Ch 2: Year-end Adjustments, financial statements for partnerships Flashcards
What is an accrued expense?
When an expense has been incurred and should be charged against profit in the current year but for some reason by the time the accounts are drawn up, that expense has not been included in the trial balance.
For example, the business has not received an invoice for the item -
How would the accrued expense appear on the Balance Sheet?
You would would the actual accrued amount
Add them together as a single current liability, labelled ‘Accruals’
Accrued expense:
What do you put in the expense in P&L account?
You add ‘expense in Trial Balance’ and ‘Amount of accrual’.
What is a prepayment?
When an expense is paid for in the current year but all or part of the cost should be charged as an expense next year.
When does a prepayment occur?
When a business has paid for something in advance during one accounting period but does not get the benefit of all or some of what it has paid for until the next.
How would a prepayment appear on a Balance Sheet?
It would be the actual amount of the prepayment itself.
This will appear as a new current asset account, labelled ‘Prepayments’
How do you calculate the accumulated depreciation at the end of year?
Adding the provision of depreciation at the start of the year (which you can find on the Balance Sheet) and the depreciation charge for the current year.
*Just add shit up if in doubt with depreciation.
How do work out the bad debts?
You can find it on the Trial Balance and you also need to add any bad debts that have been written off.
What is a net book value?
The Net Book Value of an asset is an estimate of the current value of the asset to the business.
‘Cost - accumulated depreciation = net book value’
