Question

Double entry bookkeeping BALANCE SHEET Bank Receivables Inventory Tangible Asset Prepayments (Insurance) 7.300 Payables 3.150 Accumulated depreciation 4.850 4.500 120 12.000 3.300 2.180 26.950 600 Accruals (rent) 15.000 Capital 900 Reserves Profit 2015 26.950 After having opened the accounts, record entity transactions of the period 2016 and adjustments at the end of that period using "T" accounts. Prepare an income statement and a balance sheet for the vear ended 31 December 2016 (no specific classification of financial statements items is required) Transactions of the period 2016 1. Purchase of raw material 7.000 (payables) 2. Loan received from bank: 9.725 (bank) 3. Profit 2015 put into reserves 4. Sales of finished goods: 32.000 (half paid in cash to bank and half receivables) 5. Rent paid for 360 from 01/11/2015 to 30/04/2016 (bank) 6. Payables paid: 1.470 (bank) 7. Receivables paid: 4.300 (bank) 8. Wages paid: 3.455 (bank) 9. Insurance paid for period from 01/10/2016 to 30/09/2017: 1.200 (bank) End of the period adiustments: 10. Closing inventory is valued at 300 11. Annual depreciation of tangible assets: 1.500 12. Taxation expense is estimated for 4.500 13. Insurance expense adjustment 14. Accrued interests on loan are 2.000

while solving if you could explain how the adjustments requested work as I am having trouble understanding what to do with them

Answer 1

T-accounts
Bank					Receivables
Beg. Bal.	7.300		0.360		Beg. Bal	3.150		4.300
	9.725		1.470			16.000
	16.000		3.455
	4.300		1.200
End. Bal	30.840				End. Bal	14.850
Inventory					Tangible Assets
Beg. Bal	0.600		7.300		Beg. Bal	15.000
	7.000
Prepayments (Insurance)					Payables
Beg. Bal	0.900		0.900			1.470	Beg. Bal	4.850
	1.200		0.300					7.000
End. Bal	0.900							10.380
Accumulated Depreciation					Accruals (Rent)
		Beg. Bal	4.500			0.120	Beg. Bal	0.120
			1.500					0.480
Capital					Reserves
		Beg. Bal	12.000				Beg. Bal	3.300
								2.180
Profit 2015					Loan
	2.180	Beg. Bal	2.180					9.725
Sales					Rent
			32.000			0.240
						0.480
Wages					Cost of Goods Sold
	3.455					7.300
Depreciation					Income Tax Expense
	1.500					4.500
Income Tax Payable					Insurance Expense
			4.500			0.900
						0.300
Interest Payable					Insterest Expense
			2.000			2.000
Insurance expense adjustment
Prepaid insurance is transferred to Insurance expense 900
Insurance expense from 1/10-30/9/2017 - 1.200
Insurance expense for 3 months from 1/10-31/12/2016 - 1.200/12*3months = .300
Rent expense is paid upto April 2016, thus from May to Dec accured rent is 480 (60x8)
Closing Inventory is 300
Inventory in hand 7.600 (7+0.600) thus 7.300 transferred to Cost of Goods sold

Income Statement
Sales	32.000
Cost of goods sold	7.300
Gross Profit	24.700
Operating Expenses:
Rent	0.720
Insurance	1.200
Wages	3.455
Depreciation	1.500
Total Operating Expenses	6.875
Operating Profit	17.825
Interest expense	2.000
Income before tax	15.825
Income tax expense	4.500
Net Income	11.325
Balance Sheet
Bank	30.840	Payables	10.380
Receivables	14.850	Interest Payable	2.000
Inventory	0.300	Income tax payable	4.500
Tangible Assets	15.000	Accruals (Rent)	0.480
Prepayment (Insurance)	0.900	Accumulated Depreciation	6.000
		Loan	9.725
		Capital	12.000
		Reserves	5.480
		Profit 2016	11.325
	61.890		61.890