Fabris Accounting: Journal Entries and Year-End Closing Procedures
Fabris Daily Journal Entries
7. Bank Interest Income (December 28)
On December 28, the bank notifies the entry of 164 € into our bank account for interest income, after an 18% tax deduction.
| 164.00 | 572 | Bank Account (EUR) | to | Other Financial Income (1) | 769 | 200.00 |
| 36.00 | 473 | Tax Withholdings | (164 / 0.82) | |||
| (200 * 0.18) |
(1) Calculation: X – 0.18 X = 164. X = gross amount of interest = 200 euros.
8. Purchase of Tiles and Returnable Packaging (December 31)
On December 31, FABRIS purchases 4,000 PETRASA tiles at 10 € per unit. The tiles include special packaging costing 2,000 €, which FABRIS may return to PETRASA within two months. Payment is made half in cash and half using bills of exchange with a 90-day maturity.
| 40,000.00 | 600 | Purchase of Goods | to | Cash (EUR) | 570 | 24,360.00 |
| 2,000.00 | 406 | Returnable Packaging | to | Suppliers (Bills Payable) | 401 | 24,360.00 |
| 6,720.00 | 472 | Input VAT | (Total Invoice incl. VAT / 2) | |||
| (4,000 * 10) | ||||||
| [0.16 * (40,000 + 2,000)] |
9. Recording Outstanding Payroll (December 31)
On December 31, the payroll for the month is outstanding, including the following details:
- Gross Salary: 12,300 €
- Personal Income Tax Withholding: 210 €
- Employee Social Security Contribution: 80 €
- Employer Social Security Contribution: 400 €
| 12,300.00 | 640 | Wages and Salaries Expense | to | Social Security Payable | 476 | 480.00 |
| 400.00 | 642 | Employer Social Security Expense | to | Tax Withholdings Payable | 4751 | 210.00 |
| to | Salaries Payable | 465 | 12,010.00 | |||
| (80 + 400) | ||||||
| (12,300 – 210 – 80) |
10. Recording Pending Service Invoice
An invoice for services received is pending receipt. The total amount (including VAT) is 348 €.
| 300.00 | 629 | Other External Services | to | Service Creditors | 410 | 348.00 |
| 48.00 | 472 | Input VAT | ||||
| (348 / 1.16) |
Year-End Adjustments (December 31, 2008)
On December 31, 2008, Fabris proceeds to regularize its accounts and calculate the profit before taxes based on the following information:
A. Foreign Currency Revaluation
At year-end, the official exchange rate for the dollar against the euro is 0.80 € / $.
| 70.00 | 571 | Cash (Foreign Currency) | to | Exchange Gains | 768 | 70.00 |
| [700 * (0.80 – 0.70)] |
B. Prepaid Advertising Expenses Adjustment
The balance of the Advertising and Public Relations account includes an amount paid on September 1st for a 6-month advertising campaign in press and radio.
| 800.00 | 480 | Prepaid Expenses | to | Advertising Expense | 627 | 800.00 |
| (2,400 * 2 / 6) |
C. Inventory Adjustments and Impairment
At year-end, the closing stock value of goods is 25,400 € (cost) and the market value is 23,200 €. Additionally, there are packages available to the company, acquired on December 31, costing 2,000 €.
| 15,800.00 | 610 | Change in Goods Inventory (Initial Reversal) | to | Goods Inventory (Initial Balance) | 300 | 15,800.00 |
| 25,400.00 | 300 | Goods Inventory (Closing Balance) | to | Change in Goods Inventory (Closing Entry) | 610 | 25,400.00 |
| 2,000.00 | 326 | Packaging Inventory | to | Change in Other Supplies Inventory | 612 | 2,000.00 |
| 3,000.00 | 390 | Allowance for Goods Impairment (Reversal) | to | Reversal of Inventory Impairment | 793 | 3,000.00 |
| 2,200.00 | 693 | Inventory Impairment Loss | to | Allowance for Goods Impairment (New Provision) | 390 | 2,200.00 |
| (25,400 – 23,200) |
D. Impairment of Trade Receivables
Fabris estimates the risk of failed trade credits for the next year at 0.50% of the trade receivables balance at year-end.
| 4,500.00 | 490 | Allowance for Trade Receivables Impairment (Reversal) | to | Reversal of Trade Receivables Impairment | 794 | 4,500.00 |
| 597.45 | 694 | Trade Receivables Impairment Loss (New Provision) | to | Allowance for Trade Receivables Impairment | 490 | 597.45 |
| (0.005 * 119,490) |
(2) The balance of account 430, ‘Customers’, is 119,490 €.