Back to: FINANCIAL ACCOUNTING SS2
Welcome to class!
In today’s class, we will be talking about Final Accounts – Special transactions; Bad Debts, Closing entries etc. Enjoy the class!
Final Accounts – Special transactions; Bad Debts, Closing Entries etc.
CONTENT
- SPECIAL ITEMS OF EXPENSES/LOSSES
- BAD DEBTS RECOVERED
- CLOSING ENTRIES
- ADJUSTMENTS IN THE FINAL ACCOUNT
SPECIAL ITEMS OF EXPENSES/LOSSES
-
GOODS STOLEN OR DESTROYED:
Goods may have been stolen (pilfered) or destroyed during the financial year. When this occurs, the following entries will be passed
Dr Profit and Loss Account
Cr Purchases Account
-
GOODS WITHDRAWN BY THE OWNER FOR PERSONAL USE:
The owner of the business can withdraw goods for his own use. The treatment in the account is that such goods are recorded at the cost price. The entries to be passed are;
Dr Drawings Account
Cr Purchases Account
-
BAD DEBTS:
These are debts which have become irrecoverable i.e. debts that cannot be collected again from a customer. Bad debts occur as a result of the inability of the customer to pay his debt. This situation can arise due to a number of factors or reasons among which are the death of a customer, the insolvency, bankruptcy or liquidation of the customer, poor economic/political situation of a country, poor debt management on the part of the creditor etc.
Accounting treatment of bad debts.
Dr Bad Debts Account
Cr Debtors Account
This will reduce the value of debtors in the ledger
The Bad Debts Account will have a debit balance and will appear among other items in the trial balance.
On the preparation of the final account
Dr Profit and Loss Account
Cr Bad Debts Account
Bad debt is thus a loss to the business organization
BAD DEBTS RECOVERED
Occasionally, a bad debt previously written off may be paid. The accounting treatment in such a situation are:
(a) Dr Debtor’s Account
Cr Bad Debts Recovered Account
This will bring the debtors account to its original position before the bad debts were written off
(b) Dr Cash /Bank Account
Cr Debtor’s Account
(c) On the preparation of the final accounts
Dr Bad Debts Recovered Account
Cr Profit and Loss Account
The amount recovered is an additional income for the period. This explains why it is being credited to the Profit and Loss Account.
EVALUATION
- What are the accounting entries posted whenever the owner of a business withdraws cash from the business for private use.
- What are the accounting entries posted whenever the owner of a business withdraws goods from the business for personal use.
CLOSING ENTRIES
Closing entries are those entries made at the end of the accounting period (e.g. 31st December, 20xx) to close the various ledger accounts and transfer their balances to the final account.
ADJUSTMENTS OF THE FINAL ACCOUNT
Adjustments are closing entries or amendments made in the books of accounts at the end of the accounting period to achieve a proper matching of costs and expenses with revenue.
Adjustments are required for the following:
- Accruals
- Prepayments
- Depreciation of fixed assets
- Provision for doubtful debts
- Provision for discounts on debtors
- Bad debts
- Closing stock
- Capital and revenue items of income and expenditure.
- Set-offs
- Correction of errors e.g. errors of omissions, errors of principle, casting errors etc.
- Provision for contingencies e.g. legal charges, accountancy charges.
GENERAL EVALUATION
- Explain the purpose of preparing each of the following (i) trading account (ii) profit and loss account (iii) balance sheet
- List six items found in the asset and liability sides of the balance sheet of a sole trader
- List and explain three classifications of ledger accounts
- State ten uses of the General Journal.
- List ten users of accounting information
In our next class, we will be talking about Final Accounts – Provision for Doubtful Debts. We hope you enjoyed the class.
Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.
Get more class notes, videos, homework help, exam practice on Android [DOWNLOAD]Get more class notes, videos, homework help, exam practice on iPhone [DOWNLOAD]