Edexcel IGCSE Accounting Student's Book Answers
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Answers Chapter 1: Introduction to accounting principles 1.1
Good financial control is important to ensure the continued profitability and success of the business. Also to control costs and cash flow.
1.2X Profit is obtained by selling goods for more than the purchase price less expenses incurred in selling the goods. 1.3
(a) Trading and Profit and Loss Account (b) Balance Sheet
1.4X A sole trader may incur the following drawbacks whilst trading alone: • Liable for all the debts of the business • If a loss is made he/she bears all the losses • May lack expertise in certain areas • Often has to work long hours Positive outcomes: • Independent and responsible for all decision making • If successful and a profit is made they keep all the profits • Able to offer personal service to customers
1.5
The rules which lay down the way in which the activities of a business are recorded and the financial statements, i.e. Trading and Profit and Loss Account and Balance Sheet prepared.
1.6
(a) Going concern concept – when a business is assumed to continue for a long time. (b) Accrual concept – where profit is the difference between revenues and expenses in a specific period and not the difference between cash received and cash paid. (c) Consistency concept – applying the same method of accounting when dealing with specific items such as depreciation and in stock valuation. (d) Prudence concept – an accountant is always very careful not to over value specific assets such as stock or machinery etc., and to identify any potential liabilities. It is their duty to prepare the accounts as accurately as possible to give a fair figure of profit.
1.7X (a) (b) (c) (d) 1.8
Accounting
(Any one from the above would be acceptable as an answer)
Materiality Business entity Money measurement Prudence
Employees would be interested in their employer’s financial results for the following reasons: • The ability to pay wages and salaries • Secure employment with the opportunity to progress within the business • Continued profitability • Sound cash flow position • Sales maintained and increasing • Business viable for the forthcoming period • Healthy customer base (Any three of the above would be acceptable as an answer)
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Answers Chapter 2: Double entry for cash transactions 2.1
(a) (b) (c) (d) (e) (f)
Purchases Office equipment Bank loan Cash in hand Motor vehicle Loan from financial company
2.2X Wrong:
2.3
Assets Money owing to bank
Account to be Debited
Accounting
asset asset liability asset asset liability Liabilities Motor van Stock of goods
Account to be Credited
(a) Cash
Capital
(b) Bank
Cash
(c) Purchases
Cash
(d) Office Machinery
Bank
(e) Stationery
Cash
2.4X Account to be debited (a) Bank (b) Purchases (c) Motor car (d) Cash (e) Motor expenses (f) Computer equipment 2.5
-
Account to be credited Capital Cash Bank Uncle Joe loan Cash Cash
Max Morgan Bank Account
Jan-01 Jan-15
Capital Sales
30,000 500
Jan-05 Jan-07 Jan-27 Jan-30
Purchases S/H Van Computer Equipment Purchases
2,770 4,800 2,100 1,090
Capital Account Jan-01
Bank
30,000
Purchases Account Jan-05 Jan-30
Bank Bank
2,770 1,090
Jan-07
Bank
4,800
Van Account Cash Account Jan-09 Jan-29
2
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Sales Sales
680 325
Jan-10 Jan-22
Office Furniture Motor Expenses
110 92
Sales Account Jan-09 Jan-15 Jan-29
Cash Bank Cash
680 500 325
