Chapter 10 Balance Day Adjustments: Expenses – Solutions to exercises
Exercise 10.1
Prepaid expense
a
Cash Payments Journal
Date
Details
Ch. No.
Bank
Disc
Rev.
Creditors Control
Stock Control
Wages
Sundries
GST
Mar. 1
Prepaid Rent Expense
34
6 600
6 000
600
b
Accounting principle
Reporting Period
Explanation
The business will have the use of the premises for March–June 2015, and will therefore consume some of the rent in the Reporting Period ending 30 June 2015. The amount incurred will be reported as an expense. (The remaining rent for July and August will remain prepaid as at 30 June 2015.)
c
Calculation
$6 000
x
4 months’ consumed (Mar.–June inclusive)
6 months
=
$1 000
x
4
Rent expense
$ 4 000
d
General Journal
General
Ledger
Subsidiary
Ledger
Date
Details
Debit
$
Credit
$
Debit
$
Credit
$
June 30
Rent Expense
4 000
Prepaid Rent Expense
4 000
e
Increase/Decrease/No effect
Amount
$
Assets
Decrease (Prepaid Rent Expense)
4 000
Liabilities
No effect
Owner’s Equity
Decrease (Rent Expense decreases Net Profit)
4 000
f
General Ledger
Prepaid Rent Expense (A)
Date
Cross-reference
Amount
$
Date
Cross-reference
Amount
$
Mar. 31
Bank
6 000
June 30
Rent Expense
4 000
Balance
2 000
6 000
6 000
July 1
Balance
2 000
Rent Expense (E)
Date
Cross-reference
Amount
$
Date
Cross-reference
Amount
$
June 30
Prepaid Rent Expense
4 000
June 30
Profit & Loss Summary
4 000
4 000
4 000
Exercise 10.2
Prepaid expense
a
Cash Payments Journal
Date
Details
Ch. No.
Bank
Disc.
Rev.
Creditors Control
Stock Control
Wages
Sundries
GST
Feb. 11
Prepaid Office Supplies
153
330
300
30
b
Calculation
$300 prepaid
less
$60 still on hand
=
$240
Office supplies expense
$ 240
c
General Journal
General
Ledger
Subsidiary
Ledger
Date
Details
Debit
$
Credit
$
Debit
$
Credit
$
Feb. 28
Office Supplies Expense
240
Prepaid Office Supplies
240
Balance day adjustment to record office supplies consumed (Memo 84)
d
General Ledger
Prepaid Office Supplies (A)
Date
Cross-reference
Amount
$
Date
Cross-reference
Amount
$
Feb. 28
Bank
300
Feb. 28
Office Supplies Expense
240
Balance
60
300
300
Mar. 1
Balance
60
Office Supplies Expense (E)
Date
Cross-reference
Amount
$
Date
Cross-reference
Amount
$
Feb. 28
Prepaid Office Supplies
240
Feb. 28
Profit & Loss Summary
240
240
240
e
RONNIE’S CAR PARTS
Balance Sheet (extract) as at 28 February 2015
Current Assets
$
$
Prepaid Office Supplies
60
Exercise 10.3
Prepaid expense
a
Qualitative characteristic
Relevance
Explanation
Balance day adjustments ensure that profit is calculated accurately by comparing revenues earned against expenses incurred in the current Reporting Period. This ensures reports contain all information that is useful for decision-making.
b
Calculation
$1 800
x
1 month consumed
9 months remaining
(i.e. Jan.–Mar. consumed already)
Insurance expense
$ 200
c
General Journal
General
Ledger
Subsidiary
Ledger
Date
Details
Debit
$
Credit
$
Debit
$
Credit
$
April 30
Insurance Expense
200
Prepaid Insurance
200
d
Overstated/Understated/No effect
Amoun...
