Workings for the preparation of the Profit and Loss Account of Alvin Preston for the year ended 31st December, 2007:
Note 1: The bad debt of $250 must be written off using the following double entry:
Dr Bad Debt Expense a/c
Cr Debtors a/c
With $250 to write of the bad debt.
Note 2: The provision for would be increased from $300 to $400 by passing the following double entry:
Dr Profit & Loss a/c
Cr Provision for bad debt a/c
With $100 to increase the provision for bad debt from $300 to $400.
Note 3: The double entry to record the cheque payment of $200 made by the debtor that has not been accounted is:
Dr Bank a/c
Cr Debtors a/c
With $200 to record the cheque payment of $200.
Below is the updated debtor’s account for Alvin Preston based on the details of notes one (1) and three (3).
Please note students were not required to prepare this account for the May 2008 examination. The updated account has been presented to illustrate how the notes affected the debtors’ balance.
Note 4: The insurance expense of $150 that is owed by Preston is an accrual that will appear on the Profit and Loss Account as an expense and on the Balance Sheet under Current Liabilities.
Note 5: The current balance on the rate account must be adjusted for the prepayment of $50. The rates expense for the Profit and Loss will therefore be $750 - $50 = $700 and the prepayment of $50 will be listed on the Balance Sheet under Current Assets.
Note 6: Calculation of depreciation on motor vehicles using the reducing balance method:
30% ($12,500 - $7,500) = $1,500 per annum.
The depreciation expense for the year ended 31st December 2007 that would appear in the Profit and Loss Account is $1,500 and the accumulated depreciation figure for the Balance Sheet would be ($7,500 + $1,500) = $9,000.
Now that all of the workings have been completed the Profit and Loss Account for Alvin Preston can be prepared.
No. 1(a): Preparation of the Profit and Loss Account of Alvin Preston for the year ended 31st December, 2007.
No. 1(b): Preparation of the Balance Sheet of Alvin Preston as at 31st December, 2007.
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The author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor.