TACC401 Principles of Accounting
Week 4: Accrual Accounting
Seminar Guide
Seminar Activity 4.1: Accrual Accounting
Andrew Darby manages and owns all the shares in a small proprietary company called Darby’s Derbys Pty Ltd which buys and sells hats. The assets, liabilities and owner’s equity of the business at 1 January 2018 are shown on the accompanying worksheet.
The following information about Darby’s Derbys Ltd is available:
- The business has an accounting period of one month. It determines profit or loss for each month on its worksheet following proper accrual principles.
- The opening balance in the prepayments column relates to rent for the months of January, February and March 2018 which was paid in December 2017.
- The accrual on 1 January relates to an amount owing for advertisements that appeared in the local newspaper in December 2017.
- The shop fittings owned by the business have an expected life of 8 years, and an expected residual value of $1 000 at the end of that time.
The following transactions took place during January 2018:
- The business borrowed $4 800 from Darby’s sister. The loan is to be repaid in three year’s time but interest at 5% per annum has to be paid (in arrears) each six months, starting on 1 July 2018.
- Paid an insurance premium of $1 200 that will cover the business until 30 June 2018.
3 Received payment for accounts receivable $6 000.
6 Purchased hats on credit $12 000.
8 Credit sales of hats $14 000 (these hats had cost $9 000).
12 Paid wages of $1 400.
15 Cash sales of hats $5 000 (these hats had cost $3 000).
16 Paid the local newspaper for the advertisements that appeared in December 2017 and for some others which appeared in January 2018, total payment being $1 200.
20 Paid accounts payable $7 800.
25 Wrote off an account receivable to the value of $500 because it was accepted that the amount was never going to be paid.
26 Purchased shop supplies on credit $200 and paid wages of $1 400.
27 Received $600 from a customer for hats that are not going to be supplied until March.
31 Wages for work done in January but not yet paid amounted to $300. Shop supplies on hand at the end of January amounted to $100.
Required
- Record entries on the attached worksheet for the events that occurred in January and also record all the accrual accounting adjustments that are necessary to determine profit for the month. (Hint – you will need six adjustments including the two mentioned on 31 January.)
- Prepare an income statement, cash flow statement and balance sheet at 31 January 2018.
| Darby’s Derbys Ltd | |||||||||||||||
| Cash at | Accounts | Inventory | Shop | Prepayments | Shop fittings | (Acc dep – | Accounts | Accruals | Unearned | Loan | Share | Retained | |||
| bank | receivable | Supplies | shop fitt.) | = | payable | Revenue | Capital | Profits | |||||||
| Bal | 6,000 | 10,000 | 12,000 | 500 | 1,500 | 25,000 | (15,000) | 7,500 | 800 | 30,000 | 1,700 | ||||
| Jan-01 | |||||||||||||||
| 2 | |||||||||||||||
| 3 | |||||||||||||||
| 6 | |||||||||||||||
| 8 | |||||||||||||||
| 12 | |||||||||||||||
| 15 | |||||||||||||||
| 16 | |||||||||||||||
| 20 | |||||||||||||||
| 25 | |||||||||||||||
| 26 | |||||||||||||||
| 27 | |||||||||||||||
| a | |||||||||||||||
| b | |||||||||||||||
| c | |||||||||||||||
| d | |||||||||||||||
| e | |||||||||||||||
| f | |||||||||||||||
| Bal |
| Darby’s Derbys Ltd | |
| Income Statement | |
| For the month ended 31 January 2018 | |
| $ | |
| Sales | |
| Less cost of goods sold | |
| Gross Profit | |
| Less Other Expenses | |
| Depreciation of shop fittings | |
| Interest | |
| Wages | |
| Rent | |
| Insurance | |
| Bad debts | |
| Advertising | |
| Supplies | |
| Net Profit | |
| Add retained profits at beginning | |
| Less dividends | |
| Retained Profits at end |
| Darby’s Derbys Ltd | |
| Cashflow Statement | |
| for the month ended 31 January 2018 | |
| $ | |
| Cash flows from operating activities | |
| Cash receipts from customers | |
| Cash paid to suppliers and employees | |
| Net cash from operating activities | |
| Cash flows from investing activities | |
| Net cash from investing activities | |
| Cash flows from financing activities | |
| Borrowings | |
| Net cash from financing activities | |
| Net change in cash | |
| Cash at the beginning of the month | |
| Cash at the end of the month |
| Darby’s Derbys Ltd | |
| Balance Sheet | |
| as at 31 January 2018 | |
| $ | |
| Current assets | |
| Cash at bank | |
| Accounts receivable | |
| Inventory | |
| Shop supplies | |
| Prepayments | |
| Total Current Assets | |
| Non current assets | |
| Shop fittings | |
| Less Accumulated depreciation | |
| Total Non Current Assets | |
| Total Assets | |
| Current liabilities | |
| Accounts payable | |
| Accruals | |
| Unearned revenue | |
| Total Current Liabilities | |
| Non-current liabilities | |
| Loan | |
| Total Non Current Liabilities | |
| Total Liabilities | |
| Net Assets | |
| Shareholders’ equity | |
| Share capital | |
| Retained profits | |
| Total Shareholders’ Equity |
Get expert help for TACC401 Principles of Accounting and many more. 24X7 help, plag free solution. Order online now!
