Farah Youssef operates as a sole trader. Below is a trial balance extracted from her books as at 31 December 2020. Trial balance for Farah Youssef as at 31 December 2020 Debit Credit £ _ . £ Sales revenue 695,000 Inventory (as at 1 January 2020) 105,800 Purchases 625,200 Non-current assets at cost: Equipment 100,000 Motor vehicle 80,000 Accumulated depreciation: Equipment 10,000 Motor vehicle 10,000 Insurance 14,700 Rent 30,000 Heating and lighting 10,000 Salaries and wages 40,000 Motor expenses 15,300 Miscellaneous expenses 28,500 Receivables 110,000 Allowance for receivables 4,000 Payables 101,500 Cash 71,000 Bank loan 100,000 Capital 310,000 Total 1,230,500 1,230,500 Additional information is provided for use in preparing the company’s adjustments: The value of closing inventory is £102,500. On December 1, Farah Company borrowed £100,000, at 6% annual interest, from the National Bank. Farah Company has 120 days before the first payment is required. Farah has paid her rent until 31 March 2021. Her annual rent is £24,000. Office equipment has a useful life of ten years and a residual value of £0. It is to be depreciated on a straight-line basis. The motor vehicle with a useful life of ten years and an estimated residual value of £30,000 is to be depreciated on a straight-line basis at a rate of 10%. Farah finds that receivables of £10,000 need to be written off as irrecoverable. The allowance for receivables is to be set at ten per cent of the remaining outstanding receivables as at 31 December 2020. The heating bill will arrive on 5 January and about £1,000 is expected to relate to the period until 31 December. Required: a)Make the end-of-period adjustments entries. b)Prepare Farah’s income statement for the year ended December 31, 2020. and Farah’s balance sheet as at December 31, 2020 c)How do the adjusting entries differ from other journal entries?? Explain why adjusting entries are needed.
Farah Youssef operates as a sole trader. Below is a
Trial balance for Farah Youssef as at 31 December 2020
|
|
Debit |
Credit |
|
|
£ _ . |
£ |
|
Sales revenue |
|
695,000 |
|
Inventory (as at 1 January 2020) |
105,800 |
|
|
Purchases |
625,200 |
|
|
Non-current assets at cost: |
|
|
|
Equipment |
100,000 |
|
|
Motor vehicle |
80,000 |
|
|
|
|
|
|
Equipment |
|
10,000 |
|
Motor vehicle |
|
10,000 |
|
Insurance |
14,700 |
|
|
Rent |
30,000 |
|
|
Heating and lighting |
10,000 |
|
|
Salaries and wages |
40,000 |
|
|
Motor expenses |
15,300 |
|
|
Miscellaneous expenses |
28,500 |
|
|
Receivables |
110,000 |
|
|
Allowance for receivables |
|
4,000 |
|
Payables |
|
101,500 |
|
Cash |
71,000 |
|
|
Bank loan |
|
100,000 |
|
Capital |
|
310,000 |
|
Total |
1,230,500 |
1,230,500 |
Additional information is provided for use in preparing the company’s adjustments:
-
The value of closing inventory is £102,500.
-
On December 1, Farah Company borrowed £100,000, at 6% annual interest, from the National Bank. Farah Company has 120 days before the first payment is required.
-
Farah has paid her rent until 31 March 2021. Her annual rent is £24,000.
-
Office equipment has a useful life of ten years and a residual value of £0. It is to be depreciated on a straight-line basis.
-
The motor vehicle with a useful life of ten years and an estimated residual value of £30,000 is to be depreciated on a straight-line basis at a rate of 10%.
-
Farah finds that receivables of £10,000 need to be written off as irrecoverable.
-
The allowance for receivables is to be set at ten per cent of the remaining outstanding receivables as at 31 December 2020.
-
The heating bill will arrive on 5 January and about £1,000 is expected to relate to the period until 31 December.
Required:
a)Make the end-of-period adjustments entries.
b)Prepare Farah’s income statement for the year ended December 31, 2020. and Farah’s
c)How do the
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