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FINANCIAL ACCOUNTING SSS2 FIRST TERM       

Subject Scheme & Timeline:

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SPECIAL ITEMS OF EXPENSES /LOSSES1. GOODS STOLEN OR DESTROYED Goods may have been stolen (pilfered) or destroyed during the financial year. When this occurs, the following entries will be passed
PROVISION FOR DOUBTFUL DEBTSAlthough a debt may not actually have become bad, there may be doubt as to whether it will be paid. It would be misleading to include that debt as an asset in the balance sheet pretending that the amount is not in doubt. On the other hand, since it has not yet become bad, it would be wrong to write it off. A provision is therefore made to cover the such doubtful debt.
If a trader usually allows and receives cash discounts the debtor's and creditors' balances in The Balance Sheet at the end of the year may be overstated unless it is recognized that discountsare likely to be deducted from them. This is done by creating provisions for discounts ondebtors and provisions for discounts on creditors.
ACCRUALSThe accrual concept states that revenue and expenditure of a period should be matched together – whether or not such revenue or expenditure had actually been received or paid for.This means that items of expenditure or income shown in the final account should be for sums actually related to the period covered by the financial statements prepared in the final account. Therefore statements such as the Trading and Profit and Loss Account should be prepared on the accruals, or matching basis so that expenses are matched to the revenue earned: that is, expenses are shown in the Profit and Loss Account as they have been incurred rather than as they have been paid. Similarly, incomes are shown in the Profit and Loss Account as they have been earned rather than as they have been received.
Depreciation may be defined as the permanent and continuing diminution (or lessening) in the quality, quantity or value of an asset.
REDUCING BALANCE METHOD (or DIMINISHING BALANCE METHOD)Under this method, a fixed percentage is written off the reducing (or diminishing) balance of the asset yearly.This method charges higher depreciation in the early years of the asset and lower in the later years
ACCOUNTING TREATMENT OF DEPRECIATIONThere are two ways of treating depreciation in the ledgers. These are the Old Method and the Modern Method. However, the Modern Method which is preferred by accountants will be considered.
Illustration:The following trial balance has been extracted from the ledgers of Mr Johnson as at 31st

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