Answer to Question #140806 in Accounting for sneha

Question

1. Discuss for question (a) and (b)
- Define and identify the type of Income / Expenses
- Treatment of the Income / Expenses in the Profit and Loss account, Impact of the
Income / Expenses in the Balance Sheet
a. You purchased 10 shares of L& T Company last year. On 5th March 2019, the
company has declared a dividend Rs 50 per share. The income is earned but not yet
collected in your account during this financial year. (5 Marks)
b. On 5th March 2019, Mehta Brothers received 100% advance for goods, to be supplied
in the next month. The Cost of the goods was Rs50000. They usually sells the goods at
10% mark up.

Answer 1

Discussion for Questions (a) and (b)

a)     Dividend Income Earned but not yet Collected in the Account during the Current Financial Year

The dividend income that I, the shareholder of L& T Company earned but not yet collected in my account during the current financial year is an accrued dividend. According to Haupt and Nel (2019), accrued dividends are the statement of financial position’s liabilities, which account for common shares’ dividends that firms declare but do not pay the stockholders at that date. Firms enter the dividend value that they allocate below the net income amount on their income statements. An accrued dividend increases the current liabilities amount on the balance sheet when a firm declares it and remains so until the Company pays it.

b)    Receipt of 100% Advance for Goods by Mehta Brothers to be Supplied in the Next Month

The 100% advance for goods that Mehta Brothers received on 5th March 2019, to be supplied in the next month is a prepaid income. Jackson and Sneathen (2019) assert that prepaid income is money that a firm receives from its clients before providing the products to those customers. Firms credit prepaid incomes in their income statements. a prepaid income increases the current liabilities amount on the balance sheet until the vendor delivers the products to the customers.

 

 

 

 

 

References

Haupt, E., & Nel, R. (2019). Dividend Cession–Investigating the South African Tax Implications. Journal of Economic and Financial Sciences, 12(1).

Jackson, R. E., & Sneathen Jr, L. D. (2019). Journal Entries as Tools for Financial Statement Disclosure of Pension Reporting and other Comprehensive Income. American Journal of Business Education (AJBE), 12(3).