07-27-2011, 05:33 PM
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Dard</i>
<br />The bill is dated 18 June 2010 it relates to the previous year 2009-2010. As at 30 june 2010(the end of previous year), the company had not paid for mobile expense. If an expense of the current year is not paid in that year, a liability arises. At 30 june 2010, the company still had to pay for the mobile expense.
The liability must be shown in the balance sheet of 30 june 2010 and an expense must be charged in the income statement for the year ended 30 june 2010.
In the current year's balance sheet, the brought forward balance of accrued liabilities will increase by 12,300
I will give an example
Without the error adjustment
Last year's admin expenses were Rs 1,000,000 and closing Accrued liabilities were 500,000.
This year admin expenses are Rs 980,000, opening accrued liabilties 500,000(the closing balance of previous year becomes the opening balance of current year), accrued liabilities arising during the year are 600,000 and settled during the year are Rs 500,000, and so the closing accrued liabilities are 600,000.
After correcting the error
Last year's admin expenses will increase by 12,300, to 1,012,300. Accrued liabilities of last year will increase by 12,300, to 512,300.
With the adjustment, the opening balance of current year's accrued liabilities becomes 512,300. The mobile expense liability has been settled in the current year and is thus no longer a liability in the current year. Therefore the 12,300 must also be deducted from accrued liabilities. Thus, accrued liabilities settled in the year are now 512,300(500,000+12,300). The closing liabilities now become 600,000(512,300+600,000-512,300).
As you can see from the example, the closing accrued liabilities of the current year will be the same whether you adjust the error or not.
Feel free to ask for further explanation.
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<br />The bill is dated 18 June 2010 it relates to the previous year 2009-2010. As at 30 june 2010(the end of previous year), the company had not paid for mobile expense. If an expense of the current year is not paid in that year, a liability arises. At 30 june 2010, the company still had to pay for the mobile expense.
The liability must be shown in the balance sheet of 30 june 2010 and an expense must be charged in the income statement for the year ended 30 june 2010.
In the current year's balance sheet, the brought forward balance of accrued liabilities will increase by 12,300
I will give an example
Without the error adjustment
Last year's admin expenses were Rs 1,000,000 and closing Accrued liabilities were 500,000.
This year admin expenses are Rs 980,000, opening accrued liabilties 500,000(the closing balance of previous year becomes the opening balance of current year), accrued liabilities arising during the year are 600,000 and settled during the year are Rs 500,000, and so the closing accrued liabilities are 600,000.
After correcting the error
Last year's admin expenses will increase by 12,300, to 1,012,300. Accrued liabilities of last year will increase by 12,300, to 512,300.
With the adjustment, the opening balance of current year's accrued liabilities becomes 512,300. The mobile expense liability has been settled in the current year and is thus no longer a liability in the current year. Therefore the 12,300 must also be deducted from accrued liabilities. Thus, accrued liabilities settled in the year are now 512,300(500,000+12,300). The closing liabilities now become 600,000(512,300+600,000-512,300).
As you can see from the example, the closing accrued liabilities of the current year will be the same whether you adjust the error or not.
Feel free to ask for further explanation.
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