Adjusting entries

[salmans322]

hi ASA, i m an ACCA student and also doing articles from a firm. nowadays i m doing audit in a company situated in DHA and i m faced with a problem.

i m auditing the accounts from 1/7/2010 to 30/6/2011.

i came across a bill of 12,300 dated 18-6-2010 i.e mobile bought for the employee.
company paid 10,000 on the whole
no recording of discount received
and moreover the bill was recorded on 16/3/2011 i.i the previous year's bill was paid in the current year.

what could be the adjusting entries.
i m looking to anyone's reply who is willing to help me.thanks

[Dard]

There is a valuation difference of 2,300. Inform your senior about it. He will inquire the management about it.
If the 12,300 is above the materiality level, previous year's expenses and liabilities should be restated.
Adjusting entries
Dr last year's mobile expenses 12,300
Cr last year's current liabilities 12,300
Dr current year's restated liabilities 12,300
Cr current year's expense 12,300

[Dard]

Let me explain the entries.
The mobile expense shown in the current year should be taken out and should have been expensed in the last year. Hence increase last years expenses and decrease this year's expenses.
As at 30 june 2010, the mobile expense should have been included in accruals(current liabilities). Thus, last year's current liabilities will increase by 12,300. In the current year, the liability has been paid, so decrease the RESTATED LIABILITES by 12,300.

[salmans322]

thank u very much sir for ur kind reply but there is a problem perhaps i couldn't explain the problem in a better way...

the accounts deptt. here in the company has made the following entry in the voucher...on 16/3/2011 bill is showing the amount of 12,300 dated 18/6/2010.

dr. Admin & general Employee benefit 10,000
cr. Cash in hand 10,000


how can we create or involve lib. when the transaction was made in cash.please explain .
looking forward to ur reply.
regards
salman saleem

[Dard]

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.

[salmans322]

<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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[salmans322]

thank u very much sir... u ve been very helpful... it really helped me to solve my problem n talk to my senior with reasonable justification...

[Sajjad R1]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by salmans322</i>
<br />hi ASA, i m an ACCA student and also doing articles from a firm. nowadays i m doing audit in a company situated in DHA and i m faced with a problem.

i m auditing the accounts from 1/7/2010 to 30/6/2011.

i came across a bill of 12,300 dated 18-6-2010 i.e mobile bought for the employee.
company paid 10,000 on the whole
no recording of discount received
and moreover the bill was recorded on 16/3/2011 i.i the previous year's bill was paid in the current year.

what could be the adjusting entries.
i m looking to anyone's reply who is willing to help me.thanks



<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">



The actual amount of the bill is 12300(Dated 18-06-2010) but enter in 16-03-2011 u have to passed the reverse entry in next date like
Cash/Bank dr (Dated 16-03-2011)
Benefit for employee cr

Dr, cr will be minus
and again pass this entry

Benefit for employee dr (Dated 18-06-2011)
cash/bank cr

so after passing the above adjustment entries the trial balane will remain same thanks


Regards


Sajjad Rehman