Gr 11 Accounting - Adjustments - Activity 2
Summary
TLDRIn this educational video, Mrs. Broomercon discusses income adjustments, focusing on deferred income and accrued income. She explains the accounting treatment for income received in advance, which should be subtracted as it's not part of the current period's income, and accrued income, which should be added as it's due for the current period. The video includes practical examples, such as a customer's unsatisfactory repair service affecting fee income and rent adjustments for a tenant, Mr. Spiderman, including rent increases and repairs offset against the tenant's debt. The session concludes with a motivational quote, encouraging viewers to stay prepared and focused.
Takeaways
- đ The session is focused on understanding income adjustments, particularly deferred income and accrued income.
- đĄ Deferred income, also known as income received in advance, must be subtracted from the income account as it does not form part of the current period's income.
- đ Deferred income is classified as a current liability and is part of note number 9, trade and other payables.
- đ Accrued income, which is income outstanding for the current accounting period, should be added to the income account and is classified as a current asset.
- đ The income account is credited for accrued income, and it forms part of note number 5, trade and other receivables.
- đ The accounting equation is affected by these adjustments: a decrease in income affects owner's equity negatively, and an increase in liabilities affects it positively.
- đ§ Adjustment A involves a customer complaint about repairs, where the fee income is debited and deferred income is credited, reflecting the offset against future fees.
- đ Adjustment B involves rent income from a tenant, Mr. Spiderman, and the calculation of rent for the current accounting period, considering an increase in rent.
- đ Repairs paid by the tenant are considered an expense for the business and are offset against the amount owed by the tenant.
- đ The general journal entries are prepared to reflect these adjustments, affecting both the balance sheet and the profit and loss account.
- đȘ The speaker concludes with a motivational quote encouraging preparation, focus, and perseverance.
Q & A
What is the main focus of the activity discussed in the script?
-The main focus of the activity is on income adjustments, specifically looking at income received in advance and accrued income.
Why is income received in advance subtracted from the income account?
-Income received in advance is subtracted because it does not form part of the income for the current accounting period.
What is another term for income received in advance?
-Another term for income received in advance is deferred income.
How is income received in advance classified in the balance sheet?
-Income received in advance is classified as a current liability, which forms part of note number 9, trade and other payables.
What should be done with accrued income in the accounting process?
-Accrued income should be added to the income account as it represents income that is still outstanding for the current accounting period.
How is accrued income classified in the balance sheet?
-Accrued income is classified as a current asset, which forms part of note number five, trade and other receivables.
What is the purpose of preparing journal entries for adjustments?
-The purpose of preparing journal entries for adjustments is to post them to the general ledger and show their effect on the accounting equation.
Can you explain the concept of adjustment number A from the script?
-Adjustment number A involves a cash customer who was dissatisfied with repairs and had paid for a service. Instead of a refund, it was agreed to offset this amount against fees charged in the following month, making it an income received in advance.
What is the situation described in adjustment B, and how does it relate to the accounting period?
-Adjustment B involves a tenant, Mr. Spiderman, who has been renting since the previous financial year. The focus is on the rent income for the current accounting period, which includes an increase in rent and repairs paid by the tenant that need to be offset against the amount owed.
How does the script handle the increase in rent for Mr. Spiderman's premises?
-The script calculates the total rent for 11 months by considering the initial rate for three months and the increased rate for eight months, then adjusting for the outstanding rent after accounting for the repairs paid by the tenant.
What is the final step mentioned in the script for handling the adjustments?
-The final step mentioned is to close off the nominal account section and balance the balance sheet account section, ensuring that all income and expenses are correctly reflected in the profit and loss account.
Outlines
đ Income Adjustments and Accounting Period Clarification
This paragraph introduces the topic of income adjustments with a focus on deferred income, which is income received in advance and must be subtracted from the income account as it does not contribute to the current accounting period's income. The speaker, Mrs. Broomercon, explains the accounting treatment of deferred income as a current liability and accrued income as a current asset. She also outlines the process of creating journal entries for these adjustments, emphasizing the importance of knowing the start and end dates of the accounting period. An example is given where a customer's dissatisfaction with a service leads to an agreement to offset the payment against future fees, illustrating the practical application of income adjustments.
