Adjustment Entries, Income Statement And Statement Of Changes In Equity – Raoul’s Fine China

Adjustment Entries

Office salary which is payable but not recorded is $ 447

Adjusting entry

Date

Name of account

30 June

Salary A/c

Salary payable a/c

447

Narration- Being the salary provided

Depreciation on the furniture & fittings

Already charged $ 7956

Amount to be charged on the basis of the useful life by applying the straight-line method will be 26520/8= $ 3315

Adjustment entry

Date

Name of account

30 June

Accumulated Depreciation A/c

To Depreciation Expenses A/c

(Being the excess charged depreciation now reduced)

$4641

Depreciation on the Van

Already charged $ 12480

Amount to be charged on the basis of the useful life by applying the straight-line method will be 31200-2100/6= $ 4850

Adjustment entry

Date

Name of account

30 June

Accumulated Depreciation A/c

To Depreciation Expenses A/c

(Being the excess charged depreciation now reduced)

$7630

Bank approved overdraft facility of $ 20000

Date

Name of account

30 June

Bank A/c

To Bank overdraft A/c

(Being the overdraft facility has been used)

$7630

Office supplies on hand on 30 June 2018 $1737

Actually recorded on 30 June 2018 $ 2184

Adjustment entry

Date

Name of account

30 June

Adjustment Supplies a/c

To Office supplies

(being the office supply reduced to $1737)

$447

Prepaid insurance account shows a balance of 12 months, but it is commenced from 1^stApril 2018, therefore in the balance sheet, it must reflect only the balance from April to June. The total amount reflected in balance sheet $3276. But it must be for three month that is (3276/12)*3= $ 819

Adjustment entry

Date

Name of account

30 June

Adjustment prepaid insurance a/c

To prepaid insurance A/c

(being the actual expense record)

$2457

$2700 of the recorded sales revenue is for Carolina Reaper chilli; this will not be delivered until 24 July 2018. It has been assumed that all the risk and reward related to the product has been transferred to the customer as on 30 June 2018. Therefore it is considered as the sales revenue of the company. The product will not be delivered until 24 July 2018, does not make any impact on the financial statement.
On the date of the balance sheet, the company estimated that 4% of the account receivable would not be collected. Since the company is certain the 4% of account receivable not be collected, therefore the company should realise it as a bad debt of amount 21250*4%=850

Adjustment entry

Date

Name of account

30 June

Bad debt A/c

To account receivable A/c

(Being the Bad debt recorded)

$850

Electricity bill for the business up to 31^stmay 2018 has been recognized in the balance sheet. The estimated bill for until 30June 2018 was $ 450.

Adjustment entry

Date

Name of account

30 June

Electricity expense

To Outstanding electricity expense A/c

(Being the expenses provided)

$450

Raoul’s Fine China

Income Statement

For the year ended 30 June 2018

Particulars		Amount (in $)
INCOME
Revenue
Sales	383117
Less-sales return and allowances	6041
Discount Allowed	2590
Net Sales revenue		374486

Cost Of sales
Opening Inventory
Add Purchase	270347
Add Freight Inward	1974
	272321
Less- Discount Received	2170	270151

GROSS PROFIT		104335

EXPENSES
Selling and distribution expenses
advertising expenses	392
salary paid (store)	23380
Electricity expenses (others)	840
Rent Expenses( others)	15010	39622

Administrative expenses
Electricity Expenses (administration)	280
Deprecation Exp.(shop & furniture)	2485
Rent Expenses Administration	5500
salary paid (administration)	9310	17575

Finance and other expenses
interest expenses	329
doubtful debt expenses	700	1029

Net Profit		46109

Since the administration expenses also related to the business, therefore all the expenses related with the administration is recorded in the profit and loss account.

Table 2: Statement for change in equity

Statement showing an extract of change in equity in 2018
	Share capital	Financial assets measured through fair value by OCI	Retained earnings	Total

Share capital at the beginning of year	$ 31,367.00	–	–	$ 31,367.00
Changes in equity for 2018
Comprehensive income for the year	$ 46,109.00	–	–	$ 46,109.00
Balance in 30th June 2018	$ 77,476.00	–	–	$ 77,476.00

In the present study, Harry has recorded the value of the public road in his balance sheet as land under the head of the asset column because he felt that for the transportation of the product and services he utilized the land.

However according to the definition given in the accounting standard of Australia, asset assists in generating the future economic benefit and which are controlled by the entity as a result of the past events or the past transactions by the entity (Brusca and Martínez, 2016). Therefore for recognising the asset in the balance sheet, it is essential that the asset can generate the benefit in the future, if there is no benefit can be generated by the entity then it is not regarded as the asset. Further another important condition for meeting the criteria of the asset is that the entity can exercise the control over the asset, it means that the entity can negate the others for taking any benefit from the asset or can control the right of others for obtaining the benefits from assets (Statement of Accounting Concepts, 2018). The one more element for recognising the asset is that the control over the asset and the future economic benefit must be generating as an outcome of the past result or the event.

