Business Accounts Tutor Pack
answers to chapter questions
The answers shown here are to the questions which are not answered at the back of the main text.
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29 - 32
chapter answers
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© Osborne Books Limited 2012
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Osborne Books is grateful to Roger Petheram for checking the answers.
All answers are the responsibility of the publisher.
Published by Osborne Books Limited
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1.6
CHAPTER 1 What are Business Accounts?
1.2
•
•
•
•
•
1.3
•
•
•
1.5
•
initial recording of transactions
recording financial transactions in primary accounting records, or books of prime entry
double-entry accounts system
transfer from primary accounting records into the double-entry book-keeping system of accounts in
the ledger
•
trial balance
extraction of figures from all the double-entry accounts to check their accuracy
•
final accounts
production of a profit and loss account and a balance sheet
Information from the accounting system includes:
•
purchases to date
•
sales to date
•
expenses to date
•
debtors – total amount owed to the business, and individual debtors
•
creditors – total amount owed by the business, and individual creditors
•
assets owned
•
liabilities owed
•
profit during a particular period
•
1.4
documents
processing of prime documents relating to financial transactions
•
2.1
Capital Account
Dr
Computer Account
Cr
Rent Paid Account
Cr
Wages Account
Cr
Dr
Bank Loan Account
Cr
Dr
Commission Received Account
Dr
Drawings Account
20-1
6 Feb
financial accountant
– preparation of final accounts
– negotiation with Inland Revenue on taxation matters
– for a limited company, preparation of final accounts which comply with the Companies Act 1985
Dr
cost and management accountant
– obtains information about recent costs of the business, and costs of products/services
– estimates costs for the future, and prepares budgets
– prepares reports and makes recommendations to the owner(s)/managers
20-1
8 Feb
auditors – external
statutory audit addressed to the shareholders of a limited company certifying that the accounts show
a 'true and fair view' of the business and comply with the legal requirements of the Companies Act
1985
Dr
20-1
12 Feb
25 Feb
auditors – internal
internal checking and control procedures of the business in which they are employed
20-1
•
•
•
Business entity – the accounts record and report on the financial transactions of a particular
business, and not the owner's personal financial transactions.
assets – items owned by a business; liabilities – items owed by a business
debtors – individuals or businesses who owe money in respect of goods or services supplied by the
business; creditors – individuals or businesses to whom money is owed by the business
20-1
23 Feb
purchases – goods bought, either on credit or for cash, which are intended to be resold later; sales –
the sale of goods, whether on credit or for cash, in which the business trades
credit purchases – goods bought, with payment to be made at a later date; cash purchases – goods
bought and paid for immediately
asset of van increases by £6,000
asset of bank decreases by £6,000
asset £11,000 – liability £3,000 = capital £8,000
Dr
Money measurement – the accounting system uses money as the common denominator in recording
and reporting all business transactions; thus the loyalty of a firm's workforce or the quality of a product
cannot be recorded because these cannot be reported in money terms.
•
asset of bank increases by £3,000
liability of loan increases by £3,000
asset £11,000 – liability £3,000 = capital £8,000
20-1
20-1
(b)
asset of computer increases by £4,000
asset of bank decreases by £4,000
asset £8,000 – liability £0 = capital £8,000
CHAPTER 2 Double-entry Book-keeping: First Principles
In addition, there are likely to be advertisements for book-keepers to carry out various aspects of business
accounting.
(a)
asset of bank increases by £8,000
capital increases by £8,000
asset £8,000 – liability £0 = capital £8,000
1
£
Bank
Bank
Bank
Bank
£
2,000
£
750
£
425
380
£
£
Bank
£
200
20-1
1 Feb
Bank
20-1
£
20-1
20-1
20 Feb
20-1
£
7,500
£
20-1
20-1
14 Feb
Cr
£
Bank
Bank
£
2,500
Cr
£
145
Cr
£
Dr
20-1
28 Feb
2.3
Dr
20-5
1 Aug
15 Aug
20 Aug
25 Aug
Bank
Van Account
£
20-1
6,000
Cr
£
Capital
S Orton: loan
Office fittings
Commission received
Bank Account
£
20-5
5,000
3 Aug
1,000
7 Aug
250
12 Aug
150
27 Aug
Computer
Rent paid
Office fittings
S Orton: loan
Cr
£
1,800
100
2,000
150
Bank
Cr
£
5,000
Capital Account
£
20-5
1 Aug
Dr
20-5
Dr
20-5
3 Aug
Dr
20-5
7 Aug
Dr
20-5
12 Aug
Dr
20-5
27 Aug
Dr
20-5
17 Aug
Dr
20-7
1 Nov
7 Nov
23 Nov
25 Nov
28 Nov
Dr
20-7
3 Nov
Dr
Bank
Bank
Rent Paid Account
£
20-5
100
Cr
£
20-7
10 Nov
Commission Received Account
£
20-5
10 Aug Cash
25 Aug Bank
Cr
£
200
150
20-7
12 Nov
Cash Account
£
20-5
200
17 Aug
Cr
£
100
Drawings
Bank
Office Fittings Account
£
20-5
2,000
20 Aug Bank
Cr
£
250
Bank
Sally Orton: Loan Account
£
20-5
150
15 Aug Bank
Cr
£
1,000
Cash
Drawings Account
£
20-5
100
Dr
Dr
20-7
14 Nov
Dr
20-7
15 Nov
Bank
Bank
Bank
Bank
Commission received
20-7
1 Nov
Photocopier
Office premises
Business rates
Office fittings
Wages
Bank
Bank
£
75,000
Cr
£
20-7
7 Nov
Bank
£
£
70,000
Office Premises Account
Cr
Rates Account
Cr
Office Fittings Account
Cr
£
130,000
20-7
£
3,000
20-7
£
1,500
20-7
25 Nov
Bank
£
200
£
300
20-7
18 Nov
23 Nov
Drawings
Bank
£
125
100
20-7
15 Nov
28 Nov
Cash
Bank
£
300
200
Cash Account
£
125
20-7
£
250
20-7
Wages Account
£
£
Drawings Account
Dr
Cr
Bank Loan Account
20-7
Dr
20-7
20 Nov
£
2,500
130,000
3,000
1,500
250
Cr
£
2,500
£
Cash
Cr
Photocopier Account
Commission Received Account
20-7
18 Nov
2
20-7
3 Nov
10 Nov
12 Nov
14 Nov
20 Nov
Dr
20-7
Cr
£
£
75,000
70,000
100
200
200
£
20-7
Dr
Bank Account
Capital Account
Dr
Cr
£
Commission received
Capital
Bank loan
Cash
Office fittings
Commission received
20-7
Computer Account
£
20-5
1,800
Dr
20-5
Dr
20-5
10 Aug
2.5
Cr
Cr
Cr
£
Cr
£
2.6
20-7
1 Nov
3 Nov
7 Nov
10 Nov
12 Nov
14 Nov
20 Nov
23 Nov
25 Nov
28 Nov
Bank Account
Debit
£
75,000
Capital
Photocopier
Bank loan
Office premises
Rates
Office fittings
Wages
Cash
Office fittings
Commission received
70,000
100
200
200
Credit
£
2,500
130,000
3,000
1,500
250
Balance
£
75,000
72,500
142,500
12,500
9,500
8,000
7,750
7,850
8,050
8,250
Dr
20-2
22 Oct
Dr
Dr
Dr
Dr
Dr
Dr
Dr
Dr
Dr
Dr
Dr
20-2
25 Oct
3.5
CHAPTER 3 Double-entry Book-keeping: Further Transactions
3.1
Bank Account
Dr
20-2
1 Oct
4 Oct
8 Oct
12 Oct
18 Oct
30 Oct
Capital
Sales
Sales
K Smithson: loan
Sales
Sales
20-2
£
Dr
Dr
20-2
20-2
1 Oct
Bank
Bank
Bank
£
200
90
250
Purchases
Purchases
Purchases
Delivery van
Wages
Bank
Bank
Bank
Bank
Bank
J Smithson: Loan Account
£
20-2
12 Oct
Dr
20-2
26 Apr
Bank
Cr
£
Bank
Wages Account
£
20-2
375
Cr
£
Purchases Account
£
20-2
200
250
Cr
£
Wyvern Producers Ltd
A Larsen
Purchases returns
Bank
Purchases returns
£
2,500
£
Dr
20-2
5 Apr
Cr
Dr
20-2
7 Apr
12 Apr
22 Apr
£
150
125
155
110
Dr
20-2
Cr
£
2,000
3
Wyvern Producers Ltd
£
20-2
50
2 Apr Purchases
150
£
45
A Larsen
20-2
4 Apr
Sales Account
£
20-2
5 Apr
7 Apr
12 Apr
28 Apr
Dr
20-2
Cr
20-2
20-2
4 Oct
8 Oct
18 Oct
30 Oct
£
200
90
250
4,000
375
Cr
Sales Account
£
Dr
20-2
9 Apr
20 Apr
Cr
Purchases Account
Dr
20-2
20-2
2 Oct
6 Oct
14 Oct
22 Oct
25 Oct
Capital Account
Dr
20-2
2 Oct
6 Oct
14 Oct
£
2,500
150
125
2,000
155
110
Dr
20-2
2 Apr
4 Apr
Bank
Delivery Van Account
£
20-2
4,000
Sales
Sales
Sales
Pershore Patisserie
Purchases
Cr
£
250
Pershore Patisserie
Bank
Bank
Cash
Cr
£
150
175
110
100
Pershore Patisserie
£
20-2
150
15 Apr Sales returns
22 Apr Bank
Bank Account
£
20-2
175
20 Apr
110
30 Apr
125
Cr
£
200
Cr
£
25
125
Wyvern Producers Ltd
Amery Scales Ltd
Cr
£
150
250
Purchases Returns Account
£
20-2
9 Apr Wyvern Producers Ltd
26 Apr A Larsen
Cr
£
50
45
Dr
20-2
15 Apr
Dr
20-2
17 Apr
Dr
20-2
30 Apr
Dr
20-2
28 Apr
Dr
20-2
29 Apr
3.6
Dr
20-3
2 Jun
7 Jun
23 Jun
Dr
20-3
6 Jun
18 Jun
Pershore Patisserie
Amery Scales Ltd
Cr
£
Weighing Machine Account
£
20-2
250
Cr
£
Bank
Amery Scales Ltd
£
20-2
250
17 Apr Weighing machine
Sales
Cash Account
£
20-2
100
29 Apr
Cash
Wages Account
£
20-2
90
Cr
£
Purchases Account
£
20-3
350
400
285
Cr
£
Designs Ltd
Mercia Knitwear Ltd
Designs Ltd
Purchases returns
Bank
Designs Ltd
£
20-3
100
2 Jun
250
23 Jun
Sales Account
£
20-3
4 Jun
5 Jun
10 Jun
12 Jun
20 Jun
Dr
20-3
Dr
20-3
4 Jun
12 Jun
28 Jun
Sales Returns Account
£
20-2
25
Sales
Sales
Wyvern Trade Supplies
Bank Account
£
20-3
220
18 Jun
175
300
Wages
Purchases
Purchases
Dr
20-3
5 Jun
20 Jun
Dr
20-3
10 Jun
Dr
20-3
15 Jun
Dr
20-3
26 Jun
Cr
£
350
285
Bank
Cash
Wyvern Trade Supplies
Bank
Cash
Designs Ltd
Cr
£
250
3.7
Rent paid
Sales
Wyvern Trade Supplies
Cr
£
400
Wyvern Trade Supplies
£
20-3
350
15 Jun Sales returns
28 Jun Bank
Cr
£
50
300
Sales Returns Account
£
20-3
50
Cr
£
Rent Paid Account
£
20-3
125
Cr
£
Cash
Transaction
(a)
(c)
(d)
(e)
(f)
(g)
(h)
Cr
£
100
80
Mercia Knitwear Ltd
£
20-3
80
7 Jun Purchases
Purchases returns
(b)
4
Cr
£
125
Purchases Returns Account
£
20-3
6 Jun Designs Ltd
17 Jun Mercia Knitwear Ltd
Dr
20-3
17 Jun
Cr
£
90
Cr
£
220
115
350
175
180
Sales
Sales
Dr
20-3
Cr
£
250
Cash Account
£
20-3
115
26 Jun
180
Account debited
Account credited
bank
sales
purchases
purchases
L Harris
Teme Traders
sales returns
bank
cash
bank
Teme Traders
sales
purchases returns
L Harris
D Perkins: loan
bank
4.4
CHAPTER 4 Business Documents
4.3
INVOICE
INVOICE
DEANSWAY TRADING COMPANY
JANE SMITH, FASHION WHOLESALER
Unit 21, Eastern Industrial Estate, Wyvern, Wyvernshire, WY1 3XJ
Tel 01927 354172 Fax 01927 354173
VAT REG GB 0745 4731 41
invoice to
Excel Fashions
49 Highland Street
Longton
Mercia LT3 2XL
deliver to
as above
quantity
5
3
4
description
Dresses
Suits
Coats
terms
2.5% cash discount for full settlement
within 14 days
Net 30 days
Carriage paid
E & OE
invoice no
account
your reference
2451
date/tax point
today
price
30.00
45.50
51.50
unit
each
each
each
total
150.00
136.50
206.00
The Model Office, Deansway, Rowcester, RW1 2EJ
Tel 01908 765314 Fax 01908 765951
VAT REG GB 0745 4672 76
invoice to
The Card Shop
126 The Cornbow
Teamington Spa
Wyvernshire WY33 0EG
deliver to
as above
discount
%
net
quantity
description
0.00 150.00
0.00 136.50
0.00 206.00
5
100
250
492.50
terms
2.5% cash discount for full settlement
within 14 days
Net 30 days
Carriage paid
E & OE
GOODS TOTAL
VAT
TOTAL
* £492.50 x 97.5% x 20% = £96.03 VAT
Note: Students can complete details for telephone, fax, VAT registration number and order number
96.03*
588.53
5
Assorted rubbers
Shorthand notebooks
Ring Binders
invoice no
account
your reference
8234
date/tax point
today
price
unit
5.00
4.00
0.50
box
10
each
total
25.00
40.00
125.00
discount
%
GOODS TOTAL
VAT
TOTAL
* £190.00 x 97.5% x 20% = £37.05 VAT
Note: Students can complete details for telephone, fax, VAT registration number and order number
0.00
0.00
0.00
net
25.00
40.00
125.00
190.00
37.05*
227.05
4.5
Dr
20-4
10 Feb
10 Feb
24 Feb
24 Feb
STATEMENT OF ACCOUNT
Dr
TO
account
J Wilson
date
1
3
10
23
28
20-Mar
Mar
Mar
Mar
Mar
date
no.
