Accounting Transactions: A Comprehensive Case Study
1. Distribution of Profits After Taxes
If there are profits of €129,000 after taxes, they are distributed as follows:
- 10% to legal reserves
- 65% to voluntary reserves
- 15% to pay dividends to shareholders on January 1st
- 10% remaining
Journal Entry:
€28,000 (129) Retained Earnings to:
- Legal Reserve (112) €2,800
- Voluntary Reserve (113) €18,200
- Dividends Payable (526) €4,200
- Retained Earnings (120) €2,800
2. Payment of Dividends
Journal Entry:
€4,200 (526) Dividends Payable to Banks (572) €4,200
3. Capital Increase
Capital is increased by €20,000. Shares are fully subscribed, with 75% paid in cash and the rest pending disbursement.
Journal Entry:
€15,000 (572) Banks to:
- Social Capital (100) €20,000
- €5,000 (472) HP IVA SOP
4. Purchase of Merchandise
Purchase of merchandise on credit: 500 units at €130/unit. Discount on invoice of €5,500. Transportation costs are paid by the buyer in cash at €500. Non-returnable containers received for €10,000.
Journal Entry:
€70,000 (600) Purchases to:
- Suppliers (400) €80,620
- €11,200 (472) HP IVA SOP
- Banks (572) €580
* Transport is for the buyer, increasing the value of the purchase by €500 + VAT (paid in cash).
* Non-returnable containers increase the value of the purchase.
* Calculation: 500 * €130 = €65,000 – €5,500 (discount) = €59,500 + €10,000 (packaging) + €500 (transport) = €70,000
5. Acceptance of Bills of Exchange
Bills of exchange are accepted from customers for €10,000.
Journal Entry:
€10,000 (4310) Trade Bills Receivable to Customers (430) €10,000
6. Discounting of Bills of Exchange
Two-thirds of the portfolio’s bills of exchange are discounted at the bank. Bank commission is 1% + VAT. Interest is 12%. The recovery of the bills is anticipated by one month.
Journal Entry 6.a:
€20,000 (4311) Discounted Trade Bills
€10,000 (4312) Trade Bills in Collection to Trade Bills Receivable (431) €30,000
Journal Entry 6.b:
€19,568 (572) Banks
€200 (626) Bank Services
€32 (472) HP IVA SOP
€200 (665) Interest on Discounted Bills to Debt for Discounted Bills (5208) €20,000
* €20,000 * 0.01 = €200 (commission) * 0.16 = €32 (VAT)
* (665) corresponds to €20,000 * 0.12 * (1/12) = €200 (interest)
7. Payment of Social Security Debt
The pending debt with Social Security is paid.
Journal Entry:
€4,000 (476) Social Security Organizations to Banks (572) €4,000
(The data comes from the initial balance)
8. Sale of Merchandise on Credit
Merchandise is sold on credit: 600 units at €150/unit. Returnable packaging is billed for €10,000. Transportation costs of €1,000 are paid in cash, having been agreed with the customer that they would be responsible.
Journal Entry:
€117,160 (430) Customers to:
- Sales (700) €90,000
- Packaging and Containers (437) €10,000
- HP IVA Repercutido (477) €16,000
- Banks (572) €1,160
* Sales of Merchandise: 600 * €150 = €90,000; Packaging: €10,000; VAT: €16,000
* Transport €1,000 + (VAT = €160) is paid by the client.
9. Doubtful Customers
Doubtful customers paid €5,000, the rest being lost.
Journal Entry:
€5,000 (572) Banks
€1,000 (650) Losses from Bad Debts to Doubtful Customers (436) €6,000
10. Payment of Discounted Bills at Maturity
Discounted bills are paid in full at maturity.
Journal Entry:
€20,000 (5208) Debt for Discounted Bills to Customers, Trade Bills Receivable (4311) €20,000
* Debt from Journal Entry 6 (4311)
11. Payment of Expenses
Telephone expenses of €1,000, electricity expenses of €1,000, and advertising expenses of €1,000 are paid. The annual car insurance premium of €1,200 is also paid.
Journal Entry 11.a:
€1,000 (628) Supplies
€1,000 (629) Other Services
€320 (472) HP IVA SOP to Creditors for Services Rendered (410) €2,320
Journal Entry 11.b:
€1,000 (627) Advertising Expenses
€160 (472) HP IVA SOP
€1,200 (625) Insurance Premiums to Banks (572) €2,360
12. Payment of Debt to Creditors
The entire debt with creditors for services rendered is paid.
