5.2 Business Accounts: Year-End Adjustments + P Financial Statements

Question 1

Method of accrual on P+L

Answer 1

Transfer increased expenses from TB

Question 2

Method of writing off bad debt in P+L

Answer 2

Add as expense

Question 3

How is profit split among partners in partnership

Answer 3

According to partnership agreement, then profit share ratio

Question 4

Method of prepayment on TB

Answer 4

Deduct from expenses on TB

Question 5

What part of ALCIE does depreciation refer to

Answer 5

Fixed assets

Question 6

What is the point of making provision for doubtful debts

Answer 6

Ring fences assets in case it needs to be written off

Question 7

What is the capital account for partners in profit appropriation statement

Answer 7

Contains long-term capital, representing original investment

Question 8

What does depreciation do

Answer 8

Spreads cost of asset over assets life, mirroring how it loses value

Question 9

Where do you deduct bad debts from in TB

Answer 9

Receivables balance

Question 10

How do you transfer written off bad debts to BS

Answer 10

Adjusted Receivables figure (once taken off Receivables in TB)

Question 11

What is different about partnership balance sheet, from ST

Answer 11

Bottom shows both of P’s accounts

Question 12

How does terminology change for partnership financial statements

Answer 12

Creditors and debtors become payables and receivables

Question 13

What is a prepayment

Answer 13

Pay in advance of receiving benefit

Question 14

What is an accrual

Answer 14

Benefit received w/o yet paying

Question 15

What must you never do w/ doubtful debts, to do with bad debts

Answer 15

Provide for doubtful debts before bad debts are written off receivables figure.

Question 16

What is accumulated depreciation (classify + BS/P+L)

Answer 16

BS liability

Question 17

Method of accrual on BS

Answer 17

Current liability

Question 18

How is profit appropriation statement done

Answer 18

Allocate salary + interest , then calculate residual profit + share according to ratio

Question 19

What is an additional step taken for partnerships in preparing accounts

Answer 19

Must prepare profit appropriation statement

Question 20

Two common methods of depreciation

Answer 20

Straight-line and reducing balance

Question 21

Why are notional interest and salary for partners treated as profits

Answer 21

Because it is paid to the partners

Question 22

Straight-line method of depreciation

Answer 22

Charge spread evenly over life of asset

Question 23

What is a bad debt

Answer 23

A debt company knows with certainty it will not be paid

Question 24

What is shown on BS for depreciation

Answer 24

Original cost of FA, less accumulated depreciation, and net book value

Question 25

When must the profit appropriation statement be prepared

Answer 25

Before BS drawn up

Question 26

What two accounts does each partner commonly have in profit appropriation statement

Answer 26

Capital and current

Question 27

What is the yearly charge for depreciation (classify + P+L/BS)

Answer 27

An expense on P+L

Question 28

From which account can partners withdraw in profit appropriation statement

Answer 28

Current ONLY

Question 29

Method of accrual on TB

Answer 29

Add as expense on TB

Question 30

How do you show provision for doubtful debts in BS

Answer 30

In DD liability account, separate from adjusted receivables figure

Question 31

Reducing balance method of depreciation

Answer 31

% of reducing balance

Question 32

What is the current account for partners in profit appropriation statement

Answer 32

Shows share in profits + drawings

Question 33

What do you do in P+L when making provision for doubtful debts

Answer 33

Add only increase/decrease in provision as expense

Question 34

Method of DD - what is the first step

Answer 34

Calculate provision

Question 35

Method of prepayment on P+L

Answer 35

Transfer remainder in TB expenses to P+L (subtract prepayment)

Question 36

5 relevant year end adjustments

Answer 36

Depreciation, accruals, prepayments, bad debts and doubtful debts

Question 37

Method of prepayment in BS

Answer 37

Include prepayment alone as current asset

Question 38

What is doubtful debt

Answer 38

Possibility debt will not be paid, either specific or general