Scribd
Upload
305 views3 pages

Topic - Accumulated Profits (Losses)

The Accumulated Profits (Losses) account represents the accumulated profits or losses of a corporation. It has two types: unappropriated, which can be declared as dividends, and appropriated, which is set aside for specific purposes like plant expansion. The document provides examples of journal entries to close net income to accumulated profits, record appropriations, declare and pay dividends, and return an appropriation to unappropriated accumulated profits when the purpose is complete.

Uploaded by

Kaye Arsad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
305 views3 pages

Topic - Accumulated Profits (Losses)

The Accumulated Profits (Losses) account represents the accumulated profits or losses of a corporation. It has two types: unappropriated, which can be declared as dividends, and appropriated, which is set aside for specific purposes like plant expansion. The document provides examples of journal entries to close net income to accumulated profits, record appropriations, declare and pay dividends, and return an appropriation to unappropriated accumulated profits when the purpose is complete.

Uploaded by

Kaye Arsad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Topic: Accumulated Profits (Losses)

 Previously known as Retained Earnings account


 Represents the accumulated profits (losses) of a corporation.
 Types of accumulated profits (losses): “Unappropriated or Free” – a portion of accumulated profits
(losses) which can be declared as “Dividends”.
 Dividends, are taken out from accumulated profits (losses) and become a liability by the corporation
to its stockholders once declared by the Board of Directors. Stockholders will get their respective
shares in corporation’s profit in proportion to the number of shares they held.
 Is Accumulated Profits (Losses) an account title? Yes or No

Accumulated Profits (Losses)___________

Debit Credit (normal balance)

a). Loss for the period a). Profit for the period

b). Dividends declared b). Reversal of appropriation

c). Appropriation for plant

expansion, contingencies

Prior period errors

Problem 1: The Accumulated Profits (losses) account showed a credit balance ofP165,000 on January 1, 2022
after closing the books of accounts on December 31, 2021, end of the fiscal year.

The following errors were discovered after closing:

a). Accrued salaries not recorded, P15,000.


Books still opened Books were already closed
Salaries expense 15,000 Accumulated profits (Losses) 15,000
Accrued salaries 15,000 Accrued salaries 15,000

b). Merchandise inventory Dec 31, was understated by P4,000.


c). Depreciation was overstated by P2,000.
d). Expired portion of Prepaid Insurance not recorded, P5,000.
Required:
1. Compute the corrected Accumulated Profits (Losses) balance, January 1, 2022
2. Prepare the necessary adjusting entries to correct the Accumulated Profits (Losses) account.
Requirement 1:
Accumulated Profits and Losses – Jan 1, 2022 P165,000
a). Accrued salaries not recorded, understate expenses and overstates profit (15,000)
b). Understatement of ending inventories, understates profit 4,000
c). Overstatement of depreciation, understates profit 2,000
d). Expense portion of prepaid insurance not recorded, understates expense
and overstate profit (5,000)
Corrected Accumulated Profits(Losses) – 1/1/2022 P151,000
Requirement 2:
Adjusting journal entries
a). Accumulated Profits (Losses) 15,000
Accrued salaries 15,000

b). Merchandise inventory 4,000


Accumulated Profits (losses) 4,000

c). Accumulated Depreciation 2,000


Accumulated Profits and Losses 2,000

d). Accumulated Profits and Losses 5,000


Prepaid Insurance 5,000

Problem 2: Bacolod Sugarland Corporation has a Accumulated Profits (Losses) balance of P950,000 on January 1,
2021. At the end of 2021, the corporations’ net profit was P170,000. During the early part of 2021, the following
appropriations to Accumulated Profits (Losses) were made:
a). For Plant Expansion P260,000
b). For Treasury Share 90,000

A cash dividend of P100,000 was declared and paid during 2021.

Is treasury shares considered as asset? No.

Required:
1. Journal entry to close 2021 Net Profit to Accumulated Profits (Losses).
Answer:
Income and Expense Summary 170,000
Accumulated Profits (Losses) 170,000
To close the 2021 Net Profit to Accumulated Profits (Losses).

2. Journal entry to record Appropriation of Accumulated Profits (Losses).


Answer:
Accumulated Profits (Losses) 350,000
Accumulated Profits (Losses) – Appropriated for Plant Expansion 260,000
Accumulated Profits (Losses) – Appropriated for Treasury 90,000

3. Journal entry to declare and pay dividends.


Answer:
Declaration:
Accumulated Profits (Losses) 100,000
Cash Dividends Payable 100,000

Payment:
Cash Dividends Payable 100,000
Cash 100,000

4. Prepare Schedule of Accumulated Profits (Losses) for the year ended 31, December 2021.
Bacolod Sugarland Corporation
Statement of Accumulated Profits (Losses)
For the year ended 31, December 2021

Accumulated Profits (Losses) P950,000


Add: Profit for the year 170,000
Total 1,010,000
Less: Cash Dividends declared and paid 100,000
Current year’s appropriation:
For plant expansion 260,000
For treasury shares 90,000 350,000 450,000
Accumulated Profits (Losses), unappropriated 12/31/2021 670,000
Accumulated Profits (Losses) appropriated:
For Plant Expansion 260,000
For Treasury Share 90,000 350,000
Accumulated Profits (Losses), 12/31/2021 1,020,000

5. If at the middle part of 2022, the plant expansion is completed, what is the necessary journal entry to
return the appropriation to Accumulated Profits (Losses), Free or Unappropriated?
Answer:
Accumulated Profits (Losses) – Appropriated for Plant Expansion 260,000
Accumulated profits(Losses) 260,000

You might also like