5.2 Business Accounts: Year-End Adjustments + P Financial Statements Flashcards
Method of accrual on P+L
Transfer increased expenses from TB
Method of writing off bad debt in P+L
Add as expense
How is profit split among partners in partnership
According to partnership agreement, then profit share ratio
Method of prepayment on TB
Deduct from expenses on TB
What part of ALCIE does depreciation refer to
Fixed assets
What is the point of making provision for doubtful debts
Ring fences assets in case it needs to be written off
What is the capital account for partners in profit appropriation statement
Contains long-term capital, representing original investment
What does depreciation do
Spreads cost of asset over assets life, mirroring how it loses value
Where do you deduct bad debts from in TB
Receivables balance
How do you transfer written off bad debts to BS
Adjusted Receivables figure (once taken off Receivables in TB)
What is different about partnership balance sheet, from ST
Bottom shows both of P’s accounts
How does terminology change for partnership financial statements
Creditors and debtors become payables and receivables
What is a prepayment
Pay in advance of receiving benefit
What is an accrual
Benefit received w/o yet paying
What must you never do w/ doubtful debts, to do with bad debts
Provide for doubtful debts before bad debts are written off receivables figure.
What is accumulated depreciation (classify + BS/P+L)
BS liability
Method of accrual on BS
Current liability
How is profit appropriation statement done
Allocate salary + interest , then calculate residual profit + share according to ratio
What is an additional step taken for partnerships in preparing accounts
Must prepare profit appropriation statement
Two common methods of depreciation
Straight-line and reducing balance
Why are notional interest and salary for partners treated as profits
Because it is paid to the partners
Straight-line method of depreciation
Charge spread evenly over life of asset
What is a bad debt
A debt company knows with certainty it will not be paid
What is shown on BS for depreciation
Original cost of FA, less accumulated depreciation, and net book value
When must the profit appropriation statement be prepared
Before BS drawn up
What two accounts does each partner commonly have in profit appropriation statement
Capital and current
What is the yearly charge for depreciation (classify + P+L/BS)
An expense on P+L
From which account can partners withdraw in profit appropriation statement
Current ONLY
Method of accrual on TB
Add as expense on TB
How do you show provision for doubtful debts in BS
In DD liability account, separate from adjusted receivables figure
Reducing balance method of depreciation
% of reducing balance
What is the current account for partners in profit appropriation statement
Shows share in profits + drawings
What do you do in P+L when making provision for doubtful debts
Add only increase/decrease in provision as expense
Method of DD - what is the first step
Calculate provision
Method of prepayment on P+L
Transfer remainder in TB expenses to P+L (subtract prepayment)
5 relevant year end adjustments
Depreciation, accruals, prepayments, bad debts and doubtful debts
Method of prepayment in BS
Include prepayment alone as current asset
What is doubtful debt
Possibility debt will not be paid, either specific or general
