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Inventory(31 December 2009) $76200-----> Trial Balance.
A physical stock take of inventory 31 December 2009 revealed $76500 on hand. What is the right adjust entry? Is that Inventory on Debit $300 and Cost of sales on Credit $300.
$600 of the recorded sales represent payments for goods which will not be delivered until January 2010. Do I need to make any adjusting entry for financial year 31 December 2009. Hence the goods still not delivered until next year January 2010.
Thank You for help.
For the recorded sales you need to transfer that amount to the Unearned Sales Revenue Account because it is a liability.
There are two adjustments to be made:
1) increase in inventory
First try to locate the cause of the difference of $300. It may be for unrecorded purchases, Debit Inventory, credit accounts payable.
2)deferred sales revenue
Since the amount for sale has been received but goods not yet delivered, the entry will be Debit sales and credit advances from customers. The cost of undelivered goods must be included in the ending inventory
(1) is correct as Winy78 stated it. This is just a typical old adjusting entry books do, which either debits or credits inventory as appropriate to get the balance right, and the other half of the entry is to cost of goods sold.
An unrecorded purchase is technically not an adjusting entry.
Really! I thought that if the goods have been received and included in the ending inventory, it can be from purchases made but not recorded for want of invoice.
(c) The business has received their electricity bill for the quarter ending June 2009. The total amount of the bill was $325. Of this amount, $95 related to electricity estimated as being used by the owner for personal use during the quarter ending 30th June 2009 (one of the rooms in the office is used for personal reasons by the owner). It is normal for the owner of Flashstax to pay the full amount of the electricity bill using the business cheque account. The electricity bill has already been recorded in the financial reports as having been paid for the year ended 30th June 2009 – the accountant processed a debit to “Electricity Expense” of $325 and a credit to “Cash at Bank”.
(d) During the course of the year, the owner took home some accessories from the inventory for personal use. The items were estimated to have cost $320 with a retail value of $350. The accessories that were taken home by the owner during the year were recorded as a credit to “Cost of Goods Sold” and a debit to “Capital Withdrawals”. (A perpetual inventory system is being used).
(e) Some of the accessories had been damaged while on display in the shop and could no longer be sold by the business – the total value of these items was $450. They were given to the staff to take home free of charge.
(f) One of the motor vehicles owned by Flashstax was sold on the 1st of July 2008 but the accountant has not recorded anything because he thought the sale happened last financial year. The car had an original cost of $18,000 with a carrying amount of $2,500 at the time of the sale. The car was sold for $6,000 cash. (Please refer to your studies in ADA on how to account for the disposal of an asset – disposals of assets were covered in the topic relating to “Cash Flow Statements” in ADA. If you are unsure how to account for the disposal of an asset, please refer to the textbook.
(g) Total wages of $21,000 (7 staff each paid $3,000) are paid to sales staff every two weeks during the financial year. Sales staff wages had been paid and recorded on the 5th and 19th of June 2009. All employees who work for Flashstax Enterprises are paid on the 5th and 19th of June. No other entries have been processed relating to wages in June 2009. (NOTE: The $21,000 includes the 30% PAYG). The payment for the wages on the 5th of June and the 19th of June have been correctly recorded in the accounting records. Nothing else can be found in the accounting records relating to wages.
(h) In July 2009, the latest accessory for the I-Phone will be available for sale. It is the most popular new accessory to come on the market in 10 years and is very hard to get. Flashstax has managed to put in an order to obtain 100 of these items. To maximise their sales, Flashstax allowed customers to pre-order the accessory to guarantee getting one of these accessories – this required the customer to pay a deposit of $50 cash immediately (before the accessory arrived in the shop). 80 customers took up the offer and paid $50 cash during May and June 2009. On the 25th of June, Flashstax received a note from the suppliers indicating only 20 of the accessories could be supplied to the shop. As a show of goodwill, customers who had paid their deposit were given the choice of a refund of their money or the first 60 customers who responded, could have a $100 voucher to use on anything in the Flashstax shop. By the 30th of June, 50 customers had taken up the offer of the voucher and 12 customers asked for their money back. The owner has not recorded anything in the books in regards to the refunds or the vouchers issued to customers.
Can anyone Prepare the general journal entries to make the necessary adjustments for the information presented to you above.
Well, sure it could, in real life. It could be from anything. But there isn't any indication of what caused the difference between what's currently recorded in the account and why the physical count is different. But this is just a typical textbook adjusting entry, likely from a 3rd chapter of a principles book. If there were a missing invoice, it would say so.Quote:
Originally Posted by rehmanvohra
Winy, we don't just do your work for you. It's your work and you're the one who's supposed to prepare the entries. Give it a try for yourself first.
As a great teacher of long standing, can I please ask you what is the purpose of recording adjustments? For one, to comply with matching principle and for another to correct errors. The purpose of any question is to test the knowledge and understanding of a student so that they can contribute properly when they enter practical life. As a teacher one has a duty to bring home the missing point.Quote:
Originally Posted by morgaine300
1. Difference in inventory value
Agreed there can be more than one reason, but the examiner wants to determine whether a student can make educated guesses. Other reasons for the difference may be:
(a) Issue of an inventory item(s) recorded in the accounts more than once
(b) Error in extending values in the physical inventory list
(c) Error in including an item twice
If the error is not corrected, the income for the year will not be correctly reported and the inventory value in the balance sheet will similarly be incorrectly reported.
2. Matching principle
Does the suggested adjustment comply with the matching principle?
I would have thought that accounting principles are the backbone of accounting knowledge and one can not deviate from the defined principles. In order to comply with these principles, we have to use the judgement so that the financial statements can be relied upon.
c. Capital Withdrawals 95
Electricity Expenses 95
d. COGS 320
Inventory 320
e. Accessories 450
Inventory 450
f. Cash 6000
Accum. Dep-Motor Vehicle 15.500
Motor Vehicle 18000
Gain on sales of Fixed asset 3500
g. Wages 16500
Wages Payable 11550
PAYG withholding 4950
h. Promotion Expense 2500
Deposit Customer 2500
Voucher Payable 5000
Anyone can give me comment about the entry that I had made?? Thank you
c. correctQuote:
Originally Posted by Winy78
d. correct
e. debit office expenses or staff benefit expenses not accessories
f. credit retained earnings since it relates to previous year
g. credit wages payable 16,500. Tax withholdings will be recorded when the wages are paid
h. correct
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