details
8119
CN345
8245
debit
£
Balance b/d
Invoice
Cheque
Credit Note
Invoice
210.00
180.00
AMOUNT NOW DUE
4.6
Dr
20-4
2 Feb
16 Feb
Dr
20-4
G Lewis
G Lewis
Purchases Account
£
20-4
200
160
Sales Account
£
20-4
4 Feb
7 Feb
20-4
4 Feb
3993
31 March 20--
credit
£
145.00
50.00
Dr
20-4
7 Feb
balance
£
145.00
355.00
210.00
160.00
340.00
Dr
20-4
12 Feb
20 Feb
Dr
Dr
Dr
Dr
Dr
Sales
£
240
L Jarvis
G Patel
340.00
6
150
240
20-4
2 Feb
16 Feb
L Jarvis
20-4
12 Feb
12 Feb
G Patel
20-4
20 Feb
20 Feb
20-4
10 Feb
24 Feb
Bank
Discount allowed
Bank
Discount allowed
G Lewis
G Lewis
Dr
Discount Allowed Account
£
L Jarvis
G Patel
£
3
6
Cr
£
200
160
360
Bank Account
£
147
234
Purchases
Purchases
Discount Received Account
20-4
Cr
£
L Jarvis
G Patel
Sales
£
150
G Lewis
Dr
20-4
12 Feb
20 Feb
Cr
£
150
240
Bank
Discount received
Bank
Discount received
£
190
10
152
8
360
20-4
10 Feb
24 Feb
20-4
G Lewis
G Lewis
Cr
£
147
3
150
Cr
£
234
6
240
Cr
£
190
152
Cr
£
10
8
Cr
£
Dr
20-9
20 Jan
31 Jan
CHAPTER 5 Balancing Accounts – the Trial Balance
5.1 (a) and (c)
Dr
20-9
1 Jan
11 Jan
12 Jan
22 Jan
1 Feb
4 Feb
10 Feb
12 Feb
19 Feb
25 Feb
1 Mar
Capital
Sales
Sales
Sales
Balance b/d
Sales
Sales
Rowcester College
Sales
Sales
Balance b/d
Capital Account
£
20-9
1 Jan
Dr
20-9
Dr
20-9
4 Jan
2 Feb
1 Mar
Dr
20-9
5 Jan
15 Feb
1 Mar
Bank
Bank
Balance b/d
Bank
Bank
Balance b/d
Dr
20-9
7 Jan
25 Jan
Comp Supplies Ltd
Comp Supplies Ltd
1 Feb
24 Feb
Balance b/d
Comp Supplies Ltd
1 Mar
Bank Account
£
20-9
10,000
4 Jan
1,000
5 Jan
1,250
20 Jan
1,450
31 Jan
13,700
6,700
2 Feb
1,550
15 Feb
1,300
27 Feb
750
28 Feb
1,600
1,100
13,000
5,300
Balance b/d
Rent paid
Shop fittings
Comp Supplies Ltd
Balance c/d
Rent paid
Shop fittings
Comp Supplies Ltd
Balance c/d
Bank
Shop Fittings Account
£
20-9
1,500
28 Feb Balance c/d
850
2,350
2,350
Purchases Account
£
20-9
5,000
31 Jan Balance c/d
6,500
11,500
28 Feb
5 Feb
27 Feb
28 Feb
Bank
Balance c/d
Purchases returns
Bank
Balance c/d
Dr
20-9
31 Jan
Balance c/d
28 Feb
Balance c/d
13,000
Rent Paid Account
£
20-9
500
28 Feb Balance c/d
500
1,000
1,000
11,500
5,500
17,000
17,000
Cr
£
500
1,500
5,000
6,700
13,700
500
850
6,350
5,300
Balance c/d
Cr
£
10,000
Cr
£
1,000
1,000
Cr
£
2,350
2,350
Dr
20-9
16 Jan
Sales
1 Feb
26 Feb
Balance b/d
Sales
1 Mar
Dr
20-9
27 Jan
Cr
£
11,500
11,500
Dr
20-9
17,000
17,000
7
Balance b/d
Rowcester College
Comp Supplies Limited
£
20-9
5,000
7 Jan Purchases
6,500
25 Jan Purchases
11,500
150
1 Feb Balance b/d
6,350
24 Feb Purchases
5,500
12,000
1 Mar Balance b/d
Sales Account
£
20-9
4,550
11 Jan
12 Jan
16 Jan
22 Jan
4,550
11,150
1 Feb
4 Feb
10 Feb
19 Feb
25 Feb
26 Feb
11,150
1 Mar
Bank
Bank
Rowcester College
Bank
Balance b/d
Bank
Bank
Bank
Bank
Rowcester College
Balance b/d
Rowcester College
£
20-9
850
27 Jan Sales returns
31 Jan Balance c/d
850
750
1,050
1,800
1,050
12 Feb
28 Feb
Bank
Balance c/d
Sales Returns Account
£
20-9
100
Purchases Returns Account
£
20-9
5 Feb Comp Supplies Ltd
Cr
£
5,000
6,500
11,500
6,500
5,500
12,000
5,500
Cr
£
1,000
1,250
850
1,450
4,550
4,550
1,550
1,300
1,600
1,100
1,050
11,150
11,150
Cr
£
100
750
850
750
1,050
1,800
Cr
£
Cr
£
150
(b)
(d)
5.2
Name of Account
Bank
Capital
Rent paid
Shop fittings
Purchases
Comp Supplies Limited
Sales
Rowcester College
Sales returns
Name of Account
Bank
Capital
Rent paid
Shop fittings
Purchases
Comp Supplies Limited
Sales
Rowcester College
Sales returns
Purchases returns
Trial balance as at 31 January 20-9
Dr
£
6,700
500
1,500
11,500
750
100
Trial balance as at 28 February 20-9
Dr
£
5,300
Cr
£
1,050
100
26,800
850
48
2,704
3,200
90
1,174
1,500
9,566
Four from:
•
Error of omission
•
Reversal of entries
•
6,500
4,550
21,050
Trial balance of Jane Greenwell as at 28 February 20-1
Dr
£
Name of account
Bank
Purchases
Cash
Sales
Purchases returns
Creditors
Equipment
Van
Sales returns
Debtors
Wages
Capital (missing figure)
10,000
21,050
1,000
2,350
17,000
5.5
Cr
£
•
•
•
10,000
Business transaction completely omitted from the accounting records. For example, cash sale omitted
from both cash account and sales account.
Debit and credit entries on the wrong side of the two accounts concerned. For example, cash sale
entered wrongly as debit sales account, credit cash account.
Mispost/error of commission
Transaction entered to the wrong person's account. For example, a sale of goods on credit to A T
Hughes has been entered as debit A J Hughes' account, credit sales account.
Error of principle
Transaction entered in the wrong type of account. For example, cost of petrol for vehicles has been
entered as debit motor vehicles account, credit bank account.
Error of original entry (or transcription)
Amount entered incorrectly in both accounts. For example, sale of £45 entered in both sales account
and the debtor's account as £54.
Compensating error
Two errors cancel each other out. For example, balance of purchases account calculated wrongly at
£10 too much, compensated by the same error in sales account.
