Accounting Principles and Adjustments for Sole Traders

ACCOUNTING GRADE 10 2020 REVISED ATP SOLE TRADERS ANALYSIS OF ADJUSTMENTS AND POST ADJUSTMENT TRIAL BALANCE (NOTES & WORKED EXAMPLES)

CHARACTERISTICS OF FINANCIAL STATEMENTS information is available to decision- makers in time to be capable of influencing their decisions Timeliness Understandability presenting information clearly and concisely Faithful representation completeness, neutrality and freedom from error must have both a predictive value and confirmatory value Relevance can be compared with a similar information about other entities and with similar information about the same entity for another period or another date Comparability Verifiability observers looking at the data will reach have the same consensus

PRINCIPLES OF GAAP Business and owner separate entities Business entity principle Historical cost principle Assets valued at original cost Business to continue for foreseeable future Going-concern principle

Matching principle Income and expenses allocated to correct time period Financial results Reflected on Conservative bases Prudence Principle Irrelevant information not highlighted Materiality Principle

INSTRUCTIONS YOU ARE PROVIDED WITH THE PRE-ADJUSTMENT TRIAL BALANCE AND LIST OF INDIVIDUALLY WORKED AND EXPLAINED ADJUSTMENTS YOU ARE REQUIRED TO FAMILIARIZE YOURSELF WITH THE ADJUSTMENTS AND WORKINGS NOTE: EACH ADJUSTMENT HAS IMPACT ON DIFFERENT ACCOUNTING BOOKS

THE FOLLOWING INFORMATION HAS BEEN TAKEN FROM NODADA TRADERS FOR THE YEAR ENDED 28 FEBRUARY 2019. PRE- ADJUSTED TRIAL BALANCE ON 28 FEBRUARY 2019 Balance Sheet account section Capital Drawings Land and Building Vehicles (at cost) Accumulated depreciation on vehicles Equipment Accumulated depreciation on equipment Fixed Deposit: E.C. Bank Trading stock Debtors control Bank Loan: E.C. Bank Creditors control Nominal accounts section Sales Cost of sales Debtors Allowances Discount allowed Bad debts Discount received Telephone Interest on fixed deposit Insurance Rent Income Salaries Stationery Bank charges Debit Credit B1 B2 B3 B4 B5 B B7 B8 B9 B10 B11 B12 B13 963 000 19 600 1 006 000 240 000 80 000 60 000 36 000 50 000 29 900 18 000 235 000 ? 26 000 N1 N2 N3 N4 N5 N6 N7 N8 N9 N10 N11 N12 N13 880 000 440 000 2 000 600 1 200 900 2 800 3 000 3 400 110 500 72 000 1 400 2 500 2 184 400 2 184 400

ADJUSTMENTS 1 Trading stock Deficit The physical stocktaking of trading stock on 28 February 2019 is R28 500 R29 900 R28 500 = R1 400 Amount to be calculated: Amount from Trial Balance TB + Purchases Returns to Creditors + Returns from Debtors (cost price) OR ACCOUNT DEBIT Trading Stock Deficit ACCOUNT CREDIT Trading Stock

GENERAL JOURNAL OF GENERAL JOURNAL OF NODADA NODADA TRADERS FOR FEBRUARY 2019 GJ TRADERS FOR FEBRUARY 2019 GJ Doc D 1 Details Trading stock deficit Trading stock Trading stock deficit taken into account Fol N14 B9 Debit Credit 28 1 400 1 400 GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION TRADING STOCK B9 2019 Feb 28 Balance 2019 Feb 28 Trading stock deficit Balance b/d 29 900 GJ 1 400 c/d 28 500 29 900 29 900 2019 Mar 1 Balance b/d 28 500

NOMINAL ACCOUNTS SECTION TRADING ACCOUNT DEFICIT N14 2019 Feb 28 2019 Feb 28 Trading stock GJ 1 400 Profit and loss GJ 1 400 GENERAL JOURNAL OF GENERAL JOURNAL OF NODADA NODADA TRADERS FOR FEBRUARY 2019 GJ TRADERS FOR FEBRUARY 2019 GJ 2 Profit and loss account Trading stock deficit Closing transfer F2 N14 1 400 1 400 EFFECT ON ACCOUNTING EQUATION EFFECT ON ACCOUNTING EQUATION Journal Source Account debit Account credit A = E + L Document Journal voucher GJ Trading stock deficit Trading stock - - 0

ADJUSTMENTS 2 Consumable stores on hand The physical stocktaking of stationery on 28 February 2019 is R500 R500 ACCOUNT DEBIT ACCOUNT CREDIT Consumable Stores on hand Stationery

GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 3 Details Consumable stores on hand Stationery Stationery on hand Fol B14 N12 Debit Credit 28 500 500 GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION CONSUMABLE STORES ON HAND B14 2019 Feb 28 Stationery GJ 500

