Accounting Adjustments and Financial Statements

Flashcards covering accounting adjustments, depreciation methods, stock losses, and income statement calculations based on the lecture notes and practice exam.

Depreciation D.B.M Calculation Formula

$$[ \text{Cost} - \text{Accumulated depreciation} ] \times \text{rate} \% \times \frac{\text{months}}{12}$$

Consumable stores "used"

The amount representing the total consumption for the period that must be recorded under operating expenses in the Income Statement.

Trading stock taken for personal use

An adjustment where Drawings is debited and Trading Stock is credited, such as the R10,000 transaction noted in the transcript.

Trading Stock Surplus/Deficit

The result of comparing the Trading Stock amount in the Trial Balance to the physical stock count amount.

Trading Stock Surplus Account

An account created under other operating income when the physical stock count is higher than the Trial Balance amount.

Loss of stock due to fire

An operating expense calculated by subtracting the insurance pay-out from the total stock lost (e.g., $R256,000 - R218,500 = R37,500$).

Interest on Fixed Deposit adjustment

An addition to interest income, calculated in the notes as $R18,750 \div 3 = R6,250$ per quarter.

Consumable stores on hand at beginning

An amount (R1,650) located in the Trial Balance under Balance Sheet accounts that is added back to Consumable Stores in the Income Statement as a reversal.

Debtor returned goods (Accounting Rule)

For the Income Statement, subtract the Selling Price from Sales and the Cost Price from Cost of Sales; for the Trial Balance, subtract the Selling Price from Debtors Control and add the Cost Price to Trading Stock.

Prepaid Advertising

An adjustment made when a portion of the expense (e.g., 5 months falling into the next financial year) is subtracted from the total advertising expense; calculated as $R15,210 \times \frac{5}{6} = R12,675$.

Bad Debts Calculation (Partial Payment)

When a debtor can only pay a portion (e.g., 30c in the Rand), the received amount is recorded in the Bank and the remaining 70c (e.g., $R6,840 \times \frac{70}{100} = R4,788$) is written off as Bad Debts.

Provision for Bad Debts

A calculation based on a percentage (5%) of the adjusted Debtors Control balance ($R51,200 - R4,780 - R4,788 + R500 = R44,582$ in the notes) to determine the new provision of $R2,229$.

Provision for Bad Debts Adjustment

The difference between the old provision (R2,800) and the new provision (R2,229); a decrease of R571 is recorded under other operating income.

Rent Income Adjustment

To find the monthly rent after a 10% increase, the formula $8x + 5.5x = 74,250$ is used to find the original monthly rent $x = R5,500$, making the new rent $R6,050$ ($5,500 \times 110\%$).

Net Profit for the year

The final result in the Statement of Comprehensive Income, recorded as R1,157,800 in the provided exam question.