CHAPTER 6 Division of the Ledger – Primary Accounting Records
5,500
11,150
6.2
150
Date
20-2
26,800
1 Feb
2 Feb
15 Feb
19 Feb
Cr
£
28 Feb
Details
Purchases Day Book
Invoice
Folio
Net
VAT
Gross
£
£
£
Softseat Ltd
961
320
64
384
Quality Furnishings
529
160
32
192
720
144
864
Net
VAT
Gross
PRK Ltd
Softseat Ltd
Totals for month
068
80
984
160
16
32
96
192
1,250
730
144
1,442
Date
20-2
8 Feb
14 Feb
18 Feb
25 Feb
6,000
9,566
28 Feb
8
Details
Sales Day Book
Invoice
Folio
£
£
£
High Street Stores
001
440
88
528
Carpminster College
003
320
64
384
Peter Lounds Ltd
High Street Stores
Totals for month
002
004
120
200
1,080
24
40
216
144
240
1,296
Dr
20-2
28 Feb
PURCHASES LEDGER
Balance c/d
Softseat Ltd
£
20-2
576
1 Feb
19 Feb
576
1 Mar
Dr
20-2
Dr
20-2
8 Feb
25 Feb
1 Mar
Dr
20-2
14 Feb
Dr
20-2
18 Feb
Dr
20-2
28 Feb
Sales
Sales
Balance b/d
576
Purchases
Quality Furnishings
£
20-2
15 Feb Purchases
Cr
£
192
SALES LEDGER
High Street Stores
£
20-2
528
28 Feb Balance c/d
240
768
768
Sales
Sales
Carpminster College
£
20-2
384
Cr
£
Purchases Day Book
Purchases Account
£
20-2
720
Sales Account
£
20-2
28 Feb
Purchases Day Book
Balance c/d
20-2
18 May
23 May
28 May
31 May
Sales Day Book
Balance b /d
M Roper & Sons
Wyper Ltd
Wyper Ltd
M Roper & Sons
Wyper Ltd
M Roper & Sons
Totals for month
Details
M Roper & Sons
Wyper Ltd
M Roper & Sons
Totals for month
Purchases Day Book
Invoice
562
82
86
580
91
589
Folio
PL 302
PL 301
PL 301
PL 302
PL 301
PL 302
Dr
20-2
18 May
28 May
31 May
Cr
£
216
Credit
Note
82
6
84
Folio
PL 302
PL 301
PL 302
Purchases Returns
Balance c/d
Purchases Returns
Purchases Returns
Balance c/d
9
VAT
£
38.00
40.00
42.00
36.00
48.00
19.60
Gross
£
228.00
240.00
252.00
216.00
288.00
117.60
1,118.00
223.60
1,341.60
Net
VAT
Gross
21.60
129.60
£
30.00
40.00
38.00
108.00
PURCHASES LEDGER
£
6.00
8.00
7.60
£
36.00
48.00
45.60
Wyper Ltd (account no 301)
£
20-2
48.00
1 May Balance b/d
832.00
4 May Purchases
10 May Purchases
21 May Purchases
880.00
Cr
£
100.00
240.00
252.00
288.00
880.00
M Roper & Sons (account no 302)
£
20-2
36.00
1 May Balance b/d
45.60
2 May Purchases
565.00
18 May Purchases
25 May Purchases
646.60
Cr
£
85.00
228.00
216.00
117.60
646.60
1 Jun
216
Net
£
190.00
200.00
210.00
180.00
240.00
98.00
Purchases Returns Day Book
1 Jun
Cr
£
1,080
72
Details
Dr
20-2
23 May
31 May
Cr
£
Value Added Tax Account
£
20-2
144
28 Feb Sales Day Book
72
216
1 Mar
Date
768
Cr
£
GENERAL LEDGER
31 May
Cr
£
768
Peter Lounds Ltd
£
20-2
144
Dr
20-2
Dr
20-2
28 Feb
28 Feb
Balance b/d
Date
20-2
2 May
4 May
10 May
18 May
21 May
25 May
Cr
£
384
192
576
Cr
£
96
£
Dr
20-2
PRK Ltd
20-2
2 Feb
Purchases
Purchases
6.3
Balance b/d
Balance b/d
880.00
565.00
GENERAL LEDGER
Dr
20-2
31 May
Purchases Account
£
20-2
1,118.00
Purchases Day Book
Dr
20-2
31 May
1 Jun
Balance b/d
CHAPTER 7 Value Added Tax
7.2
Value Added Tax Account
£
20-2
223.60
31 May Purchases Returns Day Book
31 May Balance c/d
223.60
Purchases Day Book
• £12.00
• £14.40
202.00
amount of
VAT
• £10.56
•
•
•
7.3
£6.64
£0.96
£2.26
(a) and (b)
20-0
31 Mar
31 Mar
31 Mar
(c)
Purchases Day Book
Sales Returns Day Book
Balance c/d
Dr
Cr
£
108.00
Cr
£
21.60
202.00
223.60
VAT-exclusive
amount
£2.00
£1.76
£0.16
£0.80
735
28
1,204
1,967
20-0
1 Mar
31 Mar
31 Mar
1 Apr
Balance b/d
Sales Day Book
Purchases Returns Day Book
Balance b/d
Balances b/d
Wild & Sons Ltd
Bank
A Lewis Ltd
Harvey & Sons Ltd
Wild & Sons Ltd
Bank
Year 6
1 Mar
3 Mar
8 Mar
11 Mar
13 Mar
22 Mar
25 Mar
29 Mar
31 Mar
31 Mar
£1.89
£
20-7
1 Aug
1 Aug
11 Aug
12 Aug
21 Aug
29 Aug
29 Aug
Dr
Date
£8.80
£5.54
£0.37
Details
Folio
C
C
Disc
allwd
£
20
15
Cash
Cr
£
805
1,120
42
1,967
1,204
At the end of March 20-0, the Value Added Tax account has a credit balance of £1,204. This amount is
owing to HM Revenue & Customs and will be paid at the end of the three-month VAT period, together
with VAT due for the subsequent month(s) of the VAT quarter.
*
10
Details
Balances b/d
Sales*
Sales
Bank
Sales
Bank
Sales
Sales*
S Britton
D F Pratt
1 Apr Balances b/d
Cash Book
Bank Date
£
£
276 4,928
398
500
1,755
261
595
275
35 1,051 7,937
361 3,217
8.4
£12.00
£1.10
Date
1 Sep Balances b/d
£10.00
£2.40
Value Added Tax Account
Dr
8.3
Cr
£
Purchases Returns Account
£
20-2
31 May Purchases Day Book
Dr
20-2
CHAPTER 8 Cash Book
Folio Discount
allowed
£
C
C
30
50
80
Cash
20-7
5 Aug
8 Aug
11 Aug
18 Aug
22 Aug
25 Aug
27 Aug
28 Aug
29 Aug
31 Aug
Cash Book
Bank Date
£
£
106 3,214
100
950
1,680
150
1,800
150
2,108
200 2,000
720
1,160
706 13,632
423 8,259
Year 6
2 Mar
5 Mar
9 Mar
11 Mar
16 Mar
18 Mar
20 Mar
22 Mar
26 Mar
27 Mar
30 Mar
31 Mar
31 Mar
31 Mar
Details
T Hall Ltd
Wages
Cash
F Jarvis
Wages
J Jones
Salaries
Telephone
Cash
Balances c/d
Details
Rent
10674
Cleaning expenses
Purchases 10675
Cash
10676
Postages
Telephone 10677
Stationery
Cash
10678
Misc expenses
Wages
10679
Electricity 10680
D Coyne
10681
F Cox
10682
Balances c/d
Folio
Disc
recd
£
24
C
33
C
57
Cr
Cash
Bank
£
£
541
254
436
361
1,051
500
457
628
2,043
276
275
3,217
7,937
Cr
Folio Discount Cash Bank
received
£
£
£
250
35
1,200
C
150
50
168
128
C
150
70
2,000
106
45
855
26
494
423 8,259
71 706 13,632
An alternative way of showing the transactions of 3 March and 29 March is to record the full amount of sales in the debit
cash column, and then to show the amount banked as a separate transfer, ie debit bank, credit cash.
8.6
Date
Dr (Receipts)
20-7
12 May
12 May
13 May
13 May
14 May
15 May
15 May
16 May
Details
Balances b/d
Sales
Sales
T Jarvis
Sales
Cash
Sales
Wyvern District Cncl
Cr (Payments)
Date
20-7
12 May
13 May
14 May
15 May
GL
GL
SL
C
GL
SL
Shop rent
GL
Terry Carpets Ltd
Bank
£ p
£ p
205.75
168.00
270.00
643.75
PL
GL
Cash
£ p
28.80
C
250.00
Wages
GL
314.20
16 May
Balance c/d
£ p
546.00
155.00
768.00
Bank
Longlife Carpets Ltd
825.30
Disc
allwd
3,104.75
Sales
£ p
£ p
91.00
455.00
28.00
140.00
128.00
640.00
45.00
225.00
7.50 292.00
1,460.00
2.50
250.00
560.45
VAT
5.00
CHAPTER 9 Petty Cash Book
Sales Sundry
ledger
£ p
9.2
£ p
715.45
•
•
•
155.00
560.45
Security and confidentiality aspects of petty cash
•
•
PL
50.75
643.75
Bank
Disc
recd
£ p
£ p
363.55
4.65
291.50
4.30
255.50
–
2,194.20
3,104.75
8.95
VAT Purchases Purchases Sundry
ledger
•
255.50
•
24.00
•
£ p
£ p
£ p
363.55
4.80
291.50
4.80
–
655.05
On taking over, check that the petty cash book has been balanced and that the amount of
cash held agrees with the balance shown in the book.
Start each week with the imprest amount of cash which has been agreed with the office
manager.
Keep the petty cash secure in a locked cash box, and keep control of the keys.
Provide petty cash vouchers (in numerical order) on request.
Pay out of petty cash against correctly completed petty cash vouchers ensuring that:
–
the voucher is signed by the person receiving the money
–
a receipt (whenever possible) is attached to the petty cash voucher, and receipt and
petty cash voucher are for the same amount
–
•
Folio
Stationery
Cash
GL
Details
15 May
16 May
Folio
£ p
•
314.20
•
•
593.70
Write up the petty cash book (including calculation of VAT amounts when appropriate); it is
important that the petty cash book is accurate.
Store the completed petty cash vouchers safely – filed in numerical order. They will need
to be kept for at least six years in the company’s archives, together with completed petty
cash books.
The office manager will carry out a surprise check from time-to-time – the cash held, plus
amounts of completed petty cash vouchers, should equal the imprest amount.
At the end of each week (or month) balance the petty cash book and draw an amount of
cash from the cashier equal to the amount of payments made, in order to restore the
imprest amount.
Prepare a posting sheet for the book-keeper with the totals of each analysis column, so that
he/she can enter the amount of each expense into the double-entry system.
Present the petty cash book and cash in hand for checking by the office manager.
Deal with any discrepancies promptly, eg:
–
a receipt and petty cash voucher total differing
–
a difference between the cash in the petty cash book and the balance shown in the
petty cash book
–
Transfers to general ledger
•
discount allowed column total of £7.50 is debited to discount allowed account
•
discount received column total of £8.95 is credited to discount received account
•
Value Added Tax columns, the total of £292.00 is credited to VAT account, while the total of £4.80 is
debited to the VAT account
•
sales column total of £1,460.00 is credited to sales account
•
sundry column – the individual payments are debited to shop rent account, £255.50, stationery account,
£24.00, and wages account, £314.20
•
•
The transactions in the columns for sales ledger and purchases ledger are respectively credited and debited
to the individual accounts of the debtors and creditors.
11
the voucher is signed by the person authorising payment (a list of authorised
signatories will be provided)
a difference between the totals of the analysis columns and the total payments column
in the petty cash book
Where discrepancies and queries cannot be resolved, they should be referred to the office
manager.
Remember that all aspects of petty cash are confidential and should not be discussed with
others.
9.3
petty cash voucher
description
9.4
date
Postage on urgent parcel of spare parts to
Evelode Supplies Ltd
VAT
signature
authorised
Jayne Smith
today
No. 851
amount (£)
Receipts Date
£
Year 8
4
45
120.00 1 Jun
4
45
2 Jun
4
80.00 1 Jun
6 Jun
45
9 Jun
14 Jun
16 Jun
A Student
18 Jun
Documentation will be a post office receipt for £4.45, being the amount of postages paid.
petty cash voucher
description
date
Airmail envelopes
VAT
signature
authorised
Tanya Howard
today
20 Jun
24 Jun
25 Jun
27 Jun
No. 852
28 Jun
amount (£)
2
00
2
0
2
00
40
40
200.00
57.00
143.00
A Student
Documentation will be a till receipt (or handwritten receipt) from the stationery shop for £2.40.
