials are prepared using conservative approach and hence the accounting standards require the inventory to be measured at lower of cost of NRV.

Part-B

- Identifying the approach and method adopted for below items on the basis of Annual Report 2017 of Super Retail Group:
- Revenue Recognition– The Revenue is recognized at fair value of the consideration received or receivable.

- Inventory Valuation- Inventories are measured at the lower of cost and net realizable value.

- Depreciation of non-current assets- Depreciation are calculated on a straight line basis for accounting.

- The company makes the following statement:
- Ethical Practice- We are committed to promoting better working conditions in our global supply chain and ensuring the products we provide to our customers are ethically and sustainably sourced.

- Sustainability- At Super Retail Group we share your passion to make our world a cleaner, healthier and happier place. We recognize the important role we have to play ensuring the well-being of the environment and the communities in which we operate.

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