Journal Entries: Credit Losses Write-off and Closing Transfer

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Questions and Answers

What is the purpose of the entry made on 28 February 20.1 to write off the account of A Tago as irrecoverable?

To account for credit losses on trade receivables

Explain the reason for closing the credit losses account to the profit or loss account on 28 February 20.1.

To transfer the recognized credit losses to the income statement

Where would the new balance for the trade receivables control account be disclosed in the financial statements?

Under the heading 'Trade and other receivables'

What is the role of the journal entry labeled 'XA-XA DEALERS CLOSING TRANSFER - 28 FEBRUARY 20.1'?

To close the credit losses account and transfer the balance to the profit or loss account Signup and view all the answers

How is the impact of credit losses on the income statement mitigated?

By transferring credit losses to the profit or loss account Signup and view all the answers

In which financial statement would the write-off of A Tago's account as irrecoverable be reflected?

Statement of financial position Signup and view all the answers

What is the purpose of the adjustment entry on 28 February in terms of water and electricity expenses?

To accrue for water and electricity expenses that have been incurred but not yet paid. Signup and view all the answers

What is the significance of the closing transfer entry on 28 February for water and electricity expenses?

It transfers the balance of water and electricity account to the profit or loss account. Signup and view all the answers

In the general ledger, what is the purpose of the entry dated 28 February under accrued expenses?

To record the balance brought down from the previous period for accrued expenses. Signup and view all the answers

Explain the impact of the adjustment reversal (accrued expenses) at the beginning of the next financial year.

The accrued expenses amount will be added to the balance of the trade payables control account. Signup and view all the answers

What is the purpose of the XA-XA Dealers Statement of Financial Position as at 28 February 20.1?

To provide a snapshot of the company's equity and liabilities at a specific point in time. Signup and view all the answers

How does the adjustment entry on 28 February impact the income statement of XA-XA Dealers?

It ensures that the correct amount of water and electricity expenses is recognized in the period. Signup and view all the answers

What type of accounts will have balances in the general ledger for the new year?

Balance sheet accounts Signup and view all the answers

Which accounts will be closed off to the profit or loss account at the end of the previous financial year?

Nominal accounts Signup and view all the answers

What account will be opened for the new financial year?

Water and electricity account Signup and view all the answers

What will the temporary liability account (accrued expenses) be closed off to in the new financial year?

New water and electricity account Signup and view all the answers

Why will the water and electricity account be credited?

Amount applicable to the previous financial year Signup and view all the answers

What is the purpose of consumables inventory on hand in accounting?

Expenses for inventory bought not for sale but for use in earning income Signup and view all the answers

Study Notes

Journal Entries for Credit Losses

A Tago, a debtor, is written off as irrecoverable on 28 February 20.1, resulting in a debit to the trade receivables control account and a credit to the credit losses account.
The credit losses account is closed off to the profit or loss account on 28 February 20.1.
The new balance for the trade receivables control account will be disclosed under the heading "Trade and other receivables" together with accrued income under the heading "Current assets" in the Statement of Financial Position as at 28 February 20.1.

Journal Entries for Accrued Expenses

An adjustment is made to the water and electricity account on 28 February 20.1, resulting in a debit to the accrued expenses account and a credit to the water and electricity account.
The accrued expenses account is closed off to the profit or loss account on 28 February 20.1.
Accrued expenses will be disclosed as part of trade and other payables in the Statement of Financial Position as at 28 February 20.1.

Adjustment Reversal (Accrued Expenses)

On the first day of the next financial year, a new set of journals and ledger accounts will be created, and the balance sheet accounts will have balances in the general ledger for the new year.
The temporary liability account (accrued expenses) will be closed off to the new water and electricity account, and the water and electricity account will be credited because the amount is applicable to the previous financial year.
The amount will be subtracted from the expenses for water and electricity for the new financial year.

Consumable Inventory on Hand

Consumables are expenses related to inventory bought not for sale but for use in the process of earning an income, such as stationery and packing material.

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Description

Test your knowledge on journal entries related to credit losses write-off and closing transfer transactions in accounting. Practice identifying debit and credit entries for specific accounts.