Adjustments
How do outstanding expenses like unpaid bills appear on the P/L and BS?
appear on the profit and loss account as an expense
on balance sheet as an additional current liability under accruals
Adjustments
How do prepayments appear on the P/L and BS?
Added to the balance sheet as current assets, labelled ‘Prepayments’.
Will also reduce the value of the prepaid item in the expenses section of the profit and loss account.
Adjustments
How does ‘work in progress’ like legal work not yet billed, appear on the P/L and BS?
It will appear as additional income (known as profit costs) in the profit and loss account for the current year
As an additional current asset on the balance sheet
Adjustments
How does closing stock, i.e., residuary from last accounting year, appear on the BS?
Additional item in the current assets section of the balance sheet
Adjustments
How do bad and doubtful debtors, appear on the BS?
bad debtors, never gonna pay
doubtful debtors, might pay
Bad = written off as an expense and removed from the balance sheet.
Doubtful = recorded as an expense called “provision for doubtful debts” and also deducted from debtors on the balance sheet
Adjustments
How do devaluations, appear on the P/L?
changes in value, directors to re-value items as they get more or less valuable
Depecriation = recorded as expense in the profit and loss account, reducing net profit
Adjustments
How does disposing of assets appear on the P/L?
If the sale price ishigher than the book value, the difference is recorded as aprofitin the profit and loss account
If the sale price islower than the book value, the difference is recorded as aloss, reducing net profit
What are the four main categories of an account?
Income - what the business earns from trading or offering its services
Expenses - items business has paid for, and will benefit from for some time and need in order to operate
Assets - what the business has a right to own, like business premises if owned
Liabilities - what the business owes
Who would need a trading account?
What would it show?
Business selling/trading goods
Needed before preparing a P/L account
Calculatesgross profitby subtracting thecost of sales(cost of goods bought for resale) fromsales income
Result is business’ net profit
Most companies must have their accountsaudited, though small companies, micro-entities, and dormant companies may be exempt unless…
shareholders holding10% or moreof shares request an audit
