RECORD YOUR BALANCE DAY ADJUSTMENTS IN THE GENERAL JOURNAL.
A. Big Rooster LTD. pays K50000.00 wages to its employees on every Friday for the pay week between Friday to Thursday. Employees do not work on Saturday and Sunday. If the balance day occurs on Wednesday 5th. June 2011,what would be value for Accrued Expenses?
Ans.: If the Balance Day occurs on Wednesday, they salary for 4 days (Friday, Monday, Tuesday and Wednesday will be outstanding on that day which will be equal to (K50000/5)x4 = K40000. Journal entry for that will be:
Salary A/c Dr. 4000
To Salary Outstanding A/c 4000
B. What are the four (4) elements in Accrual Accounting and how are they recorded in the Balance Sheet?
Ans.: The accrual concept in accounting means that expenses and revenues are recorded in the period they occur, whether or not cash is involved. The benefit of the accrual approach is that financial statements reflect all the expenses associated with the reported revenues for an accounting period. Four types of adjustments are:
(1) Outstanding Expenses – It is shown as on the Liability side of Balance Sheet
(2) Prepaid Expenses – They are shown on the asset side of the Balance Sheet
(3) Accrued Incomes – Shown on the Asset side of the Balance Sheet.
(4) Incomes Received in Advance – Shown on the Liability side of the Balance Sheet.
C. What are the difference between Accrual Accounting and Cash Accounting in Bookkeeping.
Ans.: In Accrual Accounting Incomes and Expenses are reported in the period in which the transactions take place and not when actual cash is received or paid for them
In Cash Accounting Incomes and Expenses are reported in the period in which cash is received or paid and not when actual transaction takes place.
D. KMC Ltd paid a rent to Mr Toy Vary to the amount of K80 000.00 for a two year lease on the 1st of July 2011.Calculate the prepayments if the financial year ends on the 31st December 2011.
Ans.: As on 31.12.2011 rent is prepaid for a period of 18 months, from 1st January, 2012 to 30th June, 2013. This will amount to (K80000/24)x18 = K60000.
Prepaid Rent A/c Dr. 60000
Rent A/c 60000
E. Rua owns a building which is leased to Goba Ltd. The tenant has paid K4 000 at the end of April 2011 for the instalments of a year. The financial records now have been updated that the benefit received was not earned for at the end of 31st December2011,as it becomes a revenue over time. Compute a value of deferred revenue.
Ans.: Value of unearned or deferred revenue is for the period from 1/1/2012 to 31/3/2012 which amounts to (K40000/12)x3 = K10000.
Rent A/c Dr. 10000
To Rent Received in Advance A/c 10000
F. KMC Ltd invested K200 000 in ANZ Bank for the period of 1st July 2007 to 30th June 2008. The bank pays an interest at the rate of 20% per annum and it will be paid on the maturity date. Calculate the value of Accrued Income for the financial year end ending 31st December 2007.
Ans.: Interest has accrued for the period starting from 1st July, 2007 to 30th June, 2008 which amounts to (K200000 x 20%)/2 = K20000.
Accrued Interest A/c Dr. 20000
To Interest A/c 20000