* Total debt pending: (410) in the initial balance: €12,000 + (410) in Journal Entry 11.a: €2,320 = €14,320
Journal Entry:
€14,320 (410) Creditors for Services Rendered to Banks (572) €14,320
13. Refund of Packaging from Customers
Customers return 50% of the packaging. They state that the rest was broken.
* Customers from Journal Entry 8 return 50% of the packaging; the rest is lost.
Journal Entry:
€10,000 (437) Customer Returns of Packaging to:
- Customers (430) €5,800
- €800 (477) HP IVA Repercutido
- Sales of Packaging (704) €5,000
* 100% of the containers are returned, and 50% of the VAT is reversed because it is a reduction.
* The customer returns 50% + VAT = €5,800 (those that are lost are considered sold)
14. Payment of Corporate Income Tax
The corporate income tax for year X1, which was already established, is paid to the Tax Authorities.
* The account balance (4752) is checked, and the payment is made.
Journal Entry:
€12,000 (4752) Tax Authorities, Corporate Income Tax Payable to Banks (572) €12,000
15. Collection of Rent
€12,000 has been collected for the annual rent of a shop.
Journal Entry:
€13,920 (572) Banks to:
- Income from Leases (752) €12,000
- HP IVA Repercutido (477) €1,920
* Rent (752) + VAT (477) = €13,920
16. Unpaid Bills of Exchange at Maturity
At maturity, the bills of exchange in collection were unpaid by the drawee. Bank commission is €100.
* The part that will NOT be collected (coming from Journal Entry 6)
* They were unpaid by the drawee = they will not be collected.
Journal Entry 16.a:
€10,000 (4315) Defaulted Trade Bills to Trade Bills in Collection (4312) €10,000
Journal Entry 16.b:
€100 (626) Bank Services
€16 (472) HP IVA SOP to Banks (572) €116
17. Agreement with Drawee for Unpaid Bills
An agreement is reached with the drawee to accept a new bill for the previous nominal amount plus €100 in late interest.
* The bill from Journal Entry 16 is accepted.
* Previous nominal = €10,000 + €100 (expenses from Journal Entry 16.b) + €100 (bank commission) = €10,200
Journal Entry:
€10,200 (4310) Customers, Outstanding Trade Bills to:
- Defaulted Trade Bills (4315) €10,000
- Other Financial Income (769) €200
18. Payroll Breakdown and Payment
The payroll breakdown is as follows: Liquid Salary = €10,000; Social Security payable by the company = €3,000; Social Security payable by the employee = €2,000; Income Tax = €4,000.
In addition, the advance on wages is applied, and the pending salaries are paid.
Journal Entry:
€16,000 (640) Salaries and Wages to:
- Tax Authorities, Income Tax Payable (475) €4,000
- Social Security Organizations (476) €5,000
- €10,000 (465) Remuneration Pending Payment
- Advances on Wages (460) €1,000
- Banks (572) €6,000
* (640) Gross Salary = Liquid Salary + Income Tax + Social Security payable by the employee = €16,000
* (475) Income Tax
* (642) Social Security payable by the company
* (476) Social Security payable by the company + Social Security payable by the employee = €3,000 + €2,000
* (465) Balance and settlement are used to offset the asset.
* (460) Balance and settlement are used to offset the liability.
* (572) The rest is paid through banks.
19. Estimation of Doubtful Debts
It is estimated that a client X, who owes €1,000, may be insolvent.
Journal Entry:
€1,000 (436) Doubtful Customers to Customers (430) €1,000
20. Declaration of Bankruptcy of Doubtful Customer
The client from the previous point declares bankruptcy. It is now known that the debt will not be collected.
Journal Entry:
€1,000 (650) Losses from Uncollectible Trade Debts to Doubtful Customers (436) €1,000
21. Amortization and Sale of Machinery
A machine was acquired for €10,000. Its useful life was 10 years. It was fully amortized, and the residual value was €0. €1,000 was amortized. It was sold for €6,000, with 50% collected in cash and the rest on credit for 20 days.