Office Furniture Account Jan-10
Cash
110 Motor Expenses Account
Jan-22
Cash
Jan-27
Bank
92 Computer Equipment Account 2,100
2.6X Jane Mellor Cash Account May 1 May 20
Capital Sales
22,000 328
May 3 May 22
Bank Stationery
20,000 72
Cash
22,000
Capital Account May-01 Bank Account May 3 May 25
Cash Sales
20,000 560
May 7 May 10
Rent Purchases
May 15
Display units
May 23
Purchases
May 31
S/H Van
500 1,700 400 400 3,000
May 7
Bank
May 10 May 23
Bank Bank
Accounting
Rent Account 500 Purchases Account 1,700 400 Display Units Account May 15
Bank
400 Sales Account May 20
Cash
328
May 25
Bank
560
Stationery Account May 22
Cash
72 Van Account
May 31
Bank
3,000
© Pearson Education Ltd 2010
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Answers Chapter 3: Double entry for credit transactions 3.1
Account to be Debited
P. Hart
(b) Cash
Sales
(c) Motor Car
Morgan Motors
(d) Purchases
Cohens Ltd
(e) P. Hart
Purchase Returns
(f) H. Perkins
Sales
(g) Bank
Sales
(h) Cash
Office Furniture
3.2X Account to be debited (a) Computer equipment (b) Stationery (c) Purchases (d) Daswami & Co (e) Purchases (f) Sales returns (g) Cash (h) J. Leung 3.3
Account to be Credited
(a) Purchases
Account to be credited J. Kershaw Cash J. Leung Sales Bank Daswani & Co Sales Purchase Returns
Kendrick Products Cash Account
Accounting
Jan-01
Capital
20,000
Jan-05 Jan-24
Bank Stationery
18,000 45
Cash
20,000
Capital Account Jan-01 Purchases Account Jan-02 Jan-07 Jan-09
T. Peters J. Leigh Bank
2,543 349 592
Jan-18
Purchase Returns
Jan-26
Bank
2,383
Jan-05
Cash
18,000
T. Peters Account 160
Jan-02
Purchases
2,543
Purchases T. Peters
592 2,383
Purchases
349
P. Lamond D. Gurkan
210 1,008
Bank Account Jan-09 Jan-26
J. Leighs Account Jan-07 Sales Account Jan-16 Jan-26 P. Lamond Acccount Jan-16
Sales
210
Jan-30
Sales Returns
60
Purchase Returns Account Jan-18 4
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T. Peters
160
Stationery Account Jan-24
Cash
45 D. Gurkan Account
Jan-26
Sales
1,008 Sales Returns Account
Jan-30
P. Lamond
60 Motor Van Account
Jan-31
Harper Motors Ltd
5,250 Harper Motors Ltd Account Jan-31
Motor Van
5,250
Apr 14 Apr 28
Purchases C. Chang
2,300 950
Apr 30
Ash Car Sales
5,400
3.4X Mark & Co Bank Account Apr 1
Capital
40,000
Capital Account Apr 01
Bank
40,000
Purchases Account Apr 3 Apr 5 Apr 14
E. Shah C. Chang Bank
Apr 20
E. Shah
845 950 2,300 920 E. Shah Account
Apr 16
Purchase returns
72
Apr 03
Purchases
845
Apr 20
Purchases
920
Purchases
950
Bank
950
Apr 05
Accounting
C. Chang Account Apr 28
Motor Van Account Apr 09
Ash Car Sales
Apr 30
Bank
10,400 Ash Car Sales Account 5,400
Apr 09
Motor Van
10,400
Sales Account Apr 12
Naik Bros
147
Apr 23
Cash
369
Apr 29
Curtis & Co
420
Naik Bros Account Apr 12
Sales
147 Purchase Returns Accounts Apr 16
E. Shah
72
Motor Expenses
40
Cash Account Apr 23
Sales
Apr 29
Sales
369
Apr 26
Curtis & Co Account 420 Motor Expenses Account Apr 26
Cash
40
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Answers Chapter 4: Balancing of accounts and preparation of a Trial Balance 4.1 Capital May-01
Bank
2,500
K Gibson D Ellis C Mendez Balance c/d
76 370 87 2,367 2,900
Rent Stationery Rent Balance c/d
120 60 120 200 500
Balance c/d
240
Bank May-01 May-09 May-10
Capital C Bailey H Spencer
2,500 250 150
May-12 May-12 May-31 May-31
2,900 Jun-01
Balance b/d
2,367 Cash
May-06
Sales
500
Jun-01
Balance b/d
200
May-08 May-19
Cash Cash
120 120 240
Jun-01
Balance b/d
240
May-08 May-15 May-19 May-31
500
Accounting
Rent May-31
240
Stationery May-15
Cash
60 Purchases
