Question

answer in 175 words or more.

Suppose you own a small consulting business with a small office and 5 employees. Identify the types of adjustments you would need to make at the year’s end and the accounts affected. For each adjustment, indicate how it will impact your financial statements (income statement and balance sheet).

Answer 1

Being a consulting Business, we may be required to focus more on the following Topics:

1. Revenue Recognition:

A. Revenue to be recognised based on the completion level and any excess Billed or short billed to be shown propoerly in the Balance Sheet.

B. If there is excess Billing, then we need to reduce the same from the Income and to create a deffered Income Liability which reflects the unaccrued Billing.

C. If there is short Billing, then such balance is to be booked as Income on accrueal Basis and the same to be shown under Unbilled Revenue which is to be billed for the work done.

If this adjustment is not made, it impacts the Revenue as well as position of the Balance Sheet.

2. Prepaid Expenses and other undue Expenses:

A. Proper care to be taken to apportion the prepaid expenses to the current period and the future years. If we dont do this, it leads to higher expenses and lower profit.

B. Any unbilled Expenses also need to be booked as provisions for the Goods/Servies received. If we neglect this, it results in lower expenditure and Higher Profits

3. Impairment of Debtors and other assets:

A. We need to focus on Proviosion for Bad and Doubtful debts to be conservative in showing the Books.

4. Other Closing Works:

A. Proper Disclosures need to be made in line with the Applicable Accounting Framework.

B. Clearing of certain Suspense accounts like collection accounts, reconciliation accounts etc.,

C. Prepration of BRS

Happy Learning and All The Best.