Therefore due to the applicability of the accounting standard, the accounting treatment done by Harry for recognizing the public road as an asset in the financial statement is not correct. Because the public land cannot be considered as an asset of Harry, since the harry does not exercise any control over the public road and also the benefit arises to harry was not as a result of the past events or the transaction and the public road is not recorded in the financial statement,

In the present case, the Ron who buys a laptop for his own personal use by using the business bank account. He recorded this computer in the financial accounts of the business as a computer and simultaneously makes the credit entry in the cash.

Since the computer was purchased by Ron as personal use, the business cannot make any future benefit from this computer. The computer which was purchased by Ron cannot be regarded as an asset of the business. It is the personal expense of the Ron which should be reduced from the capital of the Ron. Further, the equipment which is used in the production or supply of the goods and services or administrative purpose related which the business, then only recognized in the financial statement of the business (Brusca, and Martínez, 2016).

Income Statement

Since in the present case the computer was purchased by Ron, not for the business purpose, therefore recording the computer in the financial statement is not a correct accounting policy. The cost of the computer should be recorded as the personal expenses of Ron and reduced from the capital of the Ron.

In the present case, the owner of the business decided not to record depreciation as the profit of the business is very less.

As per the accounting standard issued by the Australian accounting standard board, it is compulsory to charge the depreciation on the asset of the company. Depreciation is charged on the basis of the useful life of the asset, which depends on the several factors. Further depreciation is a non-cash expense of the company which is recorded in the income statement also. The contention of the owner that the profit is less does not make any impact on the charging of the depreciation on the asset of the company. Even the entity is in loss or profit; it is compulsory to charge the depreciation on the assets.

Therefore, the present case the owner of the business decided not to record depreciation as the profit of the business is very less is nor correct. He should charge the depreciation on the asset and record in the income statement of the company.

PIPE DREAM PLUMBING PTY LTD

CASH FLOW STATEMENT

FOR THE YEAR ENDING 30 JUNE 2018

	$	$
Cash Flows from Operating Activities
Receipts from customers	990500
Payments to suppliers & employees	(653000)
Selling and admin expense (217500-23500)	(194000)
Cash generated by operations		143500
Interest received	3000
Interest paid	(6000)
Income tax paid	(54250)	2000

Cash Flows from Investing Activities
Proceeds from the sale of land	80000
Payment for Plant & Equipment	(65000)	15000

Cash Flows from Financing Activities
Proceeds from loan	15000
Proceeds from share issue	10000
Dividends payment		25000

Net increase / decrease in cash held		42000
Cash at the beginning of the year		29000
Cash at the end of the year		71000

It has been assumed that all the sale and purchase is on a credit basis.

Working note

Calculation of receipt from customers

Particulars	Amount (in $)
Opening debtors	24500
Net sales	995000
Closing debtors	(29000)
Net receipt from customers	990500

Calculation of receipt from customers

Particulars	Amount (in $)
Opening creditors	37500
Net purchase	647500
Closing creditors	(32000)
Net payment to the supplier	653000

Calculation of income tax paid

Particulars	Amount (in $)
Opening balance	28000
Income tax for the current year	47250
Closing income tax	(21000)
Net payment of income tax	54250

Calculation of payment for plant and machinery

Particulars	Amount (in $)
Opening balance	380000
Closing balance	445000
Net purchase during the year	65000

Calculation of proceeds from the loan

Particulars	Amount (in $)
Opening balance	0
Closing balance	15000
Total proceeds	15000

Calculation of proceeds issue of shares

Particulars	Amount (in $)
Opening balance	210000
Closing balance	220000
Total proceeds	10000

Since in the present case, the profit of the Pipe Dream Plumbing (Dwayne Plug) is much higher than the amount of increase in cash. Since the cash and profit are not related with each other. The profit of the company is determined by considering the income and expenditure of the company; however, cash is determined by the actual receipt and payment of the company. In respect of this, income or the revenue of the company is different from the receipt of the company. all the expenses of the company are not considered at the time of determination of profit such as payment to a creditor, repayment of the loan, purchasing of fixed asset and so on (Hung, 2000). Similar to this all the receipt are not the income of the company such as a receipt from debtors, the sale of a fixed asset and so on. Due to all the above reason in the company the cash and profit are not same; therefore the profit of the company Pipe Dream Plumbing (Dwayne Plug) is much higher than the amount of increase in cash.

References

Brusca, I. and Martínez, J.C., 2016. Adopting International Public Sector Accounting Standards: a challenge for modernizing and harmonizing public sector accounting. International Review of Administrative Sciences, 82(4), pp.724-744.

Hung, M., 2000. Accounting standards and value relevance of financial statements: An international analysis. Journal of accounting and economics, 30(3), pp.401-420.

Statement of Accounting Concepts, 2018. [PDF]. Available through < https://www.aasb.gov.au/admin/file/content102/c3/SAC4_3-95.pdf>. [Accessed on 15^th October 2018].

Turn in your highest-quality paper
Get a qualified writer to help you with

“ Adjustment Entries, Income Statement And Statement Of Changes In Equity – Raoul’s Fine China ”

Get high-quality paper

NEW! AI matching with writer

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order