12
Details
Balance b/d
Bank
Postage
Rail fare
Petrol
Cleaning materials
S Lancaster
Petrol
Postage
Petrol
Total
payment
£
5.20
5.20
12.70
8.50
Balance c/d
Balance b/d
Bank
12.70
10.00
14.30
6.70
12.40
19.20
30 Jun
£
18.30
W Rose
Postage
ANALYSIS COLUMNS
Postage Travelling
£
13.20
Petrol
1 Jul
number
Rail fare
30 Jun
1 Jul
Voucher
7.70
14.80
143.00
57.00
200.00
19.60
£
8.50
£
10.00
14.30
6.70
7.70
Vehicle Cleaning
13.20
25.90
Ledger
£
18.30
12.40
14.80
50.00
19.20
10.00
37.50
Petty Cash Book
9.7
Receipts Date
£
125.00
20-7
2 Jun
2 Jun
3 Jun
3 Jun
4 Jun
4 Jun
5 Jun
5 Jun
5 Jun
6 Jun
103.68
6 Jun
6 Jun
228.68
125.00
7 Jun
Details
Balance b/d
Postages
Travel expenses
Postages
Envelopes
Window cleaning
Taxi fare/meals
Post/packing
Taxi fare/meals
Pens/envelopes
Dr
20-7
6 Jun
Analysis columns
£
VAT Postages
£
123
124
£
6.35
6.35
3.25
3.25
13.25
125
126
4.64
127
0.77
12.00
128
2.00
24.00
129
4.00
12.10
130
0.60
21.60
131
£
6.49
103.68
3.60
1.08
12.05
8.50
18.10
Travel
Meals
£
£
20-7
6 Jun
Sundry
Office
20-7
3.87
8.00
12.00
10.00
8.00
31.25
20.00
Petty Cash Book
Postages Account
Petty Cash Book
£ p
18.10
20-7
Travel Expenses Account
Bank
Cash
£ p
£ p
20-7
6 Jun
Date
5.41
22.28
20-8
5 Feb
Details
S Kahn
5.00
16 Feb S Groves
60.00
Cr
1 Mar
Cr
£ p
Petty Cash Book
Meals Account
£ p
20-7
20.00
Cr
£ p
13
Balance b/d
£
Bank Date
£ 20-8
3,250.60
88.25
140.00
335.85
1 Feb
1 Feb
5 Feb
5 Feb
1,140.00 16 Feb
220.00 16 Feb
435.55 19 Feb
26 Feb
65.00
£ p
20-7
£
26 Feb C Bentley
£ p
£ p
31.25
Folio Discount Cash
allowed
12 Feb B Shean
26 Feb Cash sales
Cr
Petty Cash Book
Cash
£ p
Petty Cash Book
103.68
Cash Book
10 Feb Cash sales
20-7
£ p
CASH BOOK
Cash book
Dr
3.00
12 Feb H Shanks
£ p
12.05
Cr
20-7
Cr
Bank
£ p
9.9
10.00
228.68
Value Added Tax Account
£ p
22.28
13.25
125.00
GENERAL LEDGER
Sundry Office Expenses Account
Petty Cash Book
Dr
Balance b/d
Dr
20-7
6 Jun
Total
Payment
Cash received
Dr
20-7
6 Jun
No
Balance c/d
Dr
20-7
6 Jun
Voucher
Dr
5,610.25
1,930.55
28 Feb
Cr
Details
Balance b/d
Folio Discount Cash
received
£
Petty cash
£
Bank
£
1,598.55
169.60
Insurance
120.50
Rent
240.00
Motor expenses
120.00
Purchases
390.55
Purchases
990.50
Drawings
Balance c/d
50.00
–
1,930.55
5,610.25
Receipts
£
Date
20-8
30.40
1 Feb
169.60
1 Feb
number
Bank
Refreshments
5 Feb
Postage stamps
10 Feb
Sundry expenses
12 Feb
Cleaner's wages
16 Feb
Postage
19 Feb
84.40
Voucher
Balance b/d
5 Feb
200.00
PETTY CASH BOOK
Details
Refreshments
19 Feb
Sundry expenses
28 Feb
Balance c/d
1 Mar
34
35
36
37
38
39
39
Total
payment
Sundry
£
£
ANALYSIS COLUMNS
Cleaning
Postage &
Refreshments
£
£
£
expenses
Stationery
15.30
22.90
12.45
20.00
12.45
12.50
22.45
10.00
115.60
84.40
10.00
22.45
10.4
22.90
20.00
12.50
20.00
35.40
15.30
(a)
Dr
20-7
1 Jan
13 Jan
1 Feb
37.75
cheque no. 001354
cheque no. 001355
Less: outstanding lodgement
G Shotton Limited
Balance b/d
Balance at bank as per cash book
Cash Book (bank columns)
£
300
162
89
60
40
651
20-7
2 May
14 May
29 May
16 May
31 May
31 May
P Stone
867714
Alpha Ltd
867715
E Deakin
867716
Standing order: A-Z Insurance
Bank charges
Balance c/d
428
JANE DOYLE
BANK RECONCILIATION STATEMENT AS AT 1 MAY 20-7
unpresented cheque:
cheque no. 867713
outstanding lodgement
Balance at bank as per bank statement
£
Balance at bank as per cash book
Bryant & Sons
1 Jun
Less:
P GERRARD
BANK RECONCILIATION STATEMENT AS AT 31 JANUARY 20-7
P Reid
Balance b/d
Cash
C Brewster
Cash
Cash
Add:
200.00
Cash Book (bank columns)
£ p
20-7
Balance b/d
415.15
23 Jan Direct debit: Omni Finance
BACS credit: T K Supplies
716.50
31 Jan Balance c/d
1,131.65
Balance b/d
923.70
Add: unpresented cheques
20-7
1 May
7 May
16 May
23 May
30 May
Balance at bank as per cash book
Balance b/d
(b)
Dr
(b)
22.45
CHAPTER 10 Bank Reconciliation Statements
10.3
(a)
Cr
£ p
207.95
923.70
1,131.65
Balance at bank as per cash book
Add:
Less:
312.00
176.50
unpresented cheque
E Deakin cheque no. 867716
outstanding lodgement
cash
Balance at bank as per bank statement
£
488.50
1,412.20
335.75
1,076.45
14
80
380
54
326
BANK RECONCILIATION STATEMENT AS AT 31 MAY 20-7
(c)
923.70
£
300
£
428
110
538
40
498
Cr
£
28
50
110
25
10
428
651
10.5
CHAPTER 11 An Introduction to Computer Accounting
11.5
MEMORANDUM
TO:
........................................
DATE:
.........................................
FROM:
SUBJECT:
2.
3.
4.
5.
6.
7.
•
jobs may be threatened and redundancies may occur
•
possible bad effects to health caused by sitting in front of a computer all day: RSI
•
Accounts Clerk
Bank Reconciliation Statements
the need for retraining
(Repetitive Strain Injury), back problems, radiation and eye damage from computer
screens
(b) Potential benefits:
Reconciliation of the bank statement balance with that shown in the cash book is carried out at
the month-end as follows:
1.
(a) Objections:
•
potential for updating IT skills through training
•
better career prospects
•
From the bank columns of the cash book tick off, in both cash book and bank statement:
• the receipts that appear in both
•
• the payments that appear in both
Identify the items that are unticked on the bank statement and enter them in the cash book
on the debit or credit side as appropriate. These will be things such as BACS receipts,
standing order and direct debit payments, bank charges and interest, unpaid cheques
debited by the bank. However, if the bank has made a mistake by debiting or crediting our
account in error, don’t enter them in the cash book; instead, notify the bank for them to
make the correction.
possible increase in pay for skilled work
job satisfaction through automation of manual processes
CHAPTER 12 Final Accounts
Balance the bank columns of the cash book to find the up-to-date balance.
Start the bank reconciliation statement with the balance brought down figure shown in the
cash book.
12.2
In the bank reconciliation statement:
•
•
add the unticked payments shown in the cash book – these are unpresented cheques
deduct the unticked receipts shown in the cash book – these are outstanding lodgements
The resultant money amount on the bank reconciliation statement is the balance of the
bank statement.
Vehicle
Date the reconciliation statement and file it away for future reference. Note that, if the
balances of the cash book (bank columns) and the bank statement were not identical at the
beginning of the month, then you will need to refer to the previous bank reconciliation
statement prepared at the end of last month. Items appearing on that bank reconciliation
statement must also be ticked off at step 1. Anything remaining unticked will be included in
this month’s reconciliation statement (step 5).
A Student
15
12.5
12.6
CLARE LEWIS
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-4
£
Sales
Opening stock
Purchases
16,010
96,318
112,328
13,735
Less Closing stock
Cost of Goods Sold
Gross profit
Less expenses:
Salaries
Heating and lighting
Rent and rates
Sundry expenses
Vehicle expenses
18,465
1,820
5,647
845
1,684
Net profit
BALANCE SHEET AS AT 31 DECEMBER 20-4
Fixed Assets
Vehicles
Office equipment
£
Current Assets
Stock
Debtors
Less Current Liabilities
Creditors
Value Added Tax
Bank overdraft
Working Capital
NET ASSETS
FINANCED BY
Capital
Opening capital
Add Net profit
Less Drawings
12,140
1,210
4,610
£
13,735
18,600
32,335
17,960
capital
£
144,810
(a)
purchase of vehicles
(c)
wages and salaries
(b)
(d)
98,593
46,217
(e)
(f)
(g)
(h)
28,461
17,756
12.7
(a)
(i)
9,820
5,500
15,320
(ii)
(iii)
(b)
(i)
(ii)
14,375
29,695
(iii)
25,250
17,756
43,006
13,311
29,695
rent paid on premises
legal fees relating to the purchase
of property
re-decoration of office
installation of air-conditioning in office
wages of own employees used to build
extension to the stockroom
installation and setting up of a new
machine
•
Weighing equipment for business use
•
Legal fees relating to extension
Extension to business premises
Revenue expenditure
•
•
Payment of local authority rates
Sales assistants' wages
Revenue receipt
•
Rent received from sub-letting office space
•
Sales assistants' wages (shown here in trading account because it is a direct selling expense,
Trading account
rather than a general profit and loss account expense)
Profit and loss account
•
•
Rent received from sub-letting office space
Payment of local authority rates
Balance sheet
•
Weighing equipment for business use
•
Legal fees relating to extension (shown in balance sheet, and added to the cost of the premises,
•
Extension to business premises (added to the cost of the premises)
because it is an expense which relates to the improvement of fixed assets, rather than a general
profit and loss account expense)
16
revenue
expenditure
Capital expenditure
•
£
expenditure
13.4
CHAPTER 13 Accruals and Prepayments
13.1
(a)
(b)
(c)
Expense in profit and loss account of £56,760; balance sheet shows wages and salaries accrued
(current liability) of £1,120.
Expense in profit and loss account of £1,800; balance sheet shows computer rental prepaid (current
asset) of £150.
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-9
Opening stock
Purchases
Less Closing stock
Cost of Goods Sold
£
70,000
Rent and rates £10,250 – £550
Electricity
Telephone
Salaries £35,600 + £450
Vehicle expenses
Net profit
290,000
4,700
Less Long-term Liabilities
Mortgage
NET ASSETS
9,700
1,820
36,050
65,580
(b)
20-7/20-8
£
2 Jun
Bank
500
1 Dec
Bank
500
28 Aug
10 Feb
17
Drawings Account
Dr
Bank
Bank
50,000
12,600
2,500
1,250
66,350
1,370
67,720
45,750
13,970
59,720
2,000
57,720
Less drawings
64,420
£
10,000
57,720
FINANCED BY:
Capital
Opening capital (missing figure)
Add net profit
3,100
13,750
550
3,250
900
Working Capital
130,000
£
4,760
540
380
390
6,070
Less Current Liabilities
Creditors
Bank
Accrual (wages)
350,000
Gross profit
Less expenses:
£
420,000
280,000
60,000
£
Current Assets
Stock
Debtors
Prepayment (insurance)
Cash
SOUTHTOWN SUPPLIES
Sales
H EGGLETON
BALANCE SHEET AS AT 28 FEBRUARY 20-8
Fixed Assets
Freehold property
Motor vehicles
Machinery
Fixtures and fittings
Expense in profit and loss account of £2,852; balance sheet shows rates prepaid (current asset) of
£713.
13.2
(a)
500
500
2,000
20-7/20-8
28 Feb
Cr
Capital
£
2,000
2,000
Capital Account
Dr
20-7/20-8
28 Feb
28 Feb
Drawings
Balance c/d
£
20-7/20-8
57,720
28 Feb
2,000
59,720
1 Mar
1 Mar
Cr
£
Balance b/d
Profit and loss account
Balance b/d
45,750
BALANCE SHEET AS AT 30 JUNE 20-9
13,970
59,720
57,720
Fixed Assets
£
£
Land and buildings
100,000
Vehicles
83,500
Office equipment
13.6
JOHN BARCLAY
Sales
£
£
Less Sales returns
Purchases (less £250 goods for own use)
Less Purchase returns
Net purchases
Less Closing stock (30 June 20-9)
Cost of Goods Sold
599,878
3,894
63,084
Office expenses
Vehicle expenses
Discount allowed
Net profit
864,321
346
Bank
861,575
Less Current Liabilities
Creditors
Value Added Tax
Accrual
Working Capital
592,127
Less Long-term Liabilities
Bank loan
4,951
NET ASSETS
274,399
1,197
142,812
52,919
10,497
1,250
64,666
78,146
284,896
75,000
209,896
FINANCED BY:
33,601
Capital
122,611
Opening capital
38,144
3,187
74,328
Prepayment
269,448
Add Discount received
Salaries
£
659,068
66,941
66,941
Debtors
595,984
Gross profit
Less expenses:
Stock
2,746
Net sales
Opening stock (1 July 20-8)
23,250
206,750
Current Asets
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 20-9
£
Add net profit
Less drawings (plus £250 goods for own use)
197,543
76,856
18
155,000
76,856
231,856
21,960
209,896
14.4
CHAPTER 14 Depreciation of Fixed Assets
14.3
(a)
Dr
20-8
1 Jan
1 Oct
1 Oct
20-9
1 Jan
(b)
Balance b/d
Disposals account
(part-exchange allowance)
Bank
(balance paid by cheque)
20-9
9,500
20-8
1 Oct
31 Dec
27,000
Cr
Disposals account
Balance c/d
Disposals account
Balance c/d
£
7,200
3,000
10,200
£
20-9
20-8
1 Jan
31 Dec
20-9
1 Jan
Vehicles account
Profit and loss account
(profit on sale)
20-8
1 Oct
1 Oct
12,700
Balance b/d
Profit & loss account
Balance b/d
Fixed assets
Vehicles
£
Cost
15,000
Less expenses:
Vehicle running expenses
Rent and rates
Office expenses
Wages and salaries
Provision for depreciation: office equipment
vehicle
Cr
£
7,200
3,000
10,200
£
£
Dep’n to date
3,000
1,480
5,650
2,220
18,950
1,000
3,000
Net profit
BALANCE SHEET AS AT 31 DECEMBER 20-8
Cr
Vehicles account
(part-exchange allowance)
Prov for dep'n account
£
6,250
71,600
77,850
8,500
Less Closing stock
Cost of Goods Sold
Gross profit
Add Discount received
3,000
Balance sheet (extract) of Rachael Hall as at 31 December 20-8
(d)
Sales
Opening stock
Purchases
£
Disposals Account – Vehicles
£
12,000
700
£
12,000
15,000
27,000
Provision for Depreciation Account – Vehicles
Dr
20-8
1 Oct
31 Dec
£
12,000
5,500
£
15,000
Balance b/d
Dr
20-8
1 Oct
31 Dec
(c)
Vehicles Account
JOHN HENSON
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 20-8
£
5,500
Fixed Assets
Office equipment
Vehicle
7,200
12,700
Current Assets
Stock
Debtors
Bank
£
Net
Less Current Liabilities
Creditors
Value Added Tax
12,000
Working Capital
NET ASSETS
FINANCED BY:
Capital
Opening capital
Add Net profit
Less Drawings
19
£
Cost
10,000
12,000
22,000
£
Dep'n to date
1,000
3,000
4,000
£
122,000
69,350
52,650
285
52,935
32,300
20,635
£
Net
9,000
9,000
18,000
8,500
5,225
725
14,450
3,190
1,720
4,910
9,540
27,540
20,000
20,635
40,635
13,095
27,540
14.5
CHAPTER 15 Bad Debts and Provision for Bad Debts
SIMON ADO
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 OCTOBER
£
Sales (work done)
Opening stock
Purchases of materials
180
3,415
3,595
190
Less Closing stock
Cost of Goods Sold
Gross profit
Add Discount received
Less expenses:
Advertising
Telephone
Motor expenses
Provision for depreciation: van
tools and equipment
90
710
580
2,000
300
Net profit
BALANCE SHEET OF SIMON ADO AS AT 31 OCTOBER
Fixed Assets
Van
Tools and equipment
Current Assets
Stock
Prepayments
Cash
Less Current Liabilities
Creditors
Bank overdraft
Working Capital
NET ASSETS
FINANCED BY:
Capital
Opening capital
Add Net profit
Less Drawings
£
Cost
8,000
3,000
11,000
£
Dep'n to date
2,000
300
2,300
15.1
£
19,480
•
•
3,405
16,075
200
16,275
Profit and loss account (expenses)
debit bad debts written off, £210
provision for bad debts, £500
Credit
Balance sheet
debtors £20,000, less provision for bad debts £500, net debtors £19,500
15.3
WONG PAU YEN
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 AUGUST
£
Sales
Opening stock
Purchases
Less Purchases returns
Net purchases
£
Net
6,000
2,700
8,700
Less Closing stock
Cost of Goods Sold
Heat and light
Wages and salaries
Rent and rates
Motor expenses
Sundry expenses
900
1,200
93,300
50,100
51,300
1,300
50,000
43,300
1,400
19,660
6,370
1,340
6,040
plant and machinery
2,000
Provision for bad debts
340
vehicles
455
9,155
2,960
12,595
15,555
6,400
9,155
51,000
Gross profit
Less expenses:
£
94,600
1,300
Net sales
Provision for depreciation:
175
£
Less Sales returns
3,680
12,595
190
120
320
630
85
90
•
1,280
38,430
4,870
20
15.5
BALANCE SHEET AS AT 31 AUGUST
Fixed Assets
Plant and machinery
Vehicles
£
Cost
20,000
10,000
30,000
Current Assets
Stock
Debtors
Less Provision for bad debts
8,500
340
Prepayment
Bank overdraft
1,690
NET ASSETS
6,000
14,000
10,880
19,120
4,880
5,120
Capital
Add Net profit
Less Drawings
£
Less Sales returns
Opening stock
Purchases
1,300
Carriage inwards
Less Purchases returns
Net purchases
8,160
Less Closing stock
Cost of Goods Sold
191,200
21,480
3,600
188,800
210,280
24,900
Discount received
2,090
Reduction in provision for bad debts
Less expenses:
2,380
21,500
14,000
Salaries
53,300
Carriage outwards
Insurance
Bad debts
24,230
Bank interest
4,870
29,100
21,500
6,000
3,420
2,400
720
3,200
Loan interest
2,600
Loss on sale of vehicle
Provision for depreciation:
vehicles
office furniture
Net profit
21
4,160
Telephone
Discount allowed
7,600
400
149,360
Rent
Electricity
185,380
146,870
Add income:
7,540
332,250
1,200
Gross profit
1,190
£
337,200
4,950
Net sales
FINANCED BY:
Opening capital
£
Sales
9,920
4,660
Working Capital
Net
100
Creditors
Accruals
Dep'n to date
D MARTIN
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER YEAR 6
£
360
Cash
Less Current Liabilities
£
2,700
750
5,000
1,000
99,250
50,110
Stock
Debtors
Less Provision for bad debts
3,500
25,000
195,000
31,400
Prepayments
1,570
Cash
Less Current Liabilities
Creditors
Accruals
Bank overdraft
Working Capital
–
160,000
13,500
181,500
10,000
29,830
4,780
600
60,110
7,880
6,160
7,000
21,040
Loan from D Samson
194,570
FINANCED BY:
Capital
Opening capital
184,460
Add Net profit
50,110
234,570
Less Drawings
depreciation at 20% pa (years 3, 4 and 5)
book value at date of sale
sale proceeds
loss on sale (debited to profit and loss account)
39,070
220,570
26,000
NET ASSETS
cost price (1 January, year 3)
6,500
24,900
Less Long-term Liabilities
Loss on sale of vehicle:
15,000
40,000
194,570
£
5,000
3,000
2,000
1,250
750
22
20-1
Current Assets
10,000
160,000
£
Net
ALAN HARRIS
Office furniture
£
Dep'n to date
EXTENDED TRIAL BALANCE
Freehold premises
Motor vehicles
£
Cost
16.1
Fixed Assets
CHAPTER 16 The Extended Trial Balance
30 JUNE 20-2
BALANCE SHEET AS AT 31 DECEMBER YEAR 6
(b)
CHAPTER 17 The Regulatory Framework of Accounting
17.1
•
•
•
•
Going concern concept
This presumes that the business to which the final accounts relate will continue to trade in the foreseeable
future. The trading and profit and loss account and balance sheet are prepared on the basis that there is
no intention to reduce significantly the size of the business or to liquidate the business. If the business was
not a going concern, assets would have very different values, and the balance sheet would be affected
considerably.
(a)
Opening stock
17.6
This requires that, when a business adopts particular accounting methods, it should continue to use such
methods consistently over a number of accounting periods. In this way, direct comparison between the
final accounts of different years can be made.
Date
Examples: The continued use of a particular depreciation method, eg straight-line. The method of stock
valuation used. The treatment of capital and revenue expenditure.
Prudence concept
Year 3
This concept requires that final accounts should always, where there is any doubt, report a conservative
figure for profit or the valuation of assets. To this end, profits are not to be anticipated and should only be
recognised when it is reasonably certain that they will be realised; at the same time, all known liabilities
should be provided for.
(1.2)
adjustment of incorrect stock value
12 items @ £15 each = £180 – £80 recorded
items omitted from physical stock take, cost price
Revised stock valuation at 1 January Year 7
Closing stock at 31 March Year 7
Balance from ledger (31 March Year 7)
(2.1)
reduction to net realisable value
(2.2)
correction of undercast on stock sheet
(2.3)
reduction to net realisable value: £190 – £150
Revised stock valuation at 31 March Year 7
18,660
53,190
Gross profit
Consistency concept
Balance from ledger (1 January Year 7)
71,850
Cost of Goods Sold
Examples: The accrual of an expense in profit and loss account which has been used in the accounting
period but not yet paid for. The prepayment of an expense for the next accounting period. The recording
of opening and closing stocks in the trading account. The use of debtors' and creditors' accounts to record
amounts owing to the business, or owed by the business.
(1.1)
54,200
Less Closing stock
Accruals concept
This means that expenses and revenues are matched so that they concern the same goods and the same
time period.
1 Sep
3 Sep
6 Sep
£
7 Sep
17,300
8 Sep
100
17,400
10 Sep
250
15 Sep
17,650
16,200
54,610
(a)
STORES LEDGER RECORD
Quantity
Balance
40
100
70
150
Receipts
Price
£
11.00
12.00
14.00
11.50
Value
£
24 Sep
3,000
28 Sep
18,700
(40)
18,660
30 Sep
23
12.00
Price
£
Value
£
980
1,725
2,400
Quantity
30
571
12.363
989
11.865
712
90
11.865
1,068
11.865
475
740
170
120
70
11.963
837
11.00
10.571
12.00
11.412
11.412
440
740
1,200
1,940
1,369
120
11.412
1,369
190
12.363
2,349
110
14.00
12.363
110
12.363
260
11.865
200
160
11.50
11.865
980
1,360
1,360
1,725
3,085
2,373
11.865
1,898
70
11.865
830
270
11.963
70
200
Note: rounding may cause some figures to differ; these should have no material effect
300
10.571
150
60
10.00
£
70
70
80
Value
£
300
70
11.412
Price
10.00
100
50
Balance
30
40
40
200
Issues
1,200
18 Sep
15,700
Quantity
440
17 Sep
(500)
£
107,800
17,650
Purchases
Example: fixed assets are valued at cost, less accumulated depreciation to date.
Opening stock at 1 January Year 7
£
Sales
Examples: A provision for bad debts – the debtors have not yet gone bad, but it is expected, from
experience, that a certain percentage will eventually need to be written off as bad debts. The valuation of
stock at the lower of cost and net realisable value in order to give the lower valuation for the final accounts.