May-02 May-02 May-02 May-18 May-18
D Ellis C Mendez K Gibson D Ellis C Mendez
540 87 76 145 234 1,082
Jun-01
Balance b/d
1,082
May-31
Balance c/d
1,496
May-31
Balance c/d
1,082
1,082
Sales May-04 May-04 May-04 May-06 May-25 May-25 May-25
C Bailey B Hughes H Spencer Cash C Bailey B Hughes H Spencer
430 62 176 500 90 110 128 1,496
Jun-01
Balance b/d
1,496
1,496
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H Spencer May-04 May-25
Sales Sales
176 128 304
Jun-01
Balance b/d
154
May-12 May-31
Bank Balance c/d
370 315 685
May-10 May-31
Bank Balance c/d
150 154 304
May-02 May-18
Purchases Purchases
540 145 685
Jun-01
Balance b/d
315
May-02 May-18
Purchases C Mendez
Jun-01
Balance b/d
87 234 234 234
D Ellis
C Mendez May-31 May-31
Bank Balance c/d
87 234 234
K Gibson May-12
Bank
76
May-02
Purchases
76
C Bailey May-04 May-25
Sales Sales
430 90 520
Jun-01
Balance b/d
270
May-09 May-31
Bank Balance c/d
250 270 520
Balance c/d
172
B Hughes
Jun-01
Sales Sales Balance b/d
62 110 172
May-31
172
172
Accounting
May-04 May-25
Trial Balance as at 31 May 2010 Dr
Cr £
Capital Bank Cash Rent Stationery Purchases Sales H Spencer D Ellis C Mendez C Bailey B Hughes
£ 2,500
2,367 200 240 60 1,082 1,496 154 315 234 270 172 4,545
4,545
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4.2X (a) Bank Account August 1 August 14 August 20
Capital Sales Sales
August 28
Sales
22,000 980 1,300
August 1 August 7 August 7
Rent Shop fittings Purchases
1,800 3,230 5,000
2,000
August 9
Cash
1,000
August 30
Salaries
2,100
August 30
Balance c/d
26,280 Sept 1
Balance b/d
13,150 26,280
13,150
Cash Account August 9
Bank
1,000
Sept 1
Balance b/d
1,000 809
August 30
Balance c/d
4,280
August 9 August 16 August 30
Stationery Sundry expenses Balance c/d
163 28 809 1,000
August 1 August 20 August 28
Bank Bank Bank
980 1,300 2,000 4,280
Sept 1
Balance b/d
4,280
Balance c/d
10,700
Sales Account
4,280 Purchases Account
Accounting
August 7 August 10 August 25 September 1
Bank Book Supplies Delta Books balance b/d
5,000 4,200 1,500 10,700
August 30
10,700
10,700 Shop Fittings Account
August 7
Bank
3,230 Capital Account August 1
Bank
22,000
Rent Account August 1
Bank
1,800 Stationery Account
August 9
Cash
August 16
Cash
April 30
Bank
163 Sundry Expenses Account 28 Salaries Account 2,100 Book Supplies Accounts August 10
Purchases
4,200
Purchases
1,500
Delta Books Account August 25
8
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4.2X (b) Jenny Moore Trial Balance as at 31 August 2010 Dr
Cr
£ 13,150 809
Bank Cash Sales Purchases Shop Fittings Capital Rent Stationery Sundry expenses Salaries Book Supplies Delta Books
10,700 3,230 1,800 163 28 2,100
31,980
£ 4,280 22,000
4,200 1,500 31,980
4.3 Bank Capital L Clark K Allen
(1)
Balance b/d
15,000 440 76
(9) (11) (27) (27) (27) (28) (30) (30)
Rent Rates Bowman Furnishers Howe Homes W Hunt Motor Vehicles Bates Motors Balance c/d
15,516
500 190 532 460 2,070 3,000 5,000 3,764
Accounting
(1) (30) (30)
15,516
3,764 Capital
(30)
Balance c/d
15,000
(1)
Bank
15,000
(1)
Balance b/d
15,000
Howe Homes (27)
Bank
460
(3)
Purchases
460
(3) (20)
Purchases Purchases
620 220 840
(1)
Balance b/d
780
Balance c/d
500
Sales returns Bank
40 440 480
J Bond (17) (30)
Purchases returns Balance c/d
60 780 840
Rent (9)
Bank
500
(1)
Balance b/d
500
(12)
Sales
480
(30)
L Clark
480
(23) (30)
© Pearson Education Ltd 2010
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R Gee (12)
Sales
1,170
(1)
Balance b/d
1,170
(30)
Balance c/d
1,170
Purchses Returns (30)
Balance c/d
88 88
(17) (17)
