Prepare journal entries for the adjustments. Post to the General Ledger. Calculate the amount of the fixed deposit.

Here are the adjustments, general ledger postings, and calculation for Toppel Dealers.

10.11.1 Prepare journal entries for the adjustments.

• Adjustment (i) - Rent Income: The trial balance shows R8 400 for rent income. The building was let from 1 January 20.5. Rent is paid monthly in advance, and July 20.5 rent was paid in June. The financial year ends 30 June 20.5. This means 7 months of rent (January to July) have been received. Monthly rent = $\frac{\text{R}8\,400}{7} = \text{R}1\,200$. Rent for July (R1 200) is unearned income for the current financial year.

  $$\begin{array}{|l|l|r|r|} \hline \textbf{Date} & \textbf{Account} & \textbf{Debit (R)} & \textbf{Credit (R)} \\ \hline \text{20.5 June 30} & \text{Rent Income} & 1\,200 & \\ & \quad \text{Rent Income Received in Advance} & & 1\,200 \\ & \text{ (To adjust for rent received in advance)} & & \\ \hline \end{array}$$

• Adjustment (ii) - Interest on Fixed Deposit: The interest rate is 11.25% p.a. Interest has been received for 9 months only, but the financial year is 12 months. The trial balance shows R4 050 for 9 months. Monthly interest = $\frac{\text{R}4\,050}{9} = \text{R}450$. Accrued interest for 3 months (12 - 9) = $\text{R}450 \times 3 = \text{R}1\,350$.

  $$\begin{array}{|l|l|r|r|} \hline \textbf{Date} & \textbf{Account} & \textbf{Debit (R)} & \textbf{Credit (R)} \\ \hline \text{20.5 June 30} & \text{Accrued Interest Income} & 1\,350 & \\ & \quad \text{Interest on Fixed Deposit} & & 1\,350 \\ & \text{ (To record interest accrued but not yet received)} & & \\ \hline \end{array}$$

• Adjustment (iii) - Commission Income: R280 commission has been received in advance. This amount is unearned income for the current financial year.

  $$\begin{array}{|l|l|r|r|} \hline \textbf{Date} & \textbf{Account} & \textbf{Debit (R)} & \textbf{Credit (R)} \\ \hline \text{20.5 June 30} & \text{Commission Income} & 280 & \\ & \quad \text{Commission Income Received in Advance} & & 280 \\ & \text{ (To adjust for commission received in advance)} & & \\ \hline \end{array}$$

10.11.2 Post to the General Ledger.

Rent Income (Income Statement Account)

$$\begin{array}{l|l} \hline \textbf{Debit} & \textbf{Credit} \\ \hline \text{20.5 June 30} & \text{20.5 June 30} \\ \text{Rent Income Rec. in Adv.} \quad 1\,200 & \text{Balance (Trial Balance)} \quad 8\,400 \\ \text{Income Summary} \quad 7\,200 & \\ \hline \quad \underline{\underline{8\,400}} & \quad \underline{\underline{8\,400}} \\ \end{array}$$

Rent Income Received in Advance (Liability - Balance Sheet Account)

$$\begin{array}{l|l} \hline \textbf{Debit} & \textbf{Credit} \\ \hline & \text{20.5 June 30} \\ & \text{Rent Income} \quad 1\,200 \\ \hline \text{20.5 June 30} & \quad \underline{\underline{1\,200}} \\ \text{Balance c/d} \quad 1\,200 & \\ \hline \quad \underline{\underline{1\,200}} & \\ \text{20.5 July 1} & \\ \quad \text{Balance b/d} \quad 1\,200 & \\ \end{array}$$

Interest on Fixed Deposit (Income Statement Account)

$$\begin{array}{l|l} \hline \textbf{Debit} & \textbf{Credit} \\ \hline \text{20.5 June 30} & \text{20.5 June 30} \\ \text{Income Summary} \quad 5\,400 & \text{Balance (Trial Balance)} \quad 4\,050 \\ & \text{Accrued Interest Income} \quad 1\,350 \\ \hline \quad \underline{\underline{5\,400}} & \quad \underline{\underline{5\,400}} \\ \end{array}$$

Accrued Interest Income (Asset - Balance Sheet Account)

$$\begin{array}{l|l} \hline \textbf{Debit} & \textbf{Credit} \\ \hline \text{20.5 June 30} & \\ \text{Interest on Fixed Deposit} \quad 1\,350 & \\ \hline \quad \underline{\underline{1\,350}} & \text{20.5 June 30} \\ & \text{Balance c/d} \quad 1\,350 \\ \hline & \quad \underline{\underline{1\,350}} \\ \text{20.5 July 1} & \\ \quad \text{Balance b/d} \quad 1\,350 & \\ \end{array}$$

Commission Income (Income Statement Account)

$$\begin{array}{l|l} \hline \textbf{Debit} & \textbf{Credit} \\ \hline \text{20.5 June 30} & \text{20.5 June 30} \\ \text{Commission Inc. Rec. in Adv.} \quad 280 & \text{Balance (Trial Balance)} \quad 24\,540 \\ \text{Income Summary} \quad 24\,260 & \\ \hline \quad \underline{\underline{24\,540}} & \quad \underline{\underline{24\,540}} \\ \end{array}$$

Commission Income Received in Advance (Liability - Balance Sheet Account)

$$\begin{array}{l|l} \hline \textbf{Debit} & \textbf{Credit} \\ \hline & \text{20.5 June 30} \\ & \text{Commission Income} \quad 280 \\ \hline \text{20.5 June 30} & \quad \underline{\underline{280}} \\ \text{Balance c/d} \quad 280 & \\ \hline \quad \underline{\underline{280}} & \\ \text{20.5 July 1} & \\ \quad \text{Balance b/d} \quad 280 & \\ \end{array}$$

10.11.3 Calculate the amount of the fixed deposit.