Question 1 (20 marks)

A. What is the difference between Accrual basis and the Cash basis of accounting. Which

method is best in terms of the matching principle and why? (2 marks)

B. Leeway Ltd has calculated profit on the 30th June 2016 to be $337700 when the following

was discovered (the firm uses accrual accounting).

(i) The weekly wages bill for the firm is $29400. The last payment for wages was on Friday

26th June. The next payment will be on Friday 3rd July.

(ii) The firm had received funds of $16000 on 1st April 2015 for work to be completed by end

of October 2015. 40% of the work has been completed by June 30th 2016.

(iii) Income of $1220 for services delivered had been invoiced but not yet received in cash.

(iv) A full years rent of $24000 was paid for the premises from which the firm operates on 1st

March 2016.

(v) The firm has $30000 invested. It earns interest of 6% per annum payable quarterly.

Interest was last received on 1st May for the quarter (February, March, April).

(vi) Office Supplies had a balance at the beginning of the year (after adjustments) of $1400.

Throughout the year $5600 in office supplies was purchased. At June 30th 2016 the value

of office supplies remaining was $1200.

(vii) An amount of $8000 paid for new Office Furniture had been incorrectly coded and entered

as Office Expenses.

(viii) The firm had recorded in the GST Control account GST Collected of $9760 and GST Paid

of $7540. Make the entry that would be necessary to settle with the ATO.

Required:

(i) Make the journal entries to adjust the accounts affected where necessary (include

narrations to explain the entry and any calculations). (14 marks)

(ii) What would be the new profit figure after taking into account the above entries? (You

must show calculations to get full marks). (4 marks)