and... 6. expline bad debts? 7.expline a provision for doubtful debts? please(wr
ID: 2413347 • Letter: A
Question
and...
6. expline bad debts?
7.expline a provision for doubtful debts?
please(write very briefly)
h Year-end adjusthients reclassification, to conform book figures to physical inventory ount, and renecLin transactions Finally, a statement of comprehensive income and statement of financial position accounting year are to be drawn up Review Questions 1 Describe the final accounts of a sole trade. 2 Ex 3 Explain the following terms: plain what is meant by 'year-end adjustment a. Non-current asset b. Current asset; c. Non-current liability, and d. Current liability. Explain the purpose of preparing the statement of comprehensive income. Explain the purpose of preparing the statement of financial position. 4 5Explanation / Answer
(1) Final Account of Sole Trader:-
Final Accounts consists of
Trading Account = It is a Nominal Account and is prepared for calculating the GROSS PROFIT or GROSS LOSS arising as a result of trading activities of a business.
(2) Year end Adjustment = Year-end adjustments are journal entries made to various general ledger accounts at the end of the fiscal year, to create a set of books that is in compliance with the applicable accounting framework. A number of year-end adjustments may be required, depending on how diligently the books have been maintained on a monthly basis. The number of these adjustments that are needed has a direct impact on the time required to close the books.
(3) (a) Non Current Assets:-
Noncurrent assets are company long-term investments where the full value will not be realized within the accounting year. Examples of noncurrent assets include investments in other companies, intellectual property (e.g. patents), and property, plant and equipment. Noncurrent assets appear on a company's balance sheet.
(b) Current Asset :-
Current assets is a balance sheet account that represents the value of all assets that can reasonably expect to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses. and other liquid assets that can be readily converted to cash.
(c) Non Current Liability :-
Noncurrent liabilities are long-term financial obligations listed on a company’s balance sheet that are not due within the present accounting year, such as long-term borrowing, bonds payable and long-term lease obligations. Investors are interested in a company's noncurrent liabilities because they want to see that it does not have too much debt relative to its cash flow. Current liabilities, which is the other major classification of liabilities, are those due within the present accounting year, such as accounts payable, customer advances, taxes payable and any payments due that year on a long-term loan.
(d) Current Liability :-
Current liabilities are a company's debts or obligations that are due within one year or within a normal operating cycle. Furthermore, current liabilities are settled by the use of a current asset, such as cash, or by creating a new current liability. Current liabilities appear on a company's balance sheet and include short-term debt, accounts payable, accrued liabilities, and other similar debts.
(4) Purpose of Preparing Statement of Comprehensive Income :-
A statement of comprehensive income differs from a typical income statement, which details profits and losses, but may omit changes in net assets due to transfer of equity holdings, change of ownership, or other factors.
Examples of comprehensive income include:
Unrealized gains/losses on available-for-sale investments, Unrealized gains/losses on hedge/derivative financial instruments, Foreign currency translation adjustments, Unrealized gains/losses on postretirement benefit plans
(5) Purpose of Preparing Statement of Financial Position:-
A statement of financial position is one of four business documents a public company must file every year in order to retain their status. The other three are an income statement, a statement of retained earnings, and a cash flow statement. This statement is prepared and released as one of the last events for the specific accounting period. This means that all the transactions in the three sections listed above are given on a single document and posted to a general ledger. More simply, a statement of financial position is a single picture of a company’s entire financial position for a given period of time. Its goal is to summarize the changes in financial activity.
(6) Bad Debts :-
Bad debt is debt that is not collectible and therefore worthless to the creditor. Bad debt is usually a product of the debtor going into bankruptcy but may also occur when the creditor's cost of pursuing the debt collection activities is more than the amount of the debt. Once a debt is considered bad, the business may be able to write it off as an expense on its income tax return.
(7) Provision for Doubtful Debts:-
Provision for bad debt, also known as an allowance for doubtful accounts, is a valuation account used to estimate the portion of a bank's loan portfolio that may ultimately be uncollectible. When a borrower defaults on a loan, the allowance for bad debt account and the loan receivable balance are both reduced for the book value of the loan, or the outstanding loan balance. The allowance for doubtful accounts method is also used to record the accounts receivable that are not collectable.
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