đą Rent Adjustments and Expense Offsetting
The second paragraph delves into the specifics of rent income adjustments and the offsetting of expenses. It discusses a scenario where a tenant, Mr. Spiderman, has been renting premises since the previous financial year, with an increase in rent from October 2020. The paragraph explains how to calculate the rent income for the current accounting period, taking into account the rent increase and the outstanding rent for one month. Additionally, it addresses the offsetting of repair expenses paid by the tenant against the rent owed. The paragraph concludes with the journal entries for these adjustments, showing how they affect the accounting equation and the balance sheet.
đ Closing Rent and Repairs Accounts with Accrued Income
The final paragraph wraps up the discussion on rent and repair adjustments, focusing on the closure of the nominal accounts and the balance sheet. It details the process of adjusting the rent income and accrued income accounts, as well as the repairs and maintenance expense account. The paragraph provides a clear explanation of the accounting equation's impact, showing how assets, liabilities, and owner's equity are affected by these adjustments. The summary includes the journal entries for these closing adjustments, with a narration that describes the offsetting of the tenant's owed amount for repairs against the rent income. The paragraph ends with a motivational quote encouraging preparation, focus, and perseverance.
Mindmap
Keywords
đĄIncome Adjustments
đĄDeferred Income
đĄAccrued Income
đĄCurrent Liability
đĄCurrent Asset
đĄJournal Entries
đĄGeneral Ledger
đĄAccounting Equation
đĄRent Income
đĄRepairs and Maintenance
đĄProfit and Loss Account
Highlights
Introduction to focusing on income adjustments in the context of accounting.
Explanation of income received in advance or deferred income and its treatment as a current liability.
The necessity to subtract income received in advance from the income account as it does not form part of the current accounting period's income.
Identification of accrued income as an outstanding income for the current accounting period, which should be added to the income account.
Classification of accrued income as a current asset and its inclusion in note number five, trade and other receivables.
Activity 2 involves preparing journal entries for adjustments and posting them to the general ledger.
The effect of adjustments on the accounting equation is discussed with examples.
Adjustment number A involves a cash customer's complaint and the decision to offset the unsatisfactory repair fees against future charges.
Demonstration of how to record the offset of income received in advance in the general journal and its impact on the accounting equation.
Adjustment B discusses the rent income from a tenant, Mr. Spiderman, and the increase in rent from October 2020.
Calculation of the rent income for the current accounting period considering the rent increase and outstanding amount.
Treatment of tenant-paid repairs as an expense to be offset against the amount owed by the tenant.
Journal entry for the offset of repairs and maintenance against the tenant's outstanding rent.
Recording the outstanding rent as an accrued income and its effect on the accounting equation.
Closing off the nominal account section and balancing the balance sheet account section in the general journal.
Finalizing the general journal entries with correct narrations to reflect the business transactions accurately.
Encouraging quote to stay prepared, focused, and never give up, followed by a teaser for the next activity focusing on trading stock.
