If you have payroll taxes due at the end of an accounting period that will be paid next period, you should accrue the employer share of FICA that is due at period end by creating an adjusting entry in your general journal. On January 4, , you deposit payroll taxes due as of December 31, Do you pay property taxes on buildings or land? Your tax payment may not be due for several months, but in reality you incur one-twelfth of your annual property tax bill every month.
At the end of the accounting period, you should make an adjusting entry in your general journal to set up property taxes payable for the amount of taxes incurred but not yet paid. The first payment of the first half year tax is due on March 1, As of December 31, , no payments have been made on this assessment although the half-year estimate is owed, even though not due until March 1.
If you've been making monthly payments on a loan, you will probably need to make an adjusting entry in your general journal at year end so the correct amount of interest expense is on your books, and the loan balance as of year end is correctly shown on your books. Of course, each monthly payment is part interest, part principal.
If you record the correct amount of interest and principal in your cash disbursements journal every month, no adjusting entry would be necessary. Chances are you do not correctly record both interest and principal every month. Do you simply put the entire debit amount to the mortgage payable account every month? Or do you put the entire debit amount to the interest expense account? Either way, you will need an adjusting entry so your period end books show the proper amount of interest expense and mortgage payable.
You should have an amortization schedule, or a statement from your lender, showing you the amount of interest paid for the year and the year-end loan balance. If you don't have one, your accountant can prepare one for you.
Because you haven't recorded interest expenses every month, you refer to the statement from your lender. You make the following adjusting entry in your general journal:. Because you have been charging the entire payment to interest every month, you need to refer to the statement from your lender.
Make the following adjusting entry:. At the end of an accounting period, you must make an adjusting entry in your general journal to record depreciation expenses for the period. The IRS has very specific rules regarding the amount of an asset that you can depreciate each year. Consult your accountant about how to compute depreciation. More than likely, your accountant will make this adjusting entry for you, or your accountant may be able to provide you with a schedule showing the amount of depreciation for each asset for each year.
Your business has equipment and a building. You need to make the following adjusting entry to record depreciation expense and update your accumulated depreciation accounts:. Do you extend credit to your customers? If so, the end of the year is a good time to make an adjusting entry in your general journal to write off any worthless accounts. You extend credit to your regular customers, and normally do not experience any trouble collecting from them.
Considering you rarely have trouble collecting from your customers, you have not set up a reserve for bad debts. You are certain that you will never be paid. Write off this account by making the following adjusting entry:. If you extend credit to numerous customers, and your experience is that a certain number of your sales on account will be uncollectable, you should probably set up a reserve for bad debts.
That way, your books and financial statements will more accurately reflect your true financial picture. Your accountant may be able to help you do this. After years of extending credit to your customers, and experience tells you that a small amount of your sales on account will never be collected. On December 31, , you evaluate your accounts receivable.
If your business is a corporation, and your corporation has declared a dividend payable to shareholders, the declared dividend needs to be recorded on the books. There are 10, shares of common stock outstanding. The dividend will be paid on January 15, If your business is a corporation, it is a separate entity required to pay income taxes.
After your accountant computes the income tax liability of the corporation, an adjusting entry should be made in the general journal to reflect the income tax expense for the year. Make the following adjusting entry to reflect the income tax expense for the year and the amount of tax owed to the IRS at year end:. Did you sell any fixed assets during the year? If so, you probably need to make an adjusting entry in your general journal to properly account for the sale.
You may need to have your accountant help you with this type of transaction. Make the following adjusting entry to take the truck off your books and reflect the correct amount of gain or loss on the sale:. You keep your books on the cash basis, but your financial reporting and tax return are done on the accrual basis. Paragraph The investment property portion is accounted for under Section 16 unless the fair value of the investment property portion cannot be measured reliably without undue cost or effort, in which case the entire property is accounted for under Section The remaining portion is accounted for under Section One of the most notable differences that preparers of financial statements under FRS will notice where investment properties are concerned is the accounting treatment for fair value gains and losses under Section Under previous UK GAAP, movements in the valuation of an investment property would have been taken to the revaluation reserve within equity and reported through the statement of changes in equity.
This was because under previous UK GAAP, fluctuations in open market value were accounted for under the Alternative Accounting Rules in the Companies Act which requires movements to be recognised in the revaluation reserve. Under FRS , fair value gains and losses are accounted for under the Fair Value Accounting Rules and hence are taken to profit or loss. Deferred tax considerations must also be brought into account where investment property fair value gains and losses are concerned.
This was previously not the case under outgoing UK GAAP unless, at the balance sheet date, the entity had a binding agreement to sell the investment property and it had recognised the disposal in the financial statements. It is important to emphasise that the accounting treatment is only different for investment properties. Where, say, a freehold property that is accounted for under Section 17 is measured under the revaluation model, the concept of the revaluation reserve remains and therefore gains and losses on revaluation are taken to the revaluation reserve, with associated deferred tax consequences losses are taken to the revaluation reserve to the extent of a credit balance on the revaluation reserve.
Preparers must ensure they have a sound understanding of the accounting treatments for both types of fixed asset where fair value gains and losses are concerned as mistakes can be costly. The directors have previously not recognised deferred tax on this property. On transition to FRS , there are two options available to the directors where the treatment of the revaluation reserve is concerned. They can either transfer the balance into the profit and loss account reserves retained earnings because there is no concept of a revaluation reserve for investment properties under FRS This is because any gains or losses on the fluctuation of fair values are not realised gains or losses because they are not readily convertible into cash.
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