17.4
TRADING ACCOUNT FOR QUARTER ENDED 31 MARCH YEAR 7
200
11.865
12.00
11.963
830
2,400
3,230
2,393
(b)
(d)
VEE LIMITED
TRADING ACCOUNT FOR SEPTEMBER YEAR 3
Sales:
£
130 units at £14 each
£
4,160
Opening stock
5,980
300
Purchases
6,745
Less Closing stock
2,393
4,652
1,328
31 Dec
Stock
20-8
Trading
Stock valuation at 31 December 20-8
transferred to trading account
Folio
Dr
GL
22,600
£
Cr
Date
31 Dec
Details
Profit and loss
Telephone expenses
Transfer to profit and loss account
of expenditure for the year
Folio
Dr
GL
890
GL
Details
31 Dec
Profit and loss
20-8
Salaries
Accruals
Transfer to profit and loss account
of expenditure for the year
Photocopying expenses
GL
Prepayments
31 Dec
Drawings
£
Motoring expenses
Transfer of private motoring to
drawings account
22,600
GL
80
1,240
Cr
£
1,240
1,240
Folio
Dr
GL
200
Folio
Dr
GL
175
Folio
Dr
500
GL
£
Cr
£
200
(f)
Date
Details
31 Dec
Drawings
20-8
Cr
£
Purchases
Goods taken for own use
by the owner
890
GL
£
Cr
£
175
(g)
(c)
Date
1,160
Details
£
(b)
20-8
GL
Date
20-8
GL
Profit and loss
£
(e)
(a)
Details
Dr
of expenditure for the year
CHAPTER 18 The Journal
Date
31 Dec
7,045
Cost of Goods Sold
Folio
Transfer to profit and loss account
Gross profit
18.2
Details
20-8
1,820
260 units at £16 each
Date
Folio
Dr
GL
23,930
GL
GL
£
23,930
Date
Details
31 Dec
Profit and loss
GL
- fixtures and fittings
GL
20-8
Cr
£
22,950
Provision for depreciation
Depreciation charge for year on
980
fixtures and fittings
23,930
24
£
Cr
£
500
(h)
Date
20-8
31 Dec
Details
Disposals
Machinery
Provision for depreciation account
Folio
Dr
GL
5,000
GL
£
– machinery
GL
3,750
Bank
CB
2,400
VAT
GL
Disposals
Disposals
Profit and loss
Disposals
Sale of machine no .................; profit
GL
GL
GL
GL
on sale £750 transferred to profit and
CHAPTER 19 Correction of Errors
Cr
19.2
£
5,000
(a)
Date
3,750
750
Details
Folio
Dr
J Rigby
SL
150
Folio
Dr
PL
125
Folio
Dr
GL
10,000
Folio
Dr
GL
55
GL
55
Sales
Sales invoice no ............. omitted from
2,000
750
11,900
(b)
Date
loss account
Date
20-8
31 Dec
Details
Details
H Price Limited
Bad debts written off
N Marshall
Account of N Marshall written off as a
Folio
Dr
GL
125
SL
£
Correction of mispost – cheque no .....:
Profit and loss
Bad debts written off
£
125
(c)
Date
Transfer to profit and loss account
GL
GL
125
Correction of error – vehicle no ............
31 Dec
Profit and loss
Provision for bad debts
Decrease in provision for bad debts
Folio
GL
GL
Dr
£
100
PL
£
Cr
£
125
GL
£
Cr
£
10,000
invoice no ...............
(d)
Details
Details
Vehicle expenses
125
(j)
Date
150
error of principle
Delivery van
of bad debts for the year
20-8
£
to H Price Limited
Cr
bad debt - see memo dated ...................
31 Dec
Cr
mispost/error of commission
H Prince
(i)
GL
£
the accounts.
400
11,900
error of omission
Cr
Date
£
100
reversal of entries
Details
Postages
Bank
CB
Bank
CB
Postages
25
Correction of reversal of entries
on ...................
£
110
Cr
£
55
55
110
compensating error
(e)
Details
Date
Purchases
Purchases returns
Correction of under-cast on purchases
Folio
Dr
GL
100
GL
£
Cr
£
100
account and purchases returns account
on .......(date).......
Date
Details
L Johnson
Folio
Dr
SL
98
CB
89
Bank
CB
L Johnson
SL
Bank
Correction of error – cheque for £89
received on ....(date)....
19.5
(a)
£
187
Cr
(i)
Bad debts written off
Debtors
Profit and loss
Provision for bad debts
(iii)
Insurance
Suspense
Dr
£
303
113
243
780
Rent
870
Suspense
Suspense
1,000
(vi)
Printing and stationery
Wages
12
Motor expenses
1,000
12
Statement of corrected net profit for the year ended 31 January 20-8
98
£
Net profit (unadjusted)
Add:
89
187
reduction in provision for bad debts
113
closing stock undervalued
£
34,765
1,300
wages overstated
Less:
Suspense
Rent
(v)
1,300
1,000
2,413
37,178
416
(ii)
1,300
Trading
(b)
£
JOURNAL
Details
Stock
Errors (ii), (iii) and (v) would have caused the trial balance to disagree.
error of original entry
(f)
(iv)
1,650
Cr
bad debts written off
303
rent paid understated
90
insurance understated
243
Adjusted net profit
£
636
36,542
303
113
(c)
416
20-7/20-8
243
Rent (iii)
Wages (v)
£
780
1,000
1,780
780
870
1,650
Suspense Account
Dr
26
20-7/20-8
31 Jan
Cr
Insurance (ii)
Rent (iii)
Trial balance difference
£
243
870
667
1,780
CHAPTER 20 Control Accounts
20.4
(a)
Dr
20-8
1 Feb
3 Feb
Balance b/d
Sales
1 Mar
Balance b/d
Dr
20-8
1 Feb
Dr
20-8
1 Feb
3 Feb
(b)
Balance b/d
Balance b/d
Sales
Dr
20-8
1 Feb
17 Feb
Balance b/d
Sales
1 Mar
Balance b/d
Dr
20-8
1 Feb
17 Feb
Balance b/d
Sales
1 Mar
Balance b/d
Dr
20-8
1 Feb
28 Feb
Balances b/d
Credit sales
1 Mar
Balances b/d
SALES LEDGER
Arrow Valley Retailers
£ p
20-8
826.40
20 Feb Bank
338.59
20 Feb Discount allowed
28 Feb Balance c/d
1,164.99
338.59
Cr
£ p
805.74
20.66
338.59
1,164.99
B Brick (Builders) Limited
£ p
20-8
59.28
28 Feb Bad debts written off
Cr
£ p
59.28
Mereford Manufacturing Company
£ p
20-8
293.49
24 Feb Sales returns
127.48
28 Feb Set-off: purchases ledger
420.97
Cr
£ p
56.29
364.68
420.97
Redgrove Restorations
£ p
20-8
724.86
7 Feb Sales returns
394.78
28 Feb Balance c/d
1,119.64
954.26
Wyvern Warehouse Limited
£ p
20-8
108.40
15 Feb Bank
427.91
15 Feb Discount allowed
28 Feb Balance c/d
536.31
427.91
Sales Ledger Control Account
£ p
20-8
2,012.43
28 Feb Sales returns
1,288.76
28 Feb Cheques received
from debtors
28 Feb Cash discount allowed
28 Feb Set-off: purchases ldgr.
28 Feb Bad debts written off
28 Feb Balances c/d
3,301.19
1,720.76
Reconciliation of sales ledger control account with debtor balances
(c)
1 February 20-8
£ p
826.40
59.28
293.49
724.86
108.40
2,012.43
Arrow Valley Retailers
B Brick (Builders) Limited
Mereford Manufacturing Company
Redgrove Restorations
Wyvern Warehouse Limited
Sales ledger control account
20.5
(a)
Sales Ledger Control Account
Dr
20-7
1 Sep
30 Sep
Cr
£ p
165.38
954.26
1,119.64
1 Oct
Cr
£ p
105.69
2.71
427.91
536.31
(b)
28 February 20-8
£ p
338.59
–
nil
954.26
427.91
1,720.76
Balances b/d
Credit sales
Cash refund
Dishonoured cheque
Balances c/d
Balances b/d
£
12,000
23,150
111
130
120
35,511
5,896
Sales ledger debit balances
Sales ledger control account debit balance
Difference
20-7
1 Sep
30 Sep
1 Oct
Cr
Balances b/d
Sales returns
Cash discount allowed
Bad debts written off
Cash received from debtors
Cheques received from debtors
Balances c/d
Balances b/d
£
800
738
1,000
1,377
700
25,000
5,896
35,511
120
£
6,007
5,896
111
As the difference is the same amount as the cash refund to Mr Green, with the sales ledger debit balances
higher, it seems likely that the cash refund has not been recorded on Mr Green's account in the sales ledger.
Cr
£ p
221.67
911.43
23.37
364.68
59.28
1,720.76
3,301.19
27
21.2
(a)
Dr
20-7
31 Dec
Dr
20-7
1 Jan
Dr
20-7
1 Jan
Dr
20-7
31 Dec
Dr
20-7
31 Dec
Dr
20-7
31 Dec
Dr
20-7
31 Dec
Dr
20-7
Bank (missing figure)
Balances c/d
Balance b/d
Bank (missing figure)
Balance b/d
Bank (missing figure)
Bank (missing figure)
Balance c/d
Bank (missing figure)
Balance c/d
Bank (missing figure)
Balance c/d
Bank (missing figure)
Balance c/d
Bank (missing figure)
Cash Book (bank columns)
Dr
CHAPTER 21 Incomplete Records
Purchases Ledger Control Account
£
41,734
2,456
44,190
20-7
1 Jan
Rent Account
£
450
1,450
1,900
20-7
31 Dec
31 Dec
Insurance Account
£
40
735
775
20-7
31 Dec
31 Dec
Telephone Account
£
1,100
250
1,350
20-7
1 Jan
31 Dec
Balances b/d
Purchases
Profit and loss account
Balance c/d
Profit and loss account
Balance c/d
Balance b/d
Profit and loss account
Motor Expenses Account
£
1,279
25
1,304
20-7
1 Jan
31 Dec
Wages Account
£
25,419
567
25,986
20-7
1 Jan
31 Dec
Balance b/d
Profit and loss account
Balance b/d
Profit and loss account
Professional Fees Account
£
225
50
275
20-7
31 Dec
Profit and loss account
Subscriptions Account
£
70
70
20-7
1 Jan
31 Dec
Balance b/d
Profit and loss account
20-7
1 Jan
Cr
Balance b/d
Sales
£
1,345
42,845
44,190
Cr
£
1,500
400
1,900
20-8
1 Jan
Cr
£
750
25
775
(b)
Cr
£
350
1,000
1,350
90,688
Balance b/d
18,676
20-7
31 Dec
Cr
20-8
£
Less Purchases
Less expenses:
Telephone
Rent paid
Insurance
Motor expenses
Wages
Professional fees
Cr
Subscriptions
£
345
25,641
25,986
Net profit
Cr
£
275
275
Cr
28
£
85,998
42,845
Gross profit
£
50
1,254
1,304
£
41,734
1,450
735
1,100
1,279
25,419
225
70
18,676
90,688
Purchases
Rent
Insurance
Telephone
Motor expenses
Wages
Professional fees
Subscriptions
Balance c/d
BILL THOMAS
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-7
Sales
Cr
£
35
35
70
£
4,690
85,998
43,153
1,000
1,500
750
1,254
25,641
275
35
30,455
12,698
21.3
Dr
20-6/20-7
1 Oct
Balance b/d
Receipts from debtors
30 Sep
Balance c/d
Cash Book (bank columns)
£
1,300
20,600
5,800
27,700
Dr
20-6/20-7
30 Sep
Payments to creditors
Balances c/d
20-7/20-8
Dr
20-6/20-7
1 Oct
Balances b/d
Sales (missing figure)
20-7/20-8
1 Oct
Balances b/d
Dr
20-6/20-7
30 Sep
Bank
Balance c/d
20-7/20-8
Dr
20-6/20-7
1 Oct
Balance b/d
Bank
20-7/20-8
1 Oct
Balance b/d
20-6/20-7
20-7/20-8
1 Oct
Payments to creditors
Sundry expenses
Fixtures
Drawings
Electricity
Rates
Rent
Balance b/d
Purchases Ledger Control Account
£
18,400
3,300
21,700
20-6/20-7
1 Oct
20-7/20-8
1 Oct
Balances b/d
Drawings
Purchases (missing figure)
Balances b/d
Sales Ledger Control Account
£
1,400
21,000
22,400
1,800
20-6/20-7
30 Sep
20-7/20-8
Rates Account
£
1,500
400
1,900
20-6/20-7
1 Oct
30 Sep
20-7/20-8
1 Oct
Electricity Account
£
400
1,000
1,400
600
Receipts from debtors
Balances c/d
20-6/20-7
30 Sep
20-7/20-8
Balance b/d
Profit and loss account
(missing figure)
balance b/d
Profit and loss account
(missing figure)
Balance c/d
MR SIDHU
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER 20-7
Cr
£
18,400
1,000
800
3,200
1,000
1,500
1,800
27,700
9,000
18,900
27,900
11,000
Less Closing stock
Cost of Goods Sold
Gross profit
Less expenses:
Sundry expenses
Electricity
Rates
Rent
5,800
Cr
£
2,700
100
18,900
21,700
£
21,000
£
Sales
Opening stock
Purchases
16,900
4,100
1,000
800
900
1,800
Net loss
4,500
(400)
BALANCE SHEET AS AT 30 SEPTEMBER 20-7
3,300
Cr
Fixed Assets
Premises
Fixtures £4,000 + additions £800
£
20,600
1,800
22,400
£
Current Assets
Stock
Debtors
Prepayment
Cr
Less Current Liabilities
Creditors
Bank overdraft
Accrual
£
1,000
900
1,900
Working Capital
NET ASSETS
400
FINANCED BY:
Capital
Opening capital
Less Net loss
Cr
£
800
600
1,400
Less Drawings £3,200 + goods £100
29
3,300
5,800
400
£
11,000
1,800
600
13,400