Bowman Furnishers J Bond
28 60 88
(1)
Balance b/d
88
Balance c/d
8,000
Motor Vehicles (25) (28)
Bates Motors Bank
5,000 3,000 8,000
(30)
Balance b/d
8,000
(30)
8,000
Stationery (29)
Cash
(30)
Balance b/d
56
(30)
Balance c/d
56
Balance c/d
3,930
56 Purchases
(3) (3) (3) (3) (20) (20) (20)
Bowman Furnishers Howe Homes W Hunt J Bond J Bond W Hunt Bowman
(1)
Balance b/d
(17) (27)
Purchases returns Bank
320 460 1,800 620 220 270 240 3,930
(30)
3,930
3,930
Accounting
Bowman Furnishers 28 532 560
(3) (20)
Purchases Purchases
320 240 560
Purchases Purchases
1,800 270 2,070
(7) (12) (12) (12) (26)
Cash L Clark K Allen R Gee Cash
(1)
Balance b/d
480 480 96 1,170 175 2,401 2,401
Balance c/d
190
W Hunt (27)
Bank
2,070
(3) (20)
2,070 Sales (30)
Balance c/d
2,401
2,401 Rates
10
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(11)
Bank
190
(1)
Balance b/d
190
(30)
K Allen (12)
Sales
96
(23) (30)
Sales returns Bank
20 76 96
Balance c/d
400
Balance c/d
60
96 Wages (14)
Cash
400
(1)
Balance b/d
400
(23) (23)
K Allen L Clark
(30)
Balance b/d
(30)
Bank
5,000
(7) (26)
Sales Sales
480 175
(1)
Balance b/d
(30)
Sales Returns 20 40 60
(30)
60
60 Bates Motors (25)
Motor vehicles
5,000
Cash (14) (29) (30)
Wages Stationery Balance c/d
655
400 56 199 655
199
Trial Balance as at 30 April 2010 £ 3,764 3,930
Bank Purchases Capital J Bond Sales Rent Rates R Gee Wages Purchases returns Sales returns Motor vehicles Stationery Cash
Cr £
Accounting
Dr
15,000 780 2,401 500 190 1,170 400 88 60 8,000 56 199 18,269
18,269
4.4
(a) Capital
–
credit
(b) Sales
–
credit
(c) Stationary
–
debit
(d) Cash
–
debit
(e) T Khan (creditor)
–
credit
(f) Machinery
–
debit
(g) Rent
–
debit © Pearson Education Ltd 2010
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(h) D Allen (debtor)
–
debit
(i) Bank loan
–
credit
( j) Purchases
–
debit
4.5
Trial Balance of P Brown as at 31 May 2010 Dr
Cr £
Capital Drawings General expenses Sales Purchases Debtors Creditors Bank Cash Plant and equipment Heating and lighting Rent
7,000 500 29,000 6,800 15,100 200 5,000 1,500 2,400 67,500
4.6
£ 20,000
38,500
9,000
67,500
Trial Balance of S Higton as at 30 June 2010 Dr
Cr £
Accounting
Capital Sales Stationery General expenses Motor expenses Cash at the bank Stock 1 July 2009 Wages and salaries Rent and rates Office equipment Purchases Heating and lighting Rent received Debtors Drawings Creditors Motor vehicle Interest received Insurance
12
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1,200 2,745 4,476 1,950 7,668 9,492 10,500 6,000 81,753 2,208 10,353 4,200 7,500 3,444 153,489
£ 19,956 119,439
2,139
10,230 1,725 153,489
4.7X
Trial Balance of Ms Anita Hall as at 31 December 2010 Dr Plant and machinery Motor vehicles Premises Wages Purchases Sales Rent received Telephone, printing and stationery Creditors Debtors Bank overdraft Capital Drawings General Expenses Lighting and heating Motor expenses Motor vehicle
£ 21,450 26,000 80,000 42,840 119,856
Cr £
179,744 3,360 3,600 27,200 30,440 2,216 131,250 10,680 3,584 2,960 2,360 343,770
343,770
(b) Error of commission
(c) Error of omission
(d) Error of original entry
(e) Complete reversal of entries
(f) Error of principle
Accounting
4.8X (a) Error of principle
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Answers Chapter 5: Value Added Tax 5.1 (a)
C Black Curzon Road Stockport To: J Booth 89 Andrew Lane Stockport
INVOICE No 947T
Date: 1 March 2011 Your Order No. 1697 £
20,000 coils sealing tape x £4.70 per 1,000
94.00
40,000 sheets A5 paper x £4.50 per 1,000
180.00