Journal Entry 21.a:
€916.67 (681) Amortization of Tangible Fixed Assets to Accumulated Amortization of Tangible Fixed Assets (281) €916.67
* Calculation: (€10,000 – €0) / 10 * (11/12) = €916.67
Journal Entry 21.b:
€1,916.67 (281) Accumulated Amortization of Tangible Fixed Assets
€3,480 (572) Banks
€3,480 (543) Short-Term Receivables from Disposal of Fixed Assets to:
- Machinery (213) €10,000
- HP IVA Repercutido (477) €960
- €2,083.33 (671) Losses from Tangible Fixed Assets
* (281) Accumulated Amortization: €1,000 + €916.67 (21.a) = €1,916.67
* (572) Banks: 50% of €6,000 + VAT (50%) = €3,480
* (543) Short-Term Receivables: the other 50% of €6,000 + VAT (50%) is deferred for 20 days (non-removable receivable) = €3,480
* (671) Losses from Tangible Fixed Assets: The difference is calculated as €10,960 – €8,876.67 = €2,083.33
* (213) Acquisition Price of Machinery + VAT
22. Payment of Interest on Debt
Interest is paid on the total debt balance. The annual interest rate is 10%.
Journal Entry:
€1,500 (662) Interest on Debt to Banks (572) €1,500
* In the initial balance, we have: (170) Long-Term Debt €8,000 + (520) Short-Term Debt €7,000 = €15,000. Interest rate = 10% -> (662) €15,000 * 0.10 = €1,500, which is paid through banks.
23. Payment of Short-Term Bank Debt
The short-term bank debt is paid.
Journal Entry:
€7,000 (520) Short-Term Debt to Banks (572) €7,000
* Initial Balance: (520) Short-Term Debt is paid through banks.
24. Reclassification of Long-Term Bank Debt
50% of the long-term bank debt is reclassified to short-term.
Journal Entry:
€4,000 (170) Long-Term Debt to Short-Term Debt (520) €4,000
* Initial Balance (170) Long-Term Debt: €8,000 * 50% = €4,000. The debt is transferred to short-term.
* The ledger now shows: (170) €4,000 (remaining 50%) and (520) €4,000 (50% transferred from 170).
25. Amortization of Tangible Fixed Assets
Tangible fixed assets are amortized at a straight-line rate of 10% annually of the amount stated in the balance.
Journal Entry:
€10,000 (681) Amortization of Tangible Fixed Assets to Accumulated Amortization of Tangible Fixed Assets (281) €10,000
* Initial Balance: Buildings €50,000 + Machinery €50,000 + IT Equipment €10,000 = €110,000
* Amortization of Tangible Fixed Assets: €110,000 – €10,000 (deducting the machine that was disposed of) = €100,000
* Acquisition Price – Residual Value / Useful Life = €100,000 – €0 * 0.10 = €10,000
26. Amortization of Intangible Fixed Assets
Intangible fixed assets are amortized over 5 years.
Journal Entry:
€1,000 (680) Amortization of Intangible Fixed Assets to Accumulated Amortization of Intangible Fixed Assets (280) €1,000
27. Reversal and Provision for Bad Debts
The provision for bad debts is reversed, and a new one is created, amounting to 10% of the balance of account 430 (Customers).
Journal Entry 27.a:
€5,000 (490) Impairment of Trade Receivables to Reversal of Impairment of Trade Receivables (794) €5,000
* The provision is reversed. The balance of account (490) is checked, and the reversal is made at that level = €5,000.
Journal Entry 27.b:
€13,536 (694) Impairment Losses to Impairment of Trade Receivables (490) €13,536
* A new provision is created for 10% of the total amount of (430) Customers (see details).
* Total * 10% = €13,536. The impairment is recognized for that amount, which will be lost due to impairment.
28. Accrual of Prepaid Expenses and Deferred Income
Accruals are made for prepaid automobile insurance expenses and deferred income from the rental of the premises.
* Accrual from Journal Entries 11 and 15 (insurance premiums and income from leases)
Journal Entry 28.a:
€300 (480) Prepaid Expenses to Insurance Premiums (625) €300
* Insurance Premiums: €300, calculated as €1,200 * 3/12 (3 months) = €300
Journal Entry 28.b:
€6,000 (752) Income from Leases to Deferred Income (485) €6,000
* Income from Leases (6 months): €12,000 * 6/12 = €6,000