Other Adjustments Flashcards
Irrecoverable/ bad debts
Debts customers won’t be paying
What is the most common reason for bad debts?
Businesses going into liquidation and there are no funds to settle the debts
What is a bad debt entered as?
A debit as it’s an expense for the company
Contra Entries
Operate between companies when both are a customer and supplier of each other
What do Contra Entries always do?
It always reduces the balance of the SLCA or PLCA
When is the Accrual concept used?
When preparing the financial statement
What is the accrual concept?
All income and expenses must match the year they occur and not when the money changes over.
What does the Accrual and Prepayments concepts mean for finance?
Accrual - adding expenses should be included in the year
Prepayments - taking out expenses shouldn’t be in the year
How are prepayments entered when it comes to income?
They are taken out of income as a debit and entered into prepaid income as a credit.
##Footnote
This is due to the money not being owed yet so it’s essentially owed back to the customer
Doubtful Debt
Debt that is unlikely to be paid
Prudence concept
Only include the revenues and profits in the accounts when they’re realised.
What is provision?
It’s made for losses and expenses as they become known.
What is provision for doubtful debt put into?
Ledgers
Dr Doubtful Debt adjustments
Cr Doubtful Debt
Deprication
Non-current assets (ie machinery and vehicles) reduce in value over time.
Accounts should show the true value of resources used by the business.
What part of Dead Clic is a deprecation?
An expense
What are the two methods in the study for deprecation?
Straight line
Reducing Balance
What does Straight Line Deprecation mean?
The resources used by a business de private at the same rate yearly
What are the 2 equations for Straight Line Deprecation?
(Purchase-Resid)/useful=Deprecation
Cost. ential life in. Each year
Value. Years
Purchase x y% = Deprecation each
Cost. Year
Reducing Balance Deprecation formula
- Purchase cost x applied percentage
- Carried value from 1 x applied %
Continue for desired years
When is Reducing Balance Deprecation used?
When deprecation amount changes each year.
Consistency concept meaning
Once a method is chosen and established the same method must be used each year.
##Footnote
This is due to it being difficult to make an accurate comparison of the method changes.
What are the journal entries for deprecation?
Dr Deprecation expenses
Cr Accumulated Deprecation
What is accumulated deprication?
The running total of deprecation across all the years.
What is Deprecation Expenses?
The change in value for that year.
