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FAC1502-SEMESTER 01-2016
UNISA
ADJUSTMENTS &
CLOSING OFF PROCEDURES
PREPARED BY E-TUTOR MR RAMASHAU ALUWANI
2016-03-08
MENU
INTRODUCTION
ADJUSTMENTS
CLOSING OFF PROCEDURES
INTEGRATED EXAMPLES
MUST DO EXERCISES
SELF ASSESSMENT
INSPIRATIONAL POEM
2016-03-08
INTRODUCTION
Dear members
Study unit 6 and 7 is one of the critical topics which are
integrated in the exam and it is important that you master this
topics.
Let me know if you need clarity on any issues
Kind regards
Mr. Ramashau Aluwani
E-Tutor: FAC 1502 (Group 3E)
"We become what we think about most of the time, and that's the strangest
secret." Earl Nightingale
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ADJUSTMENTS
Prepaid Expenses
Is an expense which has been paid during the current
financial period, where all or part of the expense
relates to a future financial period.
Insurance and advertising are good examples of such
expenses.
Prepaid expenses are shown as current assets in the
Statement of Financial Position
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ADJUSTMENTS
Accrued expenses
These are expenses which have been incurred by an
entity but which have not yet been paid by the end
of the accounting period.
Examples: Salaries, Rent expense, Telephone, Water
& Electricity, Interest on Loan etc.
In arrears, outstanding, due , not yet paid.
Accrued expenses are shown as current liabilities in
the Statement of Financial Position
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ADJUSTMENTS
Consumable stores on hand
You mighty have wondered why items such as
stationery are classified as expenses.
Surely stationery has value, the reason it is regarded
as an expense and not an asset, is because it is used
up (consumed) within the entity within one year.
Examples : Stationery, Packaging materials etc.
The stationary on hand is an asset is shown in the
Statement of financial position under current assets.
2016-03-08
ADJUSTMENTS
Income received in advance
Income which has been received during the current
financial period but relates to a future financial period
Only the portion relating to the current financial period
must be recorded as income, and an adjustment is
necessary for the portion received in advance.
Income received in advance is not yet earned so it must
be deducted from total income to arrive at the correct
income earned during the financial year.
Examples: Rent Income, Commission received etc.
Income received in advance is shown in the Statement of
Financial Position under current liabilities
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ADJUSTMENTS
Accrued income
This is income earned by the entity in respect of
services rendered but for which no payment has
been received
Examples : Commission income, Rent income,
Interest on fixed deposit etc.
Accrued income is shown in the Statement of
Financial Position under current assets
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ADJUSTMENTS
Credit Losses
Any entity grants credit to its customers runs the risk of
having some of those customers not paying their debts.
If it is expected that the amount due will not be paid by a
customer, then this amount must be removed from the
debtors control.
The amount written off is disclosed as an expense in the profit
or loss account
When a debt is written off, the customers individual account
in the debtors subsidiary ledger and then also the debtors
control account in the general ledger is credited.
The amount is debited to a credit losses account (an expense
account) which is closed off to the profit or loss account
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ADJUSTMENTS
Allowance for credit losses
In order to show the correct amount of total debtors on the
statement of financial position, it is prudent for the entity to
estimate how much of the debts owed to it will be paid.
When an allowance for credit losses is created or increased,
the credit losses account (expense) is debited and allowance
for credit losses account is credited
In the statement of financial position, the allowance for credit
losses is disclosed by deducting it from the debtors control
balance.
It is shown as part of trade and other receivables in the
Statement of Financial Position
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ADJUSTMENTS
Depreciation
When an entity buys an asset which is intended
to be used in the entity for more than one
financial year, that asset is described as noncurrent asset.
The loss of value is known as depreciation
Depreciation is calculated for each accounting
period using an agreed method of depreciation
Depreciation is an expense which allows for
matching of the original cost of the non-current
asset against income generated by the asset
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Credit
xxx
Insurance (I/S)
xxx
Telephone/Salaries (I/S)
xxx
xxx
xxx
Stationery (I/S)
xxx
xxx
xxx
13
Credit
xxx
xxx
xxx
xxx
xxx
Depreciation (I/S)
xxx
xxx
xxx
14
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19
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TRIAL BALANCE
A Trial Balance is a list of debit and credit balances taken from the general
ledger accounts. It is divided into two sections, namely a financial position
section and a nominal account section.
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TIPS
In the exam you are expected to know the principles
and Structure or Format of the financial statements.
You may be asked to pass journals (adjustments) or
to take adjustments into considerations. Refer to
Previous Exam paper.
There is a similar integrated example in the study
guide and I would like you to do before you attempt
the previous question papers.
NB. You will be required to answer all questions in
exam within two hours. Prepare yourself now!!!
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INTEGRATED EXAMPLE:
EX.2 - STUDY GUIDE (PAGE 293)
ADDITIONAL INFORMATION:
(a) Stationery on hand at 28 February 20.1, R150.
(b) An allowance for credit losses of R405 on
outstanding trade debtors' balances must be created.
(c) Rent income amounts to R1 500 per month and the
rental has been charged for the full financial year.
(d) Provide for interest still outstanding on mortgage
bond.
(e) Provide for depreciation on furniture and fittings at
15% per annum on cost price.
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REQUIRED
(1) Prepare the Statement of Comprehensive
Income of Peter Pumpkin for the year ended 28
February 20.1
(2) Prepare the Statement of Changes in Equity of
Peter Pumpkin for the year ended 28 February
20.1
(3) Prepare the Statement of Financial Position of
Peter Pumpkin for the year ended 28 February
20.1
(4) Show the Notes for the year ended 28 February
20.1
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MUST KNOW
IN EXAM YOU MAY BE EXPECTED TO PREPARE THE FOLLOWING:
JOURNAL ENTRIES TO BRING ADJUSTMENTS INTO ACCOUNT
CLOSING JOURNAL ENTRIES (CLOSING TRANSFERS)
PREPARE GENERAL LEDGER
E.G TRADING ACCOUNT & PROFIT OR LOSS ACCOUNT IN THE
GENERAL LEDGER
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MUST DO EXERCISES
STUDY GUIDE
6.5 REVISION EXERCISE (PG 110-111)
INTEGRATED EXAMPLE (PG 143 -144)
REVISION EXERCISE 5 (PG 157)
REVISION EXERCISE 8 (PG 163)
EXERCISE 15.2 (PG 290)
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MUST DO EXERCISES
PREVIOUS EXAM QUESTION PAPERS
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SELF ASSESSMENT
NO.
TOPIC
1.
STUDY UNIT 1 -5
Done
2.
Done
3.
Done
4.
ASSIGNMENT NO.1
Done
2016-03-08
STATUS
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INSPIRATIONAL POEM
There is inside you
All of the potential
To be whatever you want to be,
All of the energy
To do whatever you want to do.
Imagine yourself as you would like to be,
Doing what you want to do,
And each day, take one step
Towards your dream.
And though at times it may seem too
difficult to continue,
Hold on to your dream.
One morning you will awake to find
That you are the person you dreamed of,
Doing what you wanted to do,
Simply because you had the courage
To believe in your potential
And to hold on to your dream.
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KEEP IT UP!
THANK YOU!!!
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