30,000 sheets A4 paper x £4.20 per 1,000
126.00 400.00 70.00 470.00
VAT at 17.5% VAT Reg No. 542 4483 95
(b)
J Booth's Books C Black 2011 01-Mar C Black's Books J Booth
Accounting 14
Purchases
2011 01-Mar
Sales
470
5.2X (a) & (b) & (c)
© Pearson Education Ltd 2010
2010
Name of Customer
Jan 2 Jan 6 Jan 7
D Woolham & Co C Crawford S Brocklehurst
Jan 9 Jan 13 Jan 18 Jan 21 Jan 24 Jan 29 Jan 31
L Price & Partners D Woolham & Co L Price & Partners C Crawford C Crawford S Brocklehurst L Price & Partners
Net
VAT
Total
£ 230.00 348.00 1,980.00
£ 40.25 60.90 346.50
£ 270.25 408.90 2,326.50
520.00 56.00 200.00 340.00 44.00 846.00 722.00 5,286.00
91.00 9.80 35.00 59.50 7.70 148.05 126.35 925.05
611.00 65.80 235.00 399.50 51.70 994.05 848.35 6,211.05
470
5.3 (a) Cost of 22 reams of paper at £3.75 Input VAT is 17.5% Customer Charged Amount before VAT is added,
100 £235 ______ 117.5
Therefore, output VAT is Amount of VAT due to HMRC, £35.00 £14.44 (b) Net Amount £40.00 £ 2.00 £53.28 £ 3.20
VAT £7.00 £0.35 £9.32 £0.56
£82.50 £14.44 £96.94 £235.00 including VAT £200.00
17.5 £82.50 ____ 100
£35.00 £20.56
Total £47.00 £ 2.35 £62.60 £ 3.76
5.4 (a) Ivy & Co VAT Account
2010 Apr-30 May-31 Jun-30 Jun-30
Purchases Day Book Purchases Day Book Purchases Day Book Balances c/d
8,750 7,350 9,625 2,380 28,105
Cr
2010 Apr-30 May-31 Jun-30
Sales Day Book Sales Day Book Sales Day Book
Jul-01
Balance b/d
9,205 8,400 10,500 28,105 2,380
Accounting
Dr
(b) The outstanding balance of £2,380 is the amount of VAT due to HMRC for the quarter ending 30th June 2010. When Ivy & Co pays this amount to HMRC this will clear the amount in the VAT account.
5.5X VAT Account
Dr 2010 Oct 31 Nov 30 Dec 31 Dec 31
Purchases Day Book Purchases Day Book Purchases Day Book Balances c/d
6,580 6,895 9,100 13,300 35,875
2010 Oct 31 Nov 30 Dec 31
Cr Sales Day Book Sales Day Book Sales Day Book
13,125 10,850 11,900 35,875
Jan 01
Balance b/d
13,300
(b) All business records must be kept for 6 years.
© Pearson Education Ltd 2010
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Answers Chapter 6: Business documentation 6.1
(a) Remittance advice – a document which accompanies payments by cheque or via BACS and gives details of the payment made. (b) Statement – this is normally sent to purchasers at the end of each month and it states the amount owing to the supplier at the end of that particular month. (c) Credit note - a document sent to a customer showing allowance given by supplier in respect of unsatisfactory goods. Usually printed in red to distinguish it from an invoice. (d) Invoice – a document prepared by the seller and sent to the purchaser whenever a business buys goods or services on credit. It gives details of the supplier and the customer, the goods purchased and their price.
6.2
(a) Purchase order (b) Invoice (c) Statement (d) Remittance advice
6.3X
Statement of Account to John Ashley Ltd Dr
Cr £
Accounting
May 1 May 2 May 8 May 17 May 23 May 28
Balance b/forward Invoice No. 7821 Invoice No. 7955 Credit Note No. 304 Invoice No. 8204 Cheque
£
43.75 35.00 10.20 74.50 51.50
Balance £ 101.50 145.25 180.25 170.05 244.55 193.05
The amount outstanding by John Ashley Ltd is £193.05 6.4X (a) Contents of an invoice - refer to text section 6.3 Contents of a credit note - refer to text section 6.4 (b) An invoice is used when a supplier has provided goods and/or services to a customer and wishes to inform them how much is owed. A credit note is issued by the supplier to 'credit' the buyer in respect of unsatisfactory goods returned.
