9706 · 1.5.1
Adjustments to draft financial statements flashcards
Revision flashcards for Cambridge 9706 Adjustments to draft financial statements (syllabus 1.5.1). Flip, recall, then mark a real past-paper question.
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Accrual (expense)?
DR Expense, CR Accrual (liability) — owed but unpaid at year-end.
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Prepayment (expense)?
DR Prepayment (asset), CR Expense — paid early, benefit next period.
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Accrued income?
DR Accrued income (asset), CR Income — earned but not yet received.
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Depreciation journal?
DR Depreciation expense, CR Accumulated depreciation.
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Irrecoverable debt?
DR Irrecoverable debts expense, CR Trade receivable.
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Allowance for receivables?
Increase: DR Allowance expense, CR Allowance account.
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What is the double entry to record an accrued expense, for example, rent of £500?
Debit: Rent Expense (SPL) £500 Credit: Accrued Expenses (SOFP) £500
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How is the depreciation charge for the year using the reducing balance method calculated?
By applying the depreciation percentage to the Net Book Value (NBV) of the asset at the start of the accounting period. NBV = Cost - Accumulated Depreciation.
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A business has trade receivables of £10,000. A specific debt of £400 is to be written off. The allowance for irrecoverable debts is to be maintained at 5% of receivables. What is the final allowance?
First, deduct the specific debt: £10,000 - £400 = £9,600. Then calculate the allowance: 5% of £9,600 = £480.
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What is Net Realisable Value (NRV)?
The estimated selling price of inventory less any estimated costs of completion and estimated costs necessary to make the sale (e.g., delivery costs, sales commission).
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Where are 'prepayments' and 'accruals' shown in the Statement of Financial Position?
Prepayments (prepaid expenses) are shown under Current Assets. Accruals (accrued expenses) are shown under Current Liabilities.
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How is the profit or loss on the disposal of a non-current asset calculated?
It is the difference between the net disposal proceeds and the Net Book Value (NBV) of the asset at the date of disposal. Profit if proceeds > NBV; Loss if proceeds < NBV.
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What is the double entry to correct an error where motor expenses of $500 were debited instead of the motor vehicles (non-current asset) account?
Debit: Motor Vehicles (NCA) $500 Credit: Motor Expenses (SPL) $500. This increases assets and increases profit (by reducing expenses).
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What is a suspense account used for?
A temporary account used to make the trial balance agree when the total debits do not equal the total credits. The balance in the suspense account is cleared by correcting the errors that caused the imbalance.
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What is the double entry for the recovery of a debt that was previously written off?
Debit: Cash/Bank (with the amount received) Credit: Irrecoverable Debts Recovered (an income account in the SPL). This increases profit.