NOMINAL ACCOUNTS SECTION STATIONERY 1 400 2019 N12 GJ 2019 Feb 28 Total b/d Consumable stores on Hand Profit and loss 500 Feb 28 GJ 900 1400 1 400 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ 4 Profit and loss Stationery Closing transfer F2 N12 900 900 EFFECT ON ACCOUNTING EQUATION Journal Source Account debit Account credit A = E + L Document Journal voucher GJ Consumable stores on hand Stationery + + 0

ADJUSTMENTS 3 Depreciation Provide depreciation at 10% p.a. on vehicles using the diminishing balance method. 10 100 ? 240 000 ?0 000 1 12 12 = R16 000 ? ACCOUNT DEBIT ACCOUNT CREDIT Accumulated Depreciation on vehicles Depreciation

ADJUSTMENTS 3 CONTINUED Depreciation Provide depreciation at 20% p.a. on equipment on cost price. 20 100 ? ?0 000 1 12 12 = R12 000 ? ACCOUNT DEBIT ACCOUNT CREDIT Accumulated depreciation on Equipment Depreciation

GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 5 Details Depreciation Accumulated depreciation on vehicles Accumulated depreciation on equipment Depreciation on vehicles at 10% p.a. diminishing balance method Depreciation on equipment at 20% p.a. on cost GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION Fol N15 B5 Debit Credit 28 28 000 16 000 B7 12 000 ACCUMULATED DEPRECIATION ON VEHICLE 2019 Feb 28 B5 Balance Depreciation b/d GJ 80 000 16 000 96 000

ACCUMULATED DEPRECIATION ON EQUIPMENT 2019 Feb 28 B7 Balance Depreciation b/d GJ 36 000 12 000 48 000 NOMINAL ACCOUNTS SECTION N156 DEPRECIATION 2019 Feb 28 Accumulated depreciation on vehicles Accumulated depreciation on equipment 2019 Feb 28 Profit and loss GJ 28 000 GJ 16 000 GJ 12 000 28 000 28 000 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ 6 Profit and loss Depreciation Closing transfer F2 N15 28 000 28 000

EFFECT ON ACCOUNTING EQUATION Journal Account debit Account credit A = E + L Source Document Journal voucher GJ Depreciation Accumulated depreciation on vehicles Accumulated depreciation on equipment - - 0 GJ Depreciation Journal voucher - - 0

ADJUSTMENTS 4 Bad debts The account of debtor, N. Mfondolo, R200 must be written off as irrecoverable ?200 ACCOUNT DEBIT Bad Debts ACCOUNT CREDIT Debtors Control

GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D Details Fol Debit Credit Debtors Control Debit Credit 7 28 Bad debts N. Mfondolo Write off debts as irrecoverable N5 D7 200 200 200 GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION DEBTORS CONTROL B10 2019 Feb 28 Balance 2019 Feb 28 b/d 18 000 Journal Credits Balance GJ 200 c/d 17 800 18 000 18 000 2019 Mar 1 Balance b/d 17 800

NOMINAL ACCOUNTS SECTION BAD DEBTS N5 2019 Feb 28 Total 2019 Feb 28 b/d 1 200 Profit and loss GJ 1 400 Debtors Control / N. Mfondolo GJ 200 1 400 1 400 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ 8 Profit and loss F2 Bad debts N5 Closing transfer 1 400 1 400 EFFECT ON ACCOUNTING EQUATION Journal Source Account debit Account credit A = E + L Document Journal voucher GJ Bad debts Debtors Control - - 0

ADJUSTMENTS 5 Bad debts recovered Debtor, T. Integrity, deposited R600 directly into bank account. It was discovered that his account was written off as bad debts. Receipt 650 was issued. R600 ACCOUNT DEBIT Bank ACCOUNT CREDIT Bad Debts Recovered

CASH RECEIPTS JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 CRJ D Details Bank Sundry accounts Fol. Fol . Doc Amount Details 650 28 T. Integrity 600 600 N16 Bad debts recovered GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION BANK B11 2019 Feb 28 Balance Total Receipts b/d CRJ 269 600 600 270 200

NOMINAL ACCOUNTS SECTION BAD DEBTS RECOVERED N16 2019 Feb 28 2019 Feb 28 Profit and loss GJ 600 Bank CRJ 600 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 9 Details Bad debts recovered Profit and loss Closing transfer Fol N16 F2 Debit Credit 600 600 EFFECT ON ACCOUNTING EQUATION Journal Source Account debit Account credit A = E + L Document Receipt CRJ Bank Bad debts recovered + + 0

ADJUSTMENTS 6 Correction of error Repairs to the building, R6 000 was erroneously debited to the land and building account. R6 000 ACCOUNT DEBIT Repairs to building ACCOUNT CREDIT Land and Building

GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 10 Details Repairs to building Land and Building Correction of error Fol N17 B3 Debit Credit 28 6 000 6 000 GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION LAND AND BUILDINGS B3 2019 Feb 28 2019 Feb 28 Repairs to building Balance Balance b/d 1 006 000 GJ 6 000 c/d 1 000 000 1 006 000 1 006 000 2019 Mar 1 Balance b/d 1 000 000

NOMINAL ACCOUNTS SECTION REPAIRS TO BUILDING N17 2019 Feb 28 2019 Feb 28 Land and building GJ 6 000 Profit and loss GJ 6 000 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ 11 Profit and loss Repairs to building Closing transfer F2 N17 6 000 6 000 EFFECT ON ACCOUNTING EQUATION Journal Account debit Account credit A = E + L Source Document Journal voucher GJ Repairs to building Land and building - - 0

ADJUSTMENTS 7 Accrued Income The interest on fixed deposit is 7,5% p.a. Interest is still owing 7,5 100 ? R3 750 R3 000 = R750 50 000 1 12 12 = R3 750 Amount from Trial Balance ? ACCOUNT DEBIT Accrued Income ACCOUNT CREDIT Interest on Fixed Deposit

GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 10 Details Accrued Income Interest on fixed deposit Interest on fixed deposit is still receivable Fol B15 N8 Debit Credit 28 750 750 GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION Accrued Income B15 2019 Feb 28 Interest on fixed deposit GJ 750

NOMINAL ACCOUNTS SECTION INTEREST ON FIXED DEPOSIT N8 2019 Feb 28 Profit and loss 2019 Feb 28 GJ 3 750 Total Accrued Income b/d GJ 3 000 750 3 750 3 750 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ 11 Interest on fixed deposit Profit and loss Closing transfer N8 F2 3 750 3 750 EFFECT ON ACCOUNTING EQUATION Journal Source Document Journal voucher Account debit Account credit A = E + L GJ Accrued Income Interest on fixed + + 0 deposit

ADJUSTMENTS 8 Income received in advance The rent income was received for March 2019 R110 500 13 = R8 500 ACCOUNT DEBIT ACCOUNT CREDIT Income Received in Advance Rent Income

GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 10 Details Rent Income Income received in advance Rent income received for March 2019 Fol N10 B16 Debit Credit 28 8 500 8 500 GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION INCOME RECEIVED IN ADVANCE B18 2019 Feb 28 Rent income GJ 8 500

NOMINAL ACCOUNTS SECTION RENT INCOME N10 2019 Feb 28 Income received in advance Profit and loss 2019 Feb 28 GJ 8 500 Total b/d 110 500 102 000 110 500 110 500 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ 11 Rent Income Profit and loss Closing transfer N10 F2 102 000 102 000 EFFECT ON ACCOUNTING EQUATION Journal Source Document Journal voucher Account debit Account credit A = E + L GJ Rent Income Income Received in advance 0 - +

ADJUSTMENTS 9 Prepaid Expense Included in the Insurance is an amount of R1 440 paid for the period 1 June 2018 to 31 May 2019. R1 440 12 = R120 X 3 = R360 ACCOUNT DEBIT Expenses Prepared ACCOUNT CREDIT Insurance

GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 12 Details Prepaid Expense Insurance Insurance paid in advance Fol B17 N9 Debit Credit 28 360 360 GENERAL LEDGER OF Nodada Traders BALANCE SHEET ACCOUNTS SECTION Prepaid Expense B17 2019 Feb 28 Insurance GJ 360

NOMINAL ACCOUNTS SECTION INSURANCE N9 2019 Feb 28 2019 Feb 28 Total b/d 3 400 Prepaid Expense Profit and loss GJ GJ 360 3 040 3 400 3 400 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ 13 Profit and loss Insurance Closing transfer F2 N9 3 040 3 040 EFFECT ON ACCOUNTING EQUATION Journal Account debit Account credit A = E + L Source Document Journal voucher GJ Prepaid Expense Insurance + + 0

ADJUSTMENTS 10 Accrued Expense The telephone account, R400, for February is still outstanding R400 ACCOUNT DEBIT Telephone ACCOUNT CREDIT Accrued Expense

GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 10 Details Telephone Fol N6 B18 Debit Credit 28 400 Accrued Expense Rent income received for March 2019 400 GENERAL LEDGER OF Nodada TRADERS BALANCE SHEET ACCOUNTS SECTION Accrued Expense B18 GJ 2019 Feb 28 Telephone 400

NOMINAL ACCOUNTS SECTION TELEPHONE 2 800 2019 N6 GJ 2019 Feb 28 Total b/d Profit and loss 3 200 Feb 28 Accrued Expense GJ 400 3 200 3 200 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ 11 Profit and loss Telephone Closing transfer F2 N7 3 200 3 200 EFFECT ON ACCOUNTING EQUATION Journal Source Account debit Account credit A = E + L Document Journal voucher GJ Telephone Expense Accrued 0 - +