16
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Answers Chapter 7: Capital and revenue expenditure 7.1
Newton Data Systems Type of expenditure
Reason
(a) Revenue
Use up in the short term
(b) Capital
Adds to value of computer equipment
(c) Revenue
Used up in the short term
(d) Revenue
Used up in the short term
(e) Capital
Adds to the value of the computer
(f) Question is not clear (1) If spent on improving building Construction Capital (2) If spent on extra wages for Security guards Revenue
Adds to the value of fixed assets
7.2
Used up in the short term
Capital (a) (b) (c) (d) (e)
New stationery and brochures New pickup truck New lathe Delivery costs Electricity
(f) Wages
- lathe - wiring - electricity costs - Re: Improvements - Other
£ 18,000 5,200 200 1,800 20,000 -
Revenue £ 411 2,100 45,000
45,200
47,511
Accounting
Cairns Engineering Co
Brief description of capital and revenue expenditure - see text 7.3X (a) (i) Capital (ii) Capital (iii) Capital (iv) Revenue (b) (i) Expenses would be too high and net profit too low (ii) The value of the fixed assets in the balance sheet would be too low.
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7.4
(a) (i) Capital expenditure
(ii) Capital expenditure
(iii) Revenue expenditure
(iv) Capital receipt
(v) Revenue expenditure
(vi) Revenue receipt
(vii) Revenue expenditure
(b) It is important to distinguish between capital and revenue expenditure because incorrect treatment of expenditure would result in profits being affected and the balance sheet position becoming distorted.
If capital expenditure is incorrectly treated as revenue expenditure then the net profit will be understated and the assets in the balance sheet undervalued. If revenue expenditure is incorrectly treated as capital expenditure then the net profit would be overstated and the balance sheet position would be overvalued. 7.5X Capital (a), (c), (f)
Accounting
18
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Revenue (b), (d), (e), (g)
Answers Chapter 8: Books of original entry and ledgers – Sales day book and sales ledger including VAT 8.1
(a) (b) (c) (d) (e) (f)
Sales day book / sales ledger / personal account Cash book / general ledger / nominal account Purchases day book / purchases ledger / personal account Cash book / general ledger / nominal account Sales returns day book / sales ledger / personal account Purchases returns day book / purchases ledger / personal account
8.2X (a) (i) Purchase day book: purchase invoices (ii) Sales returns day book: sales credit notes (iii) Cash book: cheques received, cheques paid out, cash receipts and cash payments (iv) Sales day book: sales invoices (v) Purchase returns day book: purchase credit notes (b) Personal accounts: contain the accounts of businesses and people i.e. debtors and creditors. Impersonal accounts: contain the other accounts, divided between real and nominal accounts. Real accounts: are accounts in which fixed assets and stock are recorded, such as machinery, property, fixtures and fittings.
8.3 Date 2010 Nov-02 Nov-03 Nov-09 Nov-11 Nov-13 Nov-18 Nov-23 Nov-30
Details T Bates D Cope F Chan T Bates B Ho D Cope M Saka & Sons F Chan
Sales Day Book Folio
Goods £ 186.00 166.00 12.00 54.00 66.00 32.00 20.00 320.00 856.00
VAT £ 32.55 29.05 2.10 9.45 11.55 5.60 3.50 56.00 149.80
Accounting
Nominal accounts: record expenses, income and capital.