9,500
£
20,000
4,800
24,800
3,900
28,700
32,400
400
32,000
3,300
28,700
BALANCE SHEET AS AT 30 JUNE 20-4
CHAPTER 22 Club and Society Accounts
22.2
Fixed Assets
Furniture and equipment (at valuation)
SOUTHWICK SOCIAL CLUB
BAR TRADING ACCOUNT FOR THE YEAR ENDED 30 JUNE 20-4
£
Bar takings
Opening stock
Purchases
Current Assets
Bar stock
£
Less Current Liabilities
3,975
Subscriptions in advance
4,515
Less Closing stock
Accrual for rent
630
3,885
Bar wages
1,530
845
210
190
400
NET ASSETS
965
REPRESENTED BY:
**3,500
Surplus of income over expenditure
Income
£
£
Profit on bar
965
Subscriptions
Less Expenditure
Dinner dance ticket sales
Less dinner dance expenses
Loss on dinner dance
Secretary's expenses
Rent paid
Provision for depreciation: furniture and equipment
Surplus of income over expenditure
£
2,580
Accumulated fund at 1 July 20-3:
Rent owing
490
890
1,010
*710
**
Furniture and equipment
790
1,280
£2,500 + £1,710 (additions) = £4,210 – £3,500 (valuation) = £710 (depreciation)
Bar stock
3,545
3,100
445
30
445
3,945
*
Bank
445
3,945
Accumulated fund
INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 30 JUNE 20-4
£
3,500
215
Working Capital
5,415
Profit on bar
£
630
Bank
6,380
540
£
£
580
540
2,500
(120)
3,500
22.4
BALANCE SHEET AS AT 31 OCTOBER 20-6
BLANDFORD RAILWAY SOCIAL CLUB
BAR TRADING ACCOUNT FOR THE YEAR ENDED 31 OCTOBER 20-6
£
Bar sales
Opening stock
342
Purchases (note 1)
5,315
Less Closing stock
312
Club house
£
8,121
Office equipment
Profit on bar
7,520
601
Stationery
85
Ground rent (note 3)
Provision for depreciation: fixtures and fittings (note 4)
office equipment
Surplus of income over expenditure
Accrual for rent
400
100
804
3,814
85,798
78,509
3,000
4,289
85,798
Notes:
4,780
216
110
Surplus of income over expenditure
252
Loss on sale of fittings
294
Donations (note 6)
1,200
Sundries
Creditor
REPRESENTED BY:
121
864
81,984
4,618
Accumulated fund (note 5)
10,958
19,120
121
NET ASSETS
10,357
62,000
4,100
Working Capital
£
£
Net
312
Cash
INCOME AND EXPENDITURE ACCOUNT
Less Expenditure
7,584
336
Bank
FOR THE YEAR ENDED 31 OCTOBER 20-6
Profit on bar
89,558
–
Subscriptions in arrears
Subscriptions prepaid
Subscriptions (note 2)
7,238
1,200
Less Current Liabilities
£
26,358
Bar stock
601
Income
Dep'n to date
Current Assets
5,345
2,175
£
Cost
62,000
Fixtures and fittings
5,657
Bar wages
£
Fixed Assets
1.
6,669
4,289
2.
Bar purchases for year:
£5,210 (payments) – £189 (opening creditor) + £294 (closing creditor) = £5,315
Dr
20-5/20-6
1 Nov
Balance b/d
(subscriptions owing)
31 Oct
Income and expenditure
account (missing figure)
31 Oct
Balance c/d
(subscriptions prepaid)
31
Subscriptions Control Account
£
68
10,357
110
10,535
20-5/20-6
1 Nov
31 Oct
Balance b/d
(subscriptions prepaid)
Cash
Bank
Balance c/d
(subscriptions owing)
Cr
£
194
80
10,140
121
10,535
3.
Ground rent for year:
charge for year (£100 per month for 12 months)
•
prepayment at start of year
•
•
amount paid during year
•
4.
•
•
new fixtures
at cost at end of year
accumulated depreciation at start of year
less depreciation on fittings sold
net book value before depreciation for year
3,000
542
depreciation for year (£23,900 x 20%)
Assets and liabilities at 1 November 20-5:
Club house
Fixtures and fittings
Office equipment
Bank
Cash
Subscriptions in arrears
Bar stock
Prepayment for rent
Less:
Subscriptions prepaid
Creditor
Accumulated fund at start of year
6.
200
600
Provision for depreciation on fixtures and fittings:
•
at cost at start of year
•
less fittings sold
•
•
•
•
5.
accrual at end of year
£
£
CHAPTER 23 Partnership Accounts
23.3
1,200
800
400
194
189
PERCH AND TROUT
PARTNERSHIP APPROPRIATION ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER 20-7
£
Net profit
Add interest charged on partners' drawings:
Perch
Trout
15,000
1,642
13,358
13,000
26,358
640
910
Less appropriation of profits:
Salary: Trout
Interest allowed on partners' capitals:
Perch
Trout
2,458
23,900
2,000
1,500
Share of remaining profits:
Perch (60%)
Trout (40%)
4,780
£
(a)
Dr
20-6/20-7
1 Oct Balance b/d
30 Sep Drawings
30 Sep Interest on drawings
30 Sep Balance c/d
20-7/20-8
383
78,509
1 Oct Balance b/d
As donations would seem to be of a material amount (£3,000), they have been capitalised, ie recorded on
the balance sheet as an addition to the accumulated fund. An alternative accounting treatment would be to
record them as income in the income and expenditure account. As to which is used, it is for the treasurer to
use his or her judgement in the application of the materiality concept.
32
1,550
32,050
6,000
3,500
22,550
13,530
9,020
22,550
(b)
£
62,000
12,000
1,080
3,142
60
68
342
200
78,892
£
30,500
Perch
£
–
Partners' Current Accounts
Trout
20-6/20-7
3,400
1 Oct
£
12,785
18,275
30 Sep
3,905
–
30 Sep
640
910
17,330
22,585
–
6,065
30 Sep
30 Sep
20-7/20-8
1 Oct
Balance b/d
Salary
Interest on capital
Share of profits
Balance c/d
Balance b/d
Perch
£
1,800
Cr
Trout
£
–
–
6,000
13,530
9,020
2,000
1,500
6,065
17,330
22,585
3,905
–
23.4
(a)
(d)
TUIGAMALA AND TATUPU
PARTNERSHIP PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER
£
Gross profit
Add commission receivable
Less expenses:
Insurances
Wages and salaries
Provision for depreciation: equipment
fixtures
1,000
2,400
2,000
1,080
Net profit
(b)
£
24,000
500
24,500
Fixed Assets
Premises
Equipment
Fixtures
Current Assets
6,480
18,020
Debtors
Less Provision for bad debts
£
Dep'n to date
20,000
4,000
69,000
6,880
40,000
9,000
£
320
80
45
Less appropriation of profits:
Salary: Tatupu
Interest allowed on partners' capitals:
Tuigamala
Tatupu
Bank overdraft
Working Capital
3,200
1,200
Tuigamala
£
200
1,600
80
8,820
10,700
Partners' Current Accounts
Tatupu
£
–
900
45
6,500
7,445
1 Jan
31 Dec
31 Dec
31 Dec
1 Jan
Balance b/d
Salary
Interest on capital
Share of profits
Balances b/d
16,000
6,120
62,120
15,680
150
450
16,580
7,500
50
830
8,380
NET ASSETS
3,745
8,200
70,320
FINANCED BY:
4,400
10,000
Capital Accounts
Tuigamala
Tatupu
7,500
2,500
10,000
(c)
Balance b/d
Drawings
Interest on drawings
Balances c/d
Creditors
Accrual
125
18,145
Share of remaining profits:
Tuigamala (75%)
Tatupu (25%)
Dr
Less Current Liabilities
2,880
40,000
300
Cash
£
18,020
–
£
Net
16,000
Prepayment
PARTNERSHIP APPROPRIATION ACCOUNT FOR THE YEAR ENDED 31 DECEMBER
£
Cost
Income accrual
Net profit
Add interest charged on partners' drawings:
Tuigamala
Tatupu
1 Jan
31 Dec
31 Dec
31 Dec
PARTNERS' BALANCE SHEET AS AT 31 DECEMBER
Current Accounts
Tuigamala
Tatupu
Cr
Tuigamala
£
–
–
3,200
7,500
10,700
Tatupu
£
–
3,745
1,200
2,500
7,445
8,820
6,500
40,000
15,000
55,000
8,820
6,500
15,320
70,320
33
(c)
CHAPTER 24 Changes in Partnerships
24.2
(a)
Revaluation Account
Dr
Year 8
31 Dec
Bad debt written off
Stock
Capital accounts:
Northwood (60%)
Varley (40%)
£
1,200
300
Year 9
1 Jan
1 Jan
Buildings
4,520
12,800
£
5,000
Year 9
1 Jan
7,800
£
18,000
5,000
Balance b/d
Revaluation
Rodger: capital account
12,800
8,000
31,000
Cr
Year 8
Year 9
1 Jan
£
Varley: capital account (80%)
Rodger: capital account (20%)
(d)
Bank Account
Dr
Year 8
Goodwill
Year 8
31 Dec
31 Dec
6,780
(b)
31 Dec
Year 8
31 Dec
Cr
Goodwill Account
Dr
Balance b/d
Rodger: capital account
Balance b/d
£
8,080
40,000
48,080
Year 8
31 Dec
Year 9
1 Jan
BALANCE SHEET AS AT 1 JANUARY YEAR 9
£
Northwood (see workings below) 43,140
Balance c/d
Fixed Assets
Buildings
Fixtures and fittings
Car
4,940
48,080
Current Assets
Stock
Debtors
Bank
4,940
Note:
82,000
Share of revaluation account
6,780
Northwood's current account
Amount paid from partnership bank account
Less Current Liabilities
Creditors
Working Capital
£
Northwood's capital account
Less Loan to new partnership
VARLEY AND RODGER, IN PARTNERSHIP
Cr
4,360
£
80,000
21,800
12,000
12,420
14,100
4,940
31,460
7,400
Less Long-term Liabilities
Loan account: Northwood
93,140
50,000
FINANCED BY:
Capital Accounts
Varley £52,000 + £4,520 – £24,800
Rodger £12,000 + £40,000 + £8,000 – £6,200
43,140
Current Account
Varley
34
£
113,800
24,060
137,860
50,000
87,860
31,720
53,800
85,520
2,340
87,860
24,800
6,200
31,000
(b)
CHAPTER 25 Manufacturing Accounts
25.4
(a)
YEOH SIEW WYIN
Opening stock of raw materials
Purchases of raw materials
Less returns of raw materials
Add carriage on raw materials
96,300
COST OF RAW MATERIALS USED
Rent and rates
Insurance
Provision for depreciation: production equipment
Add Opening stock of work-in-progress
Less Closing stock of work-in-progress
PRODUCTION COST OF GOODS COMPLETED
Less Closing stock of finished goods
76,500
Rent and rates
Heat and light
130,910
Insurance
Provision for depreciation: office equipment
Discount allowed
7,000
Office salaries
1,500
330
Net profit
20,080
150,990
51,200
202,190
46,900
155,290
35
170,790
103,410
160
Discount received
Less non-production overheads:
£
274,200
247,290
Add: Reduction in provision for bad debts
96,810
99,110
11,250
155,290
Gross profit
31,800
PRIME COST
92,000
Production cost of goods completed
COST OF GOODS SOLD
26,300
Production wages
Heat and light
28,600
125,410
Less Closing stock of raw materials
Add Production (factory) overheads:
Opening stock of finished goods
£
500
1,010
£
Sales
MANUFACTURING ACCOUNT FOR THE YEAR ENDED 31 AUGUST 20-6
£
TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 AUGUST 20-6
800
104,370
3,500
600
220
3,100
750
12,200
20,370
84,000
25.5
TAMSIN AUSTEN
MANUFACTURING, TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 20-3
(a)
Opening stock of raw materials
Add Purchases of raw materials
£
Less Closing stock of raw materials
COST OF RAW MATERIALS USED
Factory direct wages
PRIME COST
Add Production overheads:
Factory indirect wages
Provision for depreciation: factory premises
Provision for depreciation: plant and machinery
19,852
4,400
12,900
PRODUCTION COST OF GOODS COMPLETED
Sales
Opening stock of finished goods
Production cost of goods completed
10,084
193,865
203,949
12,046
Less Closing stock of finished goods
COST OF GOODS SOLD
Gross profit
Less Non-production overheads:
Selling and distribution expenses
Provision for depreciation: delivery vans
Administration expenses
Finance costs
Net profit
£
53,166
3,875
57,041
39,995
3,511
(b)
BALANCE SHEET AS AT 31 DECEMBER 20-3
Fixed Assets
£
6,244
110,335
116,579
7,183
109,396
47,317
156,713
Factory premises
Plant and machinery
Delivery vans
Current Assets
Stocks:
Debtors
raw materials
finished goods
Cost
Dep'n to date
Net