ADJUSTMENTS 11 Loan and Interest on loan Loan statement received from E.C. Bank reflected the following: Balance at beginning of financial year Repayments during the year, including interest Interest at 15% per year capitalised Balance at end of financial year R 112 000 27 000 ? 100. 000 Calculate the interest on loan. The business is expected to pay R18 000 of the loan the following year

ADJUSTMENTS 11 - CONTINUED DR LOAN: E.C. Bank CR DATE DETAILS F AMOUNT DATE DETAILS F AMOUNT 2018 Mar 2019 Feb Balance 112 000 01 Bank 28 27 000 2009 Feb Interest on loan Balance 15 000 c/d 100 000 28 127 000 127 000 2019 Mar Balance b/d R127 000 R112 000 = R15 000 100 000 01 ACCOUNT DEBIT ACCOUNT CREDIT Interest on loan Loan: E.C. Bank

GENERAL JOURNAL OF Nodada Traders FOR FEBRUARY 2019 GJ Doc Day 12 Details Fol. Debit 15 000 Credit 28Interest on Loan Loan: E.C. Bank Interest on loan taken into account N18 B12 15 000 NOMINAL ACCOUNTS SECTION INTEREST ON LOAN N18 201 9 Feb GENERAL JOURNAL OF Nodada Traders FOR FEBRUARY 2019 28 Loan: E.C. Bank 2019 Feb 28 Profit and loss GJ 15 000 GJ 15 000 GJ 13 Profit and loss Interest on loan Closing transfer F2 N18 15 000 15 000 EFFECT ON ACCOUNTING EQUATION Journal Source Document Journal voucher Account debit Account credit A = E + L GJ Interest on loan Loan: E.C. Bank 0 - +

12 Transfer of Debtors allowances to Sales and closing transfers of sales and cost of sales GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D Details 22 28 Sales Debtors Allowances Closing Transfer Fol N1 N3 Debit Credit 2 000 2 000 GENERAL LEDGER OF Nodada TRADERS NOMINAL ACCOUNTS SECTION SALES 2 000 2019 N1 b/d 880 000 GJ Total 2019 Feb 28 Debtors allowances Feb 28 DEBTORS ALLOWANCES N3 2019 Feb 28 Total 2019 b/d 2 000 Feb 28 Sales GJ 2 000

GENERAL LEDGER OF Nodada TRADERS NOMINAL ACCOUNTS SECTION SALES GJ 2 000 2019 Feb 28 GJ 878 000 N1 b/d 880 000 Total 2019 Feb 28 Debtors allowances Trading Account 880 000 880 000 GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D Details 23 Sales Trading Account Closing Transfer Fol Debit 878 000 Credit 878 000

GENERAL LEDGER OF Nodada TRADERS NOMINAL ACCOUNTS SECTION COST OF SALES N2 2019 Feb 28 Total 2019 b/d 440 000 Feb 28 GJ 440 000 Trading Account GENERAL JOURNAL OF Nodada TRADERS FOR FEBRUARY 2019 GJ Doc D 24 Details Trading Account Cost of Sales Closing Transfer Fol Debit 440 000 Credit 440 000

Nodada TRADERS POST- ADJUSTED TRIAL BALANCE ON 28 FEBRUARY 2019 Balance Sheet account section Capital Drawings Land and Building (1 006 000 6 000) Vehicles (at cost) Accumulated depreciation on vehicles (80 000 + 16 000) Equipment Accumulated depreciation on equipment (36 000 + 12 000) Fixed Deposit: E.C. Bank Trading stock (29 900 1 400) Debtors control (18 000 200) Bank (235 000 + 600) Loan: E.C. Bank (112 000 27 000 + 15 000) Creditors control Consumable Stores on hand Accrued Income Income received in advance Prepaid Expense Accrued Expense Debit Credit 963 000 19 600 1 000 000 240 000 96 000 60 000 48 000 50 000 28 500 17 800 235 600 100 000 26 000 500 750 8 500 360 400

Nominal accounts section Sales Cost of sales Debtors Allowances Discount allowed Bad debts (1 200 + 200) Discount received Telephone (2 800 + 400) Interest on fixed deposit (3 000 + 750) Insurance (3 400 360) Rent Income (110 500 8 500) Salaries Stationery (2 500 500) Bank charges Trading stock deficit Depreciation (16 000 + 12 000) Bad debts recovered Repairs to building Interest on loan 880 000 440 000 2 000 600 1 400 900 3 200 3 750 3 040 102 000 72 000 900 2 500 1 400 28 000 600 6 000 15 000 2 229 150 2 229 150