capital ledger question

[chocolateman]

Hey all,

I was just wondering if you were to complete the capital ledger at the end of the reporting period based on other information (including the post adjustment trial balance), would the ‘capital’ balance in the POST-adjustment trial balance go into the capital ledger as the closing balance for the reporting period, or the opening balance for the reporting period?

Cheers in advance

[DoctorTwo]

This is a difficult question, but I’d say closing. I don’t think it could be the opening balance because that implies that the capital figure was the balance on the first day of that month, which is probably not correct as transactions would have affected it. However, if closing entries have not been made yet, then it’s probably the opening balance. It’s a hard question but I’d say that it would be the closing balance though.

[DoctorTwo]

Not sure if you got this question from the 2018 NHT exam, but there's a similar scenario on it. Question 5b gives you the post-adjustment trial balance with the capital figure and asks you to complete the capital and P&L summary ledgers. The answer there was to put the balance as the opening balance with the date at the first of the month. There were no transactions that had affected it during the month like capital contributions or anything, which would've made the question more confusing, it was only closing revenue and expense accounts to the capital account and transferring drawings. I'm guessing that VCAA won't put a question like this in the exam where there are transactions that affect it during the month and the end of the month, giving you the post-adjustment capital balance, because that would be too confusing.

[chocolateman]

I've asked around multiple sources including my teacher and I'm pretty sure the general consensus is that the 'capital' balance in the post-adjustment trial balance includes capital contributions but does not include drawings and net profit as drawings and net profit are transferred to the capital account after BDAs occur whereas contributions are transferred to the capital account in real time as they occur. Thanks for the help anyway!

[forbiddensoulxx]

Just to add on, from looking at our school's trial exam and other past VCAA exams, the pre-adjustment trial balance also includes capital contributions in the Capital figure.

[Jim_Bob]

I've asked around multiple sources including my teacher and I'm pretty sure the general consensus is that the 'capital' balance in the post-adjustment trial balance includes capital contributions but does not include drawings and net profit as drawings and net profit are transferred to the capital account after BDAs occur whereas contributions are transferred to the capital account in real time as they occur. Thanks for the help anyway!

This is incorrect. A post-adjustment Trial Balance is a Trial Balance whereby the revenue and expense accounts have been closed to accurately calculate profit. As a result, the P and L Summary account has been completed and transferred to the Capital Account with necessary drawings for the owner already been completed in the General Journal. A Post-Adjustment Trial Balance will result in a closing balance in the Capital Account, whereas a Pre-adjustment Trial Balance will result in an opening balance in the Capital Account - capital contributions by the owner would have been stated in the additional information

[chocolateman]

This is incorrect. A post-adjustment Trial Balance is a Trial Balance whereby the revenue and expense accounts have been closed to accurately calculate profit. As a result, the P and L Summary account has been completed and transferred to the Capital Account with necessary drawings for the owner already been completed in the General Journal. A Post-Adjustment Trial Balance will result in a closing balance in the Capital Account, whereas a Pre-adjustment Trial Balance will result in an opening balance in the Capital Account - capital contributions by the owner would have been stated in the additional information

Correct me if i'm wrong but wouldn't the post-adjustment trial balance be completed prior to net profit and drawings being transferred to the capital account? I feel as though they are two seperate steps; the first step being revenues and expenses getting closed off to the P&L during the preparation of the post-adjustment trial balance, and the second step (which is up to us to now complete) which involves transferring the net profit from the P&L to the capital account. If you haven't looked at it yet, you should take a look at question 5d in the 2018 northern hemispher acc exam.

[Jim_Bob]

Correct me if i'm wrong but wouldn't the post-adjustment trial balance be completed prior to net profit and drawings being transferred to the capital account? I feel as though they are two seperate steps; the first step being revenues and expenses getting closed off to the P&L during the preparation of the post-adjustment trial balance, and the second step (which is up to us to now complete) which involves transferring the net profit from the P&L to the capital account. If you haven't looked at it yet, you should take a look at question 5d in the 2018 northern hemispher acc exam.

Yes I have looked at it. You have to assume it's a Pre-adjustment Trial Balance and hence the capital figure being the opening balance because the question after it asks for you to COMPLETE THE P AND L SUMMARY, and hence make adjustments to not only the rev's + exp's accounts, but capital as well

[chocolateman]

Doesn't it say adjusted trial balance?

[Jim_Bob]

Doesn't it say adjusted trial balance?

Yes it does. But the question straight after it requires you to complete a P AND L SUMMARY, which means it cannot be a post-adjustment Trial Balance because all the rev's + exp's + capital accounts would already be closed and transferred. Therefore you'd have to assume its a post-adjustment T/B. But we shouldn't get someone that vague tbh