The document is a journal for transactions from October 1-31. It records debits and credits for items like cash, share capital, purchases, sales, expenses and dividends. An adjusting entries section adds details for closing revenue and expense accounts and calculating retained earnings.
The document is a journal for transactions from October 1-31. It records debits and credits for items like cash, share capital, purchases, sales, expenses and dividends. An adjusting entries section adds details for closing revenue and expense accounts and calculating retained earnings.
The document is a journal for transactions from October 1-31. It records debits and credits for items like cash, share capital, purchases, sales, expenses and dividends. An adjusting entries section adds details for closing revenue and expense accounts and calculating retained earnings.
The document is a journal for transactions from October 1-31. It records debits and credits for items like cash, share capital, purchases, sales, expenses and dividends. An adjusting entries section adds details for closing revenue and expense accounts and calculating retained earnings.
Debit Credit Debit Credit Date Amount Date Amount Date Amount Date Amount 7000 600 8600 Total 600 Total 15600 Balance 600 Balance 15600
Store Equipment Trade Payables Debit Credit Debit Credit Date Amount Date Amount Date Amount Date Amount 3000 7000 8600 Total 3000 7000 Balance 3000 Total 7000 Total 15600 Balance 8600 Office Supplies Debit Credit Trade Receivables Date Amount Date Amount Debit Credit 4100 Date Amount Date Amount Total 4100 14000 1000 Balance 4100 13000 Total 14000 Total 14000 Balance 0 Purchase Discounts Debit Credit Date Amount Date Amount Delivery Expense 140 Debit Credit Total 140 Date Amount Date Amount Balance 140 400 Total 400 Balance 400 Sales Discount Debit Credit Date Amount Date Amount Sales Returns and Allowances 260 Debit Credit Total 260 Date Amount Date Amount Balance 260 1000 Total 1000 Balance 1000 Sales Debit Credit Date Amount Date Amount Telephone Expenses 14000 Debit Credit 4300 Date Amount Date Amount Total 0 Total 18300 460 Balance 18300 Total 460 Balance 460 Dividends Debit Credit Sales Salaries Expenses Date Amount Date Amount Debit Credit 5000 Date Amount Date Amount Total 5000 800 Balance 5000 Total 800 Balance 800
Office Salaries Expenses
Debit Credit Date Amount Date Amount 250 Total 250 Balance 250 Adjusting Entries Description Debit Credit Merchandise 8720 Statement of P&L 8720 Office supplies expense 520 Office supplies 520 Store rent expense 1000 Prepaid rent 1000 Insurance expense 50 Prepaid insurance 50 Depreciation expense 50 Accumulated depreciation 50 Income tax expense 1000 Income tax payable 1000
Adjusting Entries
Description Debit Credit
Revenue 17040 To close revenue account statement of P&l 17040 statement of P&l 11270 To close expense account expenses 11270 statement of P&l 5770 To close statement of P&L account Retained earnings 5770 Retained earnings 5000 To close dividends account Dividends 5000 Unadjusted Trial Adjusted Trial Balance Adjustments balance Account Debit Credit Debit Credit Debit Credit Store Equipment 3000 3000 Accumulated Depreciation, Store Equipment 50 50 Merchandise Inventory Office Supplies 4100 520 3580 Cash 18570 18570 Prepaid Rent 2000 1000 1000 Prepaid Insurance 600 50 550 Trade Paybles 8600 8600 Share capital 25000 25000 Dividends 5000 5000 Sales 18300 18300 Sales and Returns and Allowances 1000 1000 Sales Discounts 260 260 Purchases 15600 15600 Purchase Discounts 140 140 Sales Salaries Expense 800 800 Office Salaries Expense 250 250 Telephone Expense 460 460 Delivery Expense 400 400 TOTAL 52040 52040 Depreciation Expense 50 50 Office Supplies Expense 520 520 Store Rent Expense 1000 1000 Insurance Expense 50 50 Income Tax Expense 1000 1000 ` Income Tax Payable 1000 1000 TOTAL 2620 2620 53090 53090 NET PROFIT Retained Earnings TOTAL Statement of P&L Statement of retained earnings Balance Sheet Debit Credit Debit Credit Debit Credit 3000 50 8720 8720 3580 18570 1000 550 8600 25000 5000 18300 1000 260 15600 140 800 250 460 400
50 520 1000 50 1000 1000 21390 27160 5000 0 35420 34650 5770 5770 770 770 35420 35420 Balance Sheet EQUITY AND LIABILITIES ASSETS EQUITY Non-current assets Equity share capital 25000 Property, plant and equipment 2950 Other equity 770 Current assets Total equity 25770 Inventories 12300 LIABILITIES Financial assets Non-current liabilities 0 Cash and cash equivalents 18570 Current Liabilities Other current assets 1550 Financial liabilities Total assets 35370 Trade payables 8600 Current tax liabilities 1000 Total current liabilities 9600 Total equity and liabilities 35370 Statement of P&L
Revenues Revenue from operations 17040 Total income 17040 Expenses Purchases of stock-in-trade 15460 Changes in inventories of stock-in-trade -8720 Employee benefits expense 1050 Depreciation expense 50 Other expenses 2430 Total expenses 10270 Profit before Tax 6770 Tax expense 1000 Profit for the period 5770 Statement of Retained Earnings
Balance as of October 1, 20XX 0
Increase in share capital from share issue 25000 Dividends 5000 Profit for the period 5770 Balance as of October 31, 20XX 25770 Evaluate the analyst’s comment and the company’s response on the company’s accounting for sales returns.
According to analyst, the company is only reporting revenue without keeping in account for return values. This is accounting error. This would increase the revenue in the year of sale and reduce the revenue in the year of return. On the other hand, as the company cannot predict the amount of returns from the sales, it couldn’t replicate this in the revenue reported by the company. The returns vary from 0 to 20%.
Develop an accounting policy for revenue recognition including sales returns
The company can have a return policy and report the revenue for the company only after the returning policy time period is completed. For example, if the return policy is valid for 20 days, the company should hold the revenue reporting for the next 20 days. After the completion of the returning time period, company should report its revenue. This can solve the highs and lows in the revenue of the company.
