equired How would the preceding information affect the calculation of Olivia Smith's business income for 2019 and 2020 Taxation years? Include the full details of your calculations, not just the net result for each year.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Olivia Smith is the owner of an unincorporated business that does landscaping. The business began operations on January 2, 2019 and has a December 31 year end. The 2019 and 2020 results for the business can be described as follows:
2019 During its first year, the business had sales of delivered merchandise and services totaling $185,000. OF this total $65,000 had not been collected on December 31, 2019. Olivia anticipates that #5,000 of these sales will be uncollectible. In addition to these sales of delivered merchandise and services, she received $23,000 in advances for merchandise to be delivered in 2020. Olivia purchased a large supply of landscaping materials from the trustee of a bankrupt landscaping business at a very good price. Since she is unlikely to use them in the next few years, she has arranged to sell these materials for $50,000. These materials have a cost of $40,000, resulting in a total gross profit of $10,000. Because of the size of this sale, she has agreed to accept a down payment of $30,000, followed by tow annual instalments of $10,000. The instalments are due on December 31, 2020 and December 31, 2021.
2020 During 2020 $5,500 of account receivable had to be written off. All of the merchandise for which advances had been received was delivered and the $10,000 instalment on the 2019 sale of landscaping materials was received. Sales of delivered merchandise and services totaled $240,000. Of this total, $50,000 was still on account at December 31, 2020. Olivia anticipates that $3500 of this amount will be uncollectible. In addition to the 2020 sales of delivered merchandise and services she receives $13,400 in advances for merchandise to be delivered in 2021.
Required How would the preceding information affect the calculation of Olivia Smith's business income for 2019 and 2020
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