Transcripts
good day junior techies i'm mrs
broomercon we are going to look at
adjustments and this time we're going to
focus on income adjustments
before we start with the activity
when i look at income adjustments we
look at
income received in advance
another word for that is deferred income
this must always be subtracted from the
income account
why
this does not form part of my income for
this accounting period
my income account will be debited
for every debit there is a credit
income received in advance or deferred
income is classified as a current
liability which will form part of note
number 9 trade and other payables
if we look at accrued income it's an
income which is still outstanding for
this accounting period
therefore it should always be added to
the income account
income account will be credited
account debited accrued income
accrued income is classified as a
current asset
which will form part of note number five
trade and other receivables
activity 2 prepare the journal entries
for the adjustments
post to the general ledger show the
effect on the counting equation so we
are going to look at adjustment number a
and
b extract from the pre-adjustment trial
balance on 50 june 2021 that is the end
of my accounting period which means the
beginning
is on the 1st of july 2020. it is
important that you always know when is
my accounting period end when does it
start
adjustment number a
a cash customer complained that repairs
to a close were not satisfactory
she had paid 510 for the service on 50
june 2021
it was agreed not to refund her this
cash
but to offset this against the fees
charge
in july 2021
so this is an income received in advance
in my general ledger we're going to
start with the opening balances and
totals so from the pre-adjustment trial
balance we have a total broad forward
why is it on the credit side because
it's an income the plus is on the credit
side
if i look at the adjustment
this should not form part of my income
for this accounting period
therefore i need to minus it
to minus i need to debit the fee income
account credited deferred income or
income received in advance
in my general journal the account which
is debited is always written first
fee income was debited so the counting
equation account debit will also be fee
income
account credit deferred income
on the counting equation exactly the
same remember another word you can use
is income received in advance
effect on the accounting equation
earnest equity minus because my income
decrease it will have a negative effect
liabilities plus
your narration in the general journal
what happened
this is an amount received in advance
next we can balance the balance sheet
account section and we can close off the
nominal account section so if we look at
deferred income
the balance carried down
means balance brought down will be 510
with fee income
this is an income which must be closed
off to the profit and loss account
this means we're going to add the credit
side
minus everything on the debit side and
the difference is the amount that will
appear in the profit and loss account
adjustment b
part of the premises are led to a tenant
mr spiderman since october 2019 now
remember our counting period ends 50
june 2021
and it starts the first of july
2020.
so this means mr spiderman's been
renting
since the previous financial year we
only care about our income
for this accounting period
now the rent increased by 1
200 per month from the 1st of october
2020 the tenant paid for 11 months which
means one month is still outstanding
now mr spiderman paid 5 000 for repairs
to the premises during june 2021.
this is the responsibility of the
business and will be offset against the
amount owed by mr
spiderman first we're going to start
with the opening balances and totals
brought forward
repairs and maintenance is an expense
rent income is an income so the total
brought forward for rent income
will appear
on the credit side
for repairs and maintenance on the debit
side
now if you look at the first part of
this adjustment
i cannot just take the amount from the
pre-adjustment trial balance and divide
that by 11.
why because the rate
increased by 1
200 per month
the rent was for three months at a
hundred percent
and for eight months it was at 100
plus
1200 per month
so how do we approach this
take out the total increased amount
to find out what is the total rent for
11 months without any increase
so if we take
the amount from the pre-adjustment
we're going to say it increased with
1200
for eight months so this is the total
amount that we're taking out
this will provide us with the rent
before the increase
now
what is it that i want to add i want to
know what is the rent outstanding after
the increase this is why we need to say
12 000
plus 1
200.
because this is our responsibility as a
business for repays
we are going to debit repairs and
maintenance we are going to add it to
our expense
account credited rent income
now if i look at
the total rate is thirteen thousand two
hundred
minus five thousand means eight thousand
two hundred is still outstanding
so to show that eight thousand two
hundred
we are going to credit rent income
an account debited accrued income
on the accounting equation
account debited repairs and maintenance
account credited
rent income effect on the accounting
equation assets zero earners equity plus
minus 5000 liabilities nothing
if we look at now what is the amount
still outstanding account debited
accrued income
account credited
rent income effect on the accounting
equation assets plus
8200 owners equity plus 8
200.
now we can close off
the nominal account section and balance
the balance sheet account section
accrued income the debit side is equal
to the credit side the difference is the
balance carried down balance brought
down
rent income is an income which is closed
off to the profit and loss account so
add everything on the credit side that
is the amount that will go to the profit
and loss account
this is our total rent income for this
accounting period
repairs and maintenance is an expense
which is closed off to the profit and
loss account so add everything on the
debit side minus everything on the
credit side
this is what will appear in your profit
and loss account as your total repairs
and maintenance for this accounting
period
when we complete the general journal
remember account which is debited is
always written first so repairs and
maintenance was debited
account credited rent income with five
thousand
narration repairs was offset against
amount owed
if we look at the second part of the
adjustment account debited accrued
income with 8200
rent income is credited with 8200
and the narration amount owed by tenant
for june remember that your narration is
basically saying what happened
thank you very much
i want to leave you with this quote be
prepared stay focused never give up
next we're going to look at activity 3
which will focus on trading stock
have a wonderful day
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