Total £ 218.55 195.05 14.10 63.45 77.55 37.60 23.50 376.00 1005.80
© Pearson Education Ltd 2010
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Sales Ledger Cr
T Bates Account
Dr Nov-02 Nov-11 Dr Nov-03 Nov-18 Dr Nov-09 Nov-30 Dr Nov-13 Dr Nov-23
Sales Sales
218.55 63.45 D Cope Account 195.05 37.60 F Chan Account 14.10 376.00 B Mo Account 77.55 M Saka & Sons Account 23.50
Sales Sales Sales Sales Sales Sales
Cr
Cr
Cr Cr
General Ledger Dr Dr
8.4X
Accounting
Date 2011 Jul 1 Jul 5 Jul 8 Jul 14 Jul 19 Jul 26 Jul 28 Jul 31
Details
Sales Account Nov-30
Credit sales for the month
Cr 856.00
VAT Account Nov-30
Sales day book: VAT
149.80
Cr
Sales Day Book Folio Goods
Hall Products Ash & Co K. Meakin A. Ballearic Hall Products G. Huang A. Ballearic J. Stead
520.00 62.00 18.00 110.00 880.00 126.00 42.00 98.00 1,856.00
VAT 91.00 10.85 3.15 19.25 154.00 22.05 7.35 17.15 324.80
Total 611.00 72.85 21.15 129.25 1,034.00 148.05 49.35 115.15 2,180.80
Sales Ledger Hall Products Account
Dr Jul 1 Jul 19 Dr Jul 5 Dr Jul 8 Dr Jul 14 Jul 28
20
© Pearson Education Ltd 2010
Sales Sales Sales Sales Sales Sales
611.00 1,034.00 Ash & Co Account 72.85 K. Meakin Account 21.15 A. Ballearic Account 129.25 49.35
Cr
Cr Cr Cr
Dr Jul 26 Dr Jul 31
Sales Sales
G. Huang Account 148.05 J Stead Account 115.15
Cr Cr
General Ledger Dr
Sales Account Jul 31 Credit sales for the month
Dr
VAT Account Jul 31 Sales day book : VAT
Cr 324.80
It is important to check sales invoices prior to sending them out to customers for the following reasons: • To ensure the customer’s order number or reference is shown. • To check that the correct quantity of goods has been invoiced. • To ensure the goods/services are invoiced at the right place. • To check all the calculations and extensions.
Accounting
8.5
Cr 1,856.00
© Pearson Education Ltd 2010
21
Answers Chapter 9: Purchases day book and purchase ledger including VAT 9.1
White Bros Purchases Day Book
Date 2010 May-01 May-07 May-16 May-23 May-26 May-28 May-31
Details Bould & Co Harlow & Brown J Adams Ltd Bould & Co J H Products Harlow & Brown P Yeung Ltd
Goods £ 104.00 48.00 234.00 170.00 320.00 62.00 446.00
VAT £ 18.20 8.40 40.95 29.75 56.00 10.85 78.05
Total £ 122.20 56.40 274.95 199.75 376.00 72.85 524.05
1384.00
242.20
1626.20
Purchase Ledger Dr
Bould & Co Account May-01 May-23
Dr
Purchases Purchases
Harlow and Brown Account May-07 May-28
Accounting
Cr
Dr
Cr Purchases Purchases
56.40 72.85
Purchases
274.95
J Adam Ltd Account May-16
Dr
Cr
J H Products Account May-26
Dr
Cr Purchases
376.00
Purchases
524.05
P Yeung Account May-31
122.20 199.75
Cr
General Ledger Dr May-31
Purchases Account Credit purchases for the month
Dr May-31
22
© Pearson Education Ltd 2010
1384.00 VAT Account
Purchases Day Book : VAT
Cr
242.20
Cr
9.2
Bakers Electrical Co Purchases Day Book
Date 2010 Jul-03 Jul-08 Jul-12 Jul-17 Jul-21 Jul-23 Jul-25 Jul-30
Details Peak Electrical Leigh Electrics Thomas Motors Naik & Sons Peak Electrical W D Services Leighs Electrics Naik & Sons
Goods £ 722.00 84.00 274.00 160.00 158.00 46.00 210.00 178.00
VAT £ 126.35 14.70 47.95 28.00 27.65 8.05 36.75 31.15
Total £ 848.35 98.70 321.95 188.00 185.65 54.05 246.75 209.15
1832.00
320.60
2152.60
Purchases Ledger Peak Electrical Ltd Account Jul-03 Jul-21 Dr
Cr Purchases Purchases
Leigh Electrics Account Jul-08 Jul-25