220,000
22,000
198,000
33,000
19,375
£
115,500
368,500
7,183
12,046
Prepayment
37,152
193,865
347,168
Less Current Liabilities
191,903
155,265
Bank
34,864
FINANCED BY:
Capital
Opening capital
Add Net Profit
100,547
54,718
36
118,775
38,100
13,625
249,725
19,229
36,410
596
15,827
Working Capital
NET ASSETS
77,400
£
56,235
Creditors
Accrual
£
1,274
51,965
4,270
253,995
199,277
54,718
253,995
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20-3
CHAPTER 26 Limited Company Financial Statements
26.1
Cost
MASON MOTORS LIMITED
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20-1
£
Retained earnings
100,000
Balance at 1 January 20-1
Profit for the year
75,000
175,000
10,000
Less Dividends paid
20,000
Less Transfer to general reserve
Balance at 31 December 20-1
145,000
(a)
(b)
Non-current Assets
Land
Plant and equipment
Current Assets
Revenue
Opening inventories
Purchases
Less Closing inventories
Cost of Goods Sold
£
250,000
Gross profit
Less Overheads:
Administrative expenses
Distribution costs
2,340,000
190,000
Profit before tax
150,000
Profit for the year
120,000
Less Tax
Long-term loan
NET ASSETS
EQUITY
530,000
Profit from operations
Less Finance costs
Less Non-current Liabilities
210,000
Less Dividends paid
Balance at 31 December 20-3
£
540,000
120,000
660,000
50,000
610,000
350,000
770,000
210,000
30,000
240,000
530,000
1,440,000
200,000
1,240,000
Retained earnings
610,000
50,000
1,240,000
continued
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20-3
Retained earnings
Balance at 1 January 20-3
Profit for the year
410,000
580,000
TOTAL EQUITY
30,000
910,000
£
Issued share capital (£1 ordinary shares)
Share premium
40,000
390,000
140,000
Net Current Assets
1,620,000
500,000
390,000
Cash and cash equivalents
Tax liability
£
720,000
320,000
1,300,000
–
£
280,000
Trade and other payables
1,650,000
280,000
800,000
Net
Inventories
Less Current Liabilities
PLAYFAIR LTD
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 20-3
500,000
Trade and other receivables
The £20,000 transferred to general reserve has been earned as profits and belongs to the shareholders.
It is represented by assets in the statement of financial position and is not a bank balance available to
rebuild the garage forecourt.
26.5
£
Dep’n
37
Tutorial notes:
Depreciation of plant and equipment
Plant and equipment at cost
20% depreciation
Allocated to
Distribution costs
Administrative expenses
Accumulated depreciation
230,000 + 160,000
Administrative expenses
Trial balance
+ Depreciation of plant and equipment
+ Increase in provision for doubtful debts
Distribution costs
Trial balance
+ Depreciation of plant and equipment
Finance costs
Trial balance
+ Interest accrued
Trade and other receivables
Trial balance
+ Prepayments
– Provision for doubtful debts
Trade and other payables
Trial balance
+ Accruals
+ Interest accrued
CHAPTER 27
27.2
800,000
160,000
(i)
(ii)
80,000
80,000
160,000
=
(a)
(b)
390,000
(i)
(ii)
110,000
80,000
20,000
210,000
(iii)
(iv)
240,000
80,000
320,000
20,000
20,000
40,000
350,000
40,000
40,000
350,000
160,000
30,000
20,000
210,000
38
Statement of Cash Flows
profit from operations
Profit from the trading activities of the company, before deduction of tax and interest.
cash flow from operations
Amount of cash generated by the trading activities of the company, taking into account non-cash
items such as depreciation, and changes in inventories, trade receivables and trade payables.
depreciation – added
Depreciation is a non-cash item and is added back as the cash has not left the company.
increase in inventories – subtracted
An increase in inventories uses cash, ie the company spends money, so it is subtracted
increase in trade receivables – subtracted
An increase in trade receivables means that the company is allowing its customers longer to pay,
or has increased its credit sales business. Either way, the company is financing the increase and
therefore has less cash available, so it is subtracted.
increase in trade payables – added
An increase in trade payables means that the company is paying its suppliers more slowly, or
has increased its credit purchases. Either way, the company has more cash available, so it is
added.
27.5
27.4
CHAPTER 28 Interpretation of Financial Statements
WILLIAMS LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 SEPTEMBER 20-6
£
Net cash (used in)/ from operating activities (see below)
Cash flows from investing activities
Purchase of non-current assets
Net cash (used in)/ from investing activities
Cash flows from financing activities
Repayment of long-term borrowings (bank loan)
Dividends paid
Net cash (used in)/ from financing activities
(10,000)
(8,200)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Reconciliation of profit from operations to net cash flow from operating activities
Adjustments for:
Depreciation for year
Increase in inventories
Increase in trade receivables
Increase in trade payables
Cash (used in)/from operations
£
21,500
(10,000)
(15,200)
(3,700)
(1,000)
12,700
Business B
44.0%
4.2%
95 days or
3.8 times per year
2.4:1
1.3:1
60 days
8.1%
Profitability
Gross profit percentage
Net profit percentage
Overhead percentage
Return on capital employed
20-5
33.3%
8.3%
25.0%
20.4%
20-6
25.0%
2.5%
22.5%
8.5%
Current ratio
Liquid capital ratio
20-5
3.33:1
2.17:1
20-6
2.16:1
1.44:1
20-5
32 days
37 days
27 days
2.55:1
20-6
44 days
66 days
37 days
3.39:1
Both ratios have fallen, but are very satisfactory and indicate that the business does not have liquidity
problems. The company is nil geared, although there is now a bank overdraft.
(3,800)
(4,200)
Asset utilisation
Inventory turnover
Trade receivables' collection period
Trade payables' payment period
Asset turnover ratio
7,400
23,700
21,500
current ratio
liquid capital ratio
trade receviables’ collection period
return on capital employed
Business A
13.4%
1.4%
33 days or
10.9 times per year
1.3:1
0.05:1
1 day*
11%
* revenue figure used for this calculation; this is unrealistic because most supermarket sales will be for cash
rather than on credit
Business A is a grocery supermarket chain; business B the heavy engineering company
Reasons:
Business A
low net profit percentage; high inventory turnover; short trade receivables’ collection period,
low current and liquid ratios; few trade receivables
Business B
higher net profit percentage; low inventory turnover; long trade receivables’ collection
period; good current and liquid ratios; high figures for non-current assets and trade
receivables
Liquidity
11,600
Net cash (used in)/ from operating activities
gross profit percentage
net profit percentage
inventory turnover
Reduction in selling prices is shown by the fall in gross profit/sales percentage. The policy has had mixed
results – whilst the amount of gross profit has increased, a higher amount of overheads has resulted in a fall
in profit for the year. The overheads would appear to be semi-variable. The resultant lower profit has caused
a reduction in return on capital employed.
£
(2,200)
Income taxes paid
28.5
(4,700)
Interest paid
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(7,000)
Net increase/(decrease) in cash and cash equivalents
Profit from operations (before tax and interest)
28.4
Inventory turnover has slowed; trade receivables' collection period has lengthened – Rowles Limited may
have relaxed customer terms in order to achieve higher sales; trade payables' payment period has
lengthened – the suppliers may become reluctant to deal with the business unless they are paid more
promptly. The asset turnover ratio has increased, indicating the policy of increased sales.
–
Conclusion
39
The decision to reduce selling prices has increased revenue and gross profit, but not profit for the year. The
expansion has not caused liquidity problems, but there are warning signs of possible future problems in the
asset utilisation figures. Return on capital employed has fallen as a result of the reduction in profit for the year.
28.7
(a)
(i)
Gross profit margin
Gross profit
Revenue
(ii)
Offiah Co
x 100
£12,000
1
Inventory turnover
Cost of goods sold
Robinson Co
x 100
£80,000
1
£68,000*
Average inventories
= 15%
= 12.4 times
or 29.5 days
£5,500**
* £80,000 – £12,000
** (£5,200 + £5,800) ÷ 2
(iii)
Net profit margin
Profit for the year x 100
Revenue
(iv)
1
Return on capital employed
Profit for the year* x 100
Capital employed
1
*no finance costs or tax
(v)
Trade receivables'
collection period
Trade receivables x 365
Revenue
(vi)
Current ratio
Current assets
Current liabilities
£8,000†
x 100
£80,000
† £12,000 – £4,000
£8,000
£6,000
1
x 100
£100,000
£80,000
1
x 365
£10,000
£18,800
= 1.9:1
£18,000
£50,000
£32,000*
£9,400**
x 100
1
= 10%
•
= 3.4 times
or 107.2 days
£50,000
x 100
1
= 27 days
£6,000
£75,000
x 100
1
•
•
•
= 8%
£26,800 x 365 = 196 days
£10,000 + £26,800 =
£18,000 + £400
£36,800
The current ratios are not dissimilar – Robinson achieves the acceptable figure of 2:1, while Offiah has
the slightly lower figure of 1.9:1 – still acceptable. The make-up of the current assets of Robinson is more
worrying (see below), as it comprises high figures for inventories, trade receivables and trade payables,
which are not consistent with its lower figure for revenue.
Offiah is the more efficient at inventory turnover with a figure of 12.4 times per year (29.5 days); by
contrast Robinson achieves just 3.4 times per year (107.2 days).
Trade receivables' collection period is also markedly different at 27 days for Offiah and 196 days for
Robinson.
Conclusion
= 12%
£50,000
£18,400
The figure for return on capital employed is 8% for both companies, indicating that both use their capital
to similar effect.
Asset utilisation
† £18,000 – £12,000
= 8%
Robinson has the lower revenue but the much higher gross profit margin (36%) than Offiah (15%);
however, Offiah's overheads are higher, and the net profit margins are similar – 12% for Offiah and 10%
for Robinson.
Solvency/liquidity
* £50,000 – £18,000
£6,000†
Profitability
•
•
= 36%
** (£8,800 + £10,000) ÷ 2
£5,800 + £6,000 + £7,000 =
£10,000
(b)
= 2:1
40
Assuming these two companies to be in a similar line of business, financial analysis shows them to be
very different. Offiah appears to be the more efficiently run company, but trend analysis from year-to-year
needs to be made, and also comparison with industry averages.
