(坏账准备)

BusinessFinanceWeek6(2)AdjustmentsforfinancialstatementsDepreciationoffixedassetAccrualsandPrepaymentsBaddebtsBaddebts(坏账）:customersareunabletopaytheamounts(partoftheamounts)owedtothebusinessBaddebts:ExpensesintheprofitandlossaccountDebtor’saccount:reducebytheamountofthebaddebts,decreaseofassetEg.Writeoffbaddebts.RShawowedus￡375,buthecanonlypay￡125cash,￡250beingbaddebts(1)Cash:Dr.Cash125Cr.Debtors125(2)Baddebts:Dr.Baddebtsexpense250Cr.Debtors250ProvisionfordoubtfuldebtsAfterthebaddebtswrittenoff,debtsnotpaidbytheyearendProvisionfordoubtfuldebts(坏账准备):It’slikelythatsomeofthedebtsoutstandingwillfinallyprovedtobebaddebts,butcannotbesureatthetimebeingPrudenceconcept:theabovepossibilityshouldbereflectedinthefinancialstatementinthecurrentperiod2aims:(1)chargeasanexpenseintheprofitandlossaccountforthatyearanamountrepresentingdebtsthatwillneverbepaid(2)showinthebalancesheetadebtorsfigureascloseaspossibletothetruevalueofdebtorsProvisionfordoubtfuldebts:↑expense,↓asset(debtors)AccountingentriesforProvisionfordoubtfuldebtsProvisionfordoubtfuldebts:shownaspercentageofthetotaldebtsafterdeductingbaddebtsDr.Doubtfuldebtexpense(profitandlossaccount)Cr.Provisionfordoubtfuldebts(decreaseofDebtors)Eg.31Dec,thedebtorsfigureafterdeductingbaddebtswas￡10,000.2%estimatedtobebaddebts–ProvisionProfit&LossAccount31DecBalanceSheet31DecGrossprofitCurrentassetsLessExpenses:Debtors10,000DoubtfuldebtsexpenseLessProvisionfordoubtful200debts(200)BaddebtsandProvisionfordoubtfuldebtsTwodifferentaccountsinexpensesanddebtoradjustmentsBaddebts:whenadebtisbelievedtobeirrecoverableandiswrittenoffProvisionfordoubtfuldebts:estimatesoftheamountofthedebtorsremainingattheyearend(afterthebaddebtshavebeenwrittenoff)thatarelikelytofinishupasbaddebtsProvisionfordoubtfuldebts:alsorefertoas‘Provisionforbaddebts’IncreasingtheprovisionEg.Continued:attheendofthefollowingyear,debtorsrisento￡12,000,provisionrateremainsat2%,provisionfordoubtfuldebtsneededtobeincreasedfrom￡200to￡240￡200provisionboughtforwardfromthepreviousyear,needanextraprovisionof￡40Dr.Increaseinthedoubtfuldebtsexpense40Cr.Provisionfordoubtfuldebts40Profit&LossAccount31DecBalanceSheet31DecGrossprofitCurrentassetsLessExpenses:Debtors12,000ProvisionfordoubtfuldebtsLessProvisionfordoubtful(Increase)40debts(240)ReducingtheprovisionEg.Continued:attheendofthefollowingyear,debtorsfallento￡10,500,provisionrateremainsat2%,provisionfordoubtfuldebtsneededtobereducedfrom￡240to￡210￡240provisionboughtforwardfromthepreviousyear,needareductionprovisionof￡30Dr.Provisionfordoubtfuldebts30Cr.Decreaseinthedoubtfuldebtsexpense30Profit&LossAccount31DecBalanceSheet31DecGrossprofitCurrentassetsAddReductioninProvisionforDebtors10,500doubtfuldebtsLessProvisionfordoubtful(Decrease)30debts(210)BaddebtsrecoveredAdebtwrittenoffinpreviousyearsisrecovered1.ReinstatethedebtDr.DebtorsCr.Baddebtsrecovered2.ReceivepaymentfromdebtorDr.CashCr.DebtorsDepreciationoffixedassetDepreciation:partoftheoriginalcostoffixedassetthatisconsumedduringitsperiodofusebythebusinessDepreciationisanexpense,reducesprofit;valueofthefixedassetinthebalancesheetreducesaccordinglyWhyweneeddepreciation:true&fairviewofthefinancialperformanceandposition.Ifignored,under-estimateofexpensesinP/Landover-estimateoffixedassetsinB/SHowtocalculatedepreciation:estimates,canbecalculatedaccuratelyonlywhenthefixedassetbeingsoldDepreciation=Costofthefixedasset–Disposalvalue(amountreceivedfromselling)StraightlinemethodEstimatestheusefullife(numberofyears)andthedisposalvalueofthefixedassetDepreciation/year=Cost–EstimateddisposalvalueNumberofexpectedyearsofuseEg.Alorrywasboughtfor￡22,000andwouldkeepitfor4yearsandthensellitfor￡2,000Annualdepreciationexpense=22,000-2,000=5,0004Whatifafter4years,thelorrywouldhavenoresidualvalue?ReducingbalancemethodAfixedpercentagefordepreciationisdeductedfromthecostinthefirstyear,inlateryearsthesamepercentageistakenofthereducedbalanceAmachineisboughtfor￡12,000anddepreciationis20%:￡Cost10,000Year1:depreciation(20%)(2,000)8,000Year2:depreciation(20%of8,000)(1,600)6,400Year3:depreciation(20%of6,400)(1,280)EndofYear35,120ChoiceofmethodAbusinessboughtamachinefor￡8,000,itwillbeusedfor4yearsanddisposalvalueof￡500,50%forthereducingbalancemethod.CalculatetheannualdepreciationusingthetwomethodsReducingbalancemethod–higherchargesfordepreciationintheearlyyears,andlowerchargesinthelateryearsIfthemainvalueistobeobtainedfromtheassetinitsearlieryears,betteruseReducingbalancemethodIfthebenefitsoffixedassetaretobegainedevenlyovertheyears,betteruseStraightlinemethodDepreciationforassetsboughtorsoldMethod1:ignorethedatestheaccountingperiodthattheassetswereboughtorsold,andsimplycalculateafullperiod’sdepreciationontheassetsinuseattheendoftheperiodMethod2:Providefordepreciationonthebasisof‘1month’sownership=1month’sdepreciation’Eg1.On1Jul2005,boughtavanfor￡10,000,on1Oct2005,boughtanothervanfor￡8,000.Thevanistobedepreciatedat10%usingthestraightlinemethod.On1May2007,thefirstvanwassoldfor￡8,200;On1Sep2008,theothervanwassoldfor￡5,000.What’stheannualdepreciationexpenseofthetwovanfortheyear2005,2006,2007and2008underthetwomethods?DoubleentryfordepreciationFixedassets:recordedatcostAccumulateddepreciation:depreciationoffixedassettodateDepreciation:expensesinprofitandlossaccountAccumulateddepreciation:deductionfromthecostoffixedassetinthebalancesheetDr.DepreciationexpenseCr.AccumulateddepreciationEg2.Acomputerwasboughtfor￡2,000on1Jan2005.Itistobedepreciatedattherateof20%usingthereducingbalancemethod.Showtheentriesforthefirst3yearsandthechangesinProfitandlossaccountandBalancesheetDisposalofafixedassetWhensellingafixedasset:(1)CostofthefixedassetneedstobetakenoutoftheassetaccountBalanceoftheFixedassetinB/S=0(2)AccumulateddepreciationofthefixedassetneedstobetakenoutoftheaccountBalanceoftheAccumulateddepreciationofthefixedassetinB/S=0(3)Cashreceivedondisposalofthefixedasset(4)Profit/lossonsalecalculatedandpostedtotheprofitandlossaccountBalanceofthedisposalaccountinB/S=0Accountingentriesfordisposalofafixedasset(1)TransferthecostpriceoftheassetsoldtoanassetdisposalaccountDr.ComputerdisposalsCr.Computer(2)TransferthedepreciationalreadychargedtotheassetdisposalaccountDr.Accumulateddepreciation:computerCr.Computerdisposals(3)AmountreceivedondisposalDr.CashCr.ComputerdisposalsAccountingentriesfordisposalofafixedasset(4)Transferthedifferenceindebitandcreditsideofthedisposalaccounttotheprofitandlossaccount(a)Ifthecomputerdisposalaccountshowsacreditbalance(totalcredits＞totaldebits),thereisaprofitonthesale:Dr.ComputerdisposalsCr.Profit(b)Ifthecomputerdisposalaccountshowsadebitbalance(totaldebits＞totalcredits),thereisalossonthesale:Dr.LossCr.ComputerdisposalsFixedassetsoldataprofitEg2.Continued,thecomputerwassoldon2Jan2008for￡1,070Accumulateddepreciation:￡976(1)Dr.Computerdisposals2,000Cr.Computer2,000(2)Dr.Accumulateddepreciation:computer976Cr.Computerdisposals976(3)Dr.Cash1,070Cr.Computerdisposals1,070(4)Dr.Computerdisposals46Cr.Profit46FixedassetsoldatalossEg2.Continued,thecomputerwassoldon2Jan2008for￡950Accumulateddepreciation:￡976(1)Dr.Computerdisposals2,000Cr.Computer2,000(2)Dr.Accumulateddepreciation:computer976Cr.Computerdisposals976(3)Dr.Cash950Cr.Computerdisposals950(4)Dr.Loss74Cr.Computerdisposals74AccrualsandPrepaymentsSales–Costofgoodssold=GrossprofitGrossprofit+Otherrevenues–Otherexpenses=NetprofitAssume:revenuesandexpensesbelongedexactlytotheperiodofthetradingandprofitandlossaccountEg.Twobusinesspayrent,therentis￡6,000peryear1BusinessApays￡5,000in2007.Attheyearenditowes￡1,000forrentRentexpenses=￡6,000Rentpaidalready=￡5,0002BusinessBpays￡6,500in2007.Attheyearend￡500paidinadvanceRentexpenses=￡6,000Rentpaidalready=￡6,500AccrualsBusinessA:realexpensesusedupandshouldbepaidis￡6,000.Ifpaidbycash,entryshouldbe:Dr.Rentexpense6,000Cr.Cash6,000(1)Onlypays￡5,000intheyearDr.Rentexpense5,000Cr.Cash5,000(2)Howshouldwerecordthe￡1,000owingattheyearend?Dr.Rentexpense1,000Cr.Accruedexpenses(Accruals)1,000AccrualsAccruals:likecreditors,representstheamountowingforexpensesandshouldbepaideventuallyAccruals:currentliability,havetobepaidinthenearfuture(3)WhentheamountowingforrentisactuallypaidinthenextyearDr.Accruedexpenses(Accruals)1,000Cr.Cash1,000Accruals:islikea‘bridgingaccount’a.Credit‘Accruals’whentheexpensenotactuallypaidb.Debit‘Accruals’whentheexpenseispaidc.BalanceofAccrualsaccountbecomes‘0’PrepaymentsBusinessB:realexpensesusedupandshouldbepaidis￡6,000.Ifpaidbycash,entryshouldbe:Dr.Rentexpense6,000Cr.Cash6,000(1)Paid￡6,500,partofthepaymentcoveredrentexpenseusedupduringtheyear￡6,000Dr.Rentexpense6,500Cr.Cash6,500(2)Howshouldwerecordthe￡500rentexpensepaidinadvance?Dr.Prepaidexpenses(Prepayments)500Cr.Rentexpense(Over-paid)500PrepaymentsPrepayments:representsthebenefitpaidforalreadybutnotfullyusedupattheendoftheperiodPrepayments:currentasset,thebenefitshouldbecarriedforwardtothenextperiod(3)￡500represents1/12oftheannualrentexpense,whichisthemonthlyrentexpense,Soon31Jannextyear:Dr.Rentexpense(Jan)500Cr.Prepaidexpenses(Prepayments)500Prepayments:islikea‘bridgingaccount’a.Debit‘Prepayments’whenalreadypaidforthebenefitbutthebenefitnotfullyusedupb.Credit‘Prepayment’whenthebenefitisfullyusedupc.BalanceofPrepaymentsaccountbecomes‘0’Accruals,PrepaymentsandtheBalancesheetAccruals:currentliability;Prepayments:currentassetsBalanceSheetasat31Dec2007(extract)￡￡CurrentassetsStockDebtorsPrepayments500BankCashLessCurrentliabilitiesCreditorsAccruals1,000NetcurrentassetsAccrualsandPrepaymentscoveringmorethanoneperiodAccrualsandPrepaymentswithbothopeningandclosingbalanceEg.1(A)On31Dec2004,3months’rentamounting￡3,000wasowing(B)Therentchargeableperyearwas￡12,000(C)Thefollowingrentpaymentsweremadeintheyear20056Jan￡3,000;4Apr￡3,000;7Jul￡3,000;18Oct￡3,000(D)Thefinal3months’rentfor2005stillowingAccrualsandPrepaymentscoveringmorethanoneperiod(A)31Dec2004:Dr.Rentexpense(2004)3,000Cr.Accruals3,000(B)Ifthecashpaidexactlycoveredrentexpensesof2005,entryshouldbe:Dr.Rentexpense(2005)12,000Cr.Cash12,000(C)6Jan:Dr.Accruals3,000Cr.Cash3,0004Apr/7Jul/18Oct:Dr.Rentexpense(Jan-Sep2005)3,000X3Cr.Cash3,000X3(D)31Dec2005:Dr.Rentexpense(Oct-Dec2005)3,000Cr.Accruals3,000AccrualsandPrepaymentscoveringmorethanoneperiodEg.2On1Jan2005,rateof￡400wereownedRatesispayableof￡4,000peryearDuring2005,ratesof￡5,000werepaidOn31Dec2005,ratesof￡600hadbeenprepaidAccrualsandPrepaymentscoveringmorethanoneperiod(A)31Dec2004:Dr.Rateexpense(2004)400Cr.Accruals400(B)Ifthecashpaidexactlycoveredrateexpensesof2005,entryshouldbe:Dr.Rateexpense(2005)4,000Cr.Cash4,000(C)1.Partofthepaymentcoveredrateexpensesof2004,whichwasalreadyaccruedDr.Accruals400Cr.Cash4002.Therestcoveredrateexpensesof2005&PrepaymentsDr.Rateexpense(2005)4,600Cr.Cash4,6003.Rateexpenseof2005shouldbe4,000,thereforeprepaymentis600(D)31Dec2005:Dr.Prepayments600Cr.Rateexpense(over-paid)600HomeWorkAvanisboughton1Jan2006for￡8,000andanotheroneon1Jul2006for￡5,000.Thebusiness’sfinancialyearendson31Dec.Thevanistobedepreciatedat20%,usingthestraightlinemethod.Thefirstvanwassoldon30Jun2007for￡6,800.Thesecondvanwassoldon1Oct2008for￡2,700.Vaninexistenceattheendofeachyearistobedepreciatedforafullyear.Nodepreciationistobechargedonanyvandisposedofduringtheyear.Showaccountingentriesfordepreciationanddisposalofvanforyear2006,2007and2008.ShowProfitandlossaccount(extracts)andBalancesheet(extracts)fortheyearended31Dec2006,2007and2008(Hint:seeExhibit27.4P299forreference)HomeWorkReadings:Part4Chapter27;Chapter28Exercise:P28025.1P29326.9P33228.9P33328.11P305MultiplechoicequestionsSet3MC41,42,43,51,53,54,55,56,57,58,59,60Preview:Part6Chapter41