Dr
Cr Purchases Purchases
98.70 246.75
Purchases
321.95
Thomas Motors Account Jul-12
Dr
Cr
Naik & Sons Account Jul-17 Jul-30
Dr
Cr Purchases Purchases
188.00 209.15
Purchases
54.05
W D Services Account Jul-23
848.35 185.65
Accounting
Dr
Cr
General Ledger Dr Jul-31
Purchases Account Credit purchases for the month
Dr Jul-31
1832.00 VAT Account
Purchases Day Book : VAT
Cr
Cr
320.60
© Pearson Education Ltd 2010
23
9.3X Tasty Foods Purchases Day Book Date 2010 Aug 1 Aug 6 Aug 10 Aug 14 Aug 22 Aug 27 Aug 29 Aug 30
Details
Goods £ 62.00 48.00 224.00 136.00 98.00 166.00 84.00 366.00 1,184.00
Barker Foods Ltd Fern Bros Ash Catering Co Barker Foods Ltd Farm Produce Fern Bros Leigh & Sons Ash Catering Co
VAT £ 10.85 8.40 39.20 23.80 17.15 29.05 14.70 64.05 207.20
Total £ 72.85 56.40 263.20 159.80 115.15 195.05 98.70 430.05 1,391.20
Purchases Ledger Dr
Barker Foods Ltd Account Aug 1 Aug 14
Dr
Purchases Purchases
72.85 159.80
Purchases Purchases
56.40 195.05
Fern Bros Account Aug 6 Aug 27
Dr
Cr
Ash Catering Co Account
Cr
Aug 10
Purchases
263.20
Aug 30
Purchases
430.05
Dr
Farm Products Account
Dr
Leigh & Sons Account
Aug 22
Accounting
Cr
Aug 29
Cr Purchases
Cr Purchases
98.70
General Ledger Dr Aug 31
Purchases Account Credit purchases for the month
Dr Aug 31
VAT Account Purchases Day Book : VAT
© Pearson Education Ltd 2010
Cr
1,184.00
207.20
9.4X It is important to check invoices prior to payment to ensure: • The goods invoices match the order specification • The goods have been received • They have been charged correctly • The calculations are accurate • The invoice has been passed for payment
24
115.15
Cr
Answers Chapter 10: Sales returns day book and purchase returns day book 10.1 Sales Day Book Date 2010 Jun-01 Jun-01 Jun-09 Jun-09 Jun-23 Jun-30
Goods £ 180.00 60.00 140.00 330.00 780.00 440.00 1930.00
Details J Alcock P Twigg Bell Products Travis Ltd B Seddon P Twigg
(Page 7) VAT £ 31.50 10.50 24.50 57.75 136.50 77.00 337.75
Total £ 211.50 70.50 164.50 387.75 916.50 517.00 2267.75
VAT £ 2.10 8.75 10.85
Total £ 14.10 58.75 72.85
Sales Returns Day Book Date 2010 Jun-12 Jun-28
Details
Goods £ 12.00 50.00 62.00
J Alcock Travis Ltd
Dr Jun-01
J Alcock Account Sales
Dr Jun-01 Jun-30
Sales
70.50 517.00 Cr
164.50 387.75
Jun-28
Cr Sales returns
B Seddon Account Sales
14.10 Cr
Travis Ltd Account Sales
Dr Jun-23
Sales returns
Bell Products Account
Dr Jun-09
Jun-12
Cr
P Twigg Account Sales Sales
Dr Jun-09
211.50
Accounting
Sales Ledger
58.75 Cr
916.50 General Ledger
Dr
Sales Account Jun-30
Dr Jun-30
Sales Returns Account Total SRDB
Dr Jun-30
Cr Total SDB
Cr
62.00 VAT Account
Total SRDB
1930.00
10.85
Jun-30
Cr Total SDB
337.75 © Pearson Education Ltd 2010
25
10.2 Purchases Day Book Date 2010 May-01 May-05 May-05 May-14 May-19 May-19 May-19 May-31 May-31
Details
Goods £ 120.00 80.00 220.00 60.00 300.00 280.00 80.00 56.00 172.00 1368.00
J Yau Ltd S Wager Ash Bros J Yau Ltd D Wong Rughani & Co Ash Bros A Davies Rughani & Co
VAT £ 21.00 14.00 38.50 10.50 52.50 49.00 14.00 9.80 30.10 239.40
Total £ 141.00 94.00 258.50 70.50 352.50 329.00 94.00 65.80 202.10 1607.40
VAT £ 5.25 7.35 12.60
Total £ 35.25 49.35 84.60
Purchase Returns Day Book Date 2010 May-09 May-27
Details
Goods £ 30.00 42.00 72.00
J Yau Ltd D Wong
Purchase Ledger Dr
Accounting
May-09
J Yau Ltd Account Purchase returