Question

The draft accounts for the year ended 30 June 2015 and a balance sheet as at that date for Thomson are submitted to you. Towards the end of the financial year, her accountant resigned, and she had completed the records herself. He thinks that errors have occurred and asks for your help. An examination of the accounting records reveals the following Thomson is registered for GST.

Required;

1. Show the journal entries required to make the necessary adjustments.

1. Interest of $1920 on the investments held by the business was due but has not been received.
2. A payment of $4160 for the new office furniture has been incorrectly debited to the sundry expense account. The furniture has been incorrectly debited to the sundry expense account. The furniture has been purchased 30^th of June 2015
3. Rent due from customers Tim and bob amounting to $2560, plus GST, is not included in the accounts.
4. Repairs to Thompson private motor vehicle $1700 plus GST have been debited to the vehicle expenses account and GST receivable account.
5. Commission due to sales representatives for the month of June $4480, has been overlooked.
6. An insurance policy covering contents and buildings was taken out on 1^st March 2015, the annual premium of $2400 being paid in advance on this date and debited to the prepaid insurance account
7. A payment of $35 000 which occurred on 1 July 2018 for additions to buildings has been debited to Repairs and Maintenance.
8. No depreciation has been recognised for the year ending 30 June 2019. The draft balance sheet shows the following.

Buildings	256000
Accumulated Depreciation	51200	256000 - 51200 = 204800
Office furniture and equipment (at cost)*	33600
Accumulated depreciation	20800	33600 - 20800 = 12800

*Does not include additions to buildings in (7), nor adjustments for office furniture in (2) above.

(b) Buildings: 2% on cost

(c) Office furniture and equipment: 20% on cost

(d) Calculate the effect (increase or decrease) of each of the adjustments on the profit figure of $64 900 as shown in the draft accounts.

Answer 1

In the books of Thomson
Journal
Date	particulars	Debit	Credit
	Interest Receivable A/c	$             1,920
	Interest Income A/c		$         1,920
	(Interest income recievable recogonised)
	Interest Income A/c	$             1,920
	Profit and Loss A/c		$         1,920
	(Interest income recievable transferred to Income statement)
30-Jun-15	Furniture A/c	$             4,160
	Sundry expense A/c		$         4,160
	(being wrong debit to sundry expenses corrected)
	Rent Receivable A/c Dr	$             3,021
	Rental Income A/c		$         2,560
	GST Payable at 18%		$            461
	(Rent receivable recogonised in accounts)
	Rental Income A/c	$             2,560
	Profit and Loss A/c		$         2,560
	(Rent receivabletransferred to profit and loss a/c)
	Personal Drawings A/c	$             2,006
	GST receivable A/c		$            306
	Vehicle Expense A/c		$         1,700
	(Personal expense charged in books reversed and deducted from drawings)
	Commission Expense A/c	$             4,480
	Commission Payable - Sales A/c		$         4,480
	(Commission payable to sales representative recogonised)
	Insurance expense A/c	$             2,400
	Prepaid Insurance A/c		$         2,400
	(Being Insurance shown as prepaid has been reversed and charged to current year expense)
	Profit and Loss A/c
	Insurance expense A/c
	(Expense transferred to profit and loss A/c)
	Building A/c	$           35,000
	Repairs and Maintenance A/c		$       35,000
	(Capital expenditure charged to revenue expenditure corrected)
	Depreciation A/c	$             5,820
	Accumulated Depreciation - Building		$         5,820
	(256000+35000)*2/100
	Depreciation A/c	$             6,720
	Accumulated Depreciation - Office furniture and Equipment		$         6,720
	(33600*20%)
	Profit and loss A/c	$           12,540
	Depreciation A/c		$       12,540
	(Depreciation Charged to Profit and Loss a/c)
	(GST AT 18%)
	Current Profit	$           64,900
	(+)Increase in Income	$           45,340
	(-)Decrease in Income	$           19,420
		$           90,820