Journal entries

Question 1

Dividends paid?

Answer 1

Dr Retained earning
Cr cash

*Cr cash assuming the dividends have not been paid.

Question 2

Specific allowance for a bad debt provision?

Answer 2

Dr Bad debts (expense)

Cr Trade receivable

Question 3

2 years operating lease?

Answer 3

add up the total of the payments due and divide by the length of the lease. Then charge an equal amount each year (time apportion if necessary).

Dr lease expense
Cr cash

*if you have not paid anything relating to they YE as the payment are later, make sure to credit the accruals account in place of bank until you can readjust for this!

Question 4

Share buyback?

Answer 4

Dr "share buyback" (equity) 
Cr Cash (asset)

*share buybacks get their own line and will not affect the original share capital and share premium amounts that have been recorded.

Question 5

Dividends paid on ordinary shares and irredeemable preference shares?

Answer 5

Dr Retained earning 
Cr Cash (if paid)

• Cr TP if the amount is declared and not paid yet.
• Remember the preference dividends paid must be time apportioned for the period. You pay the dividend for a year to time apportion for the amount of months of the year it represents

Question 6

Dividends on redeemable preference shares?

Answer 6

These are treated as a finance cost.

Dr Finance costs (P/L expense) 
Cr Cash (SoFP)

Question 7

If you see “interim dividend paid” on the BS what do you do?

Answer 7

Remove this from RE.

Question 8

what if a irredeemable pref share pays a dividend and recognises it as a finance cost?

Answer 8

Remove it from expenses, so Cr the expense.

Correct journal entry:
Dr RE
Cr Cash

Question 9

what if a irredeemable pref share pays a dividend and recognises it as a finance cost?

Answer 9

Remove it from expenses, so Cr the expense.

Correct journal entry:
Dr RE
Cr Cash

Question 10

a) Because of its acquisitive strategy, the company is concerned that it does not devote sufficient time or resource to embedding ‘risk’ within its procedures, culture and values.

Explain how this could be carried-out within an organisation.

Answer 10

Training of staff during employment or through induction at the start of employment.

The use of ‘ethical codes’ as part of the company’s promotion to ensure that employees are ethically consistent.

An environment and culture that is set by the Board and filtered down through the organisation (tone at the top).

The existence of a risk management/risk committee/internal audit department.

Use of a ‘risk register’ where each department/section within an organisation identifies and assesses risks with related controls. Each register is collated so that the organisation collates a directory of all identified risks to allow their effective management at board level.