Relax Spa Company is engaged in providing facial and body treatment in a spa centre. Customers are required to purchase spa coupons in advance. Coupons are redeemed when customers complete the treatment and the Company records income. The Company also sells day pass for using the spa facilities and records income. The Company records all income in “Service revenue”. Adjusting entries are performed on a monthly basis. Closing entries are performed annually on December 31. Below is the Company’s unadjusted trial balance at the year ended 31 December, 2021 Account Title Debit $ Credit $ Cash 428,800 Accounts receivable 10,000 Prepaid rent 72,000 Supplies 13,000 Equipment 240,000 Accumulated depreciation: Equipment 80,000 Accounts payable 48,000 Income taxes payable 18,200 Unearned revenue 42,000 8% Notes payable 84,000 Interest payable 2,800 Share capital ($2 per share) 200,000 Retained earnings 57,160 Service revenue 608,000 Salaries expense 100,000 Rent expense 182,000 Insurance expense 24,000 Depreciation expense: Equipment 40,000 Supplies expense 6,000 Interest expense 6,160 Income taxes expense 18,200 Information on adjusting entries: (1) Accrued, but unrecorded and unpaid Salaries amounted to $14,000. (2) On 1 July 2021, The Company borrowed $84,000 by signing a 2-year note payable at 8% annual interest rate. The entire note, plus 2 years’ accrued interest, is due on 30 June 2023. (3) During December 2021, the Company purchased supplies costing $1,000 by cash. No entry has been made. Supplies on hand were $12,000 on 31 December, 2021. (4) On 1 August, 2021, the company paid for the rental of spa centre for 12 months in advance. (5) Spa coupons amounting $16,000 were redeemed in December 2021 for treatment. (6) The Company estimated that the income taxes expense for the entire year was $24,800, which to be paid next year. (7) On 31 December, 2021, a customer has bought a 2-day pass for using the spa facilities on 31 December, 2021 and January 1, 2022 for $2,000. The total amount for the 2-day pass will be paid by the customer when departing on January 1, 2022. (8) On 31 December, 2021, the owner has purchased a fitness equipment amounting $120,000 for her personal use. (9) The estimated useful life of equipment is five years and straight-line depreciation method is adopted. Depreciation expense had been updated to end of October 2021. (10) On 31 December, 2021, the Company declared a cash dividend of $0.20 per share to be paid on 31 March 2022. (a.)Record its year-end closing journal entries. Explanations are NOT required
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.
Relax Spa Company is engaged in providing facial and body treatment in a spa centre. Customers
are required to purchase spa coupons in advance. Coupons are redeemed when customers complete
the treatment and the Company records income. The Company also sells day pass for using the spa
facilities and records income. The Company records all income in “Service revenue”.
entries
Below is the Company’s unadjusted
Account Title Debit $ Credit $
Cash 428,800
Prepaid rent 72,000
Supplies 13,000
Equipment 240,000
Accumulated
Accounts payable 48,000
Income taxes payable 18,200
Unearned revenue 42,000
8% Notes payable 84,000
Interest payable 2,800
Share capital ($2 per share) 200,000
Service revenue 608,000
Salaries expense 100,000
Rent expense 182,000
Insurance expense 24,000
Depreciation expense: Equipment 40,000
Supplies expense 6,000
Interest expense 6,160
Income taxes expense 18,200
Information on adjusting entries:
(1) Accrued, but unrecorded and unpaid Salaries amounted to $14,000.
(2) On 1 July 2021, The Company borrowed $84,000 by signing a 2-year note payable at 8%
annual interest rate. The entire note, plus 2 years’ accrued interest, is due on 30 June 2023.
(3) During December 2021, the Company purchased supplies costing $1,000 by cash. No entry
has been made. Supplies on hand were $12,000 on 31 December, 2021.
(4) On 1 August, 2021, the company paid for the rental of spa centre for 12 months in advance.
(5) Spa coupons amounting $16,000 were redeemed in December 2021 for treatment.
(6) The Company estimated that the income taxes expense for the entire year was $24,800, which
to be paid next year.
(7) On 31 December, 2021, a customer has bought a 2-day pass for using the spa facilities on
31 December, 2021 and January 1, 2022 for $2,000. The total amount for the 2-day pass will
be paid by the customer when departing on January 1, 2022.
(8) On 31 December, 2021, the owner has purchased a fitness equipment amounting $120,000 for
her personal use.
(9) The estimated useful life of equipment is five years and
adopted. Depreciation expense had been updated to end of October 2021.
(10) On 31 December, 2021, the Company declared a cash dividend of $0.20 per share to be paid
on 31 March 2022.
(a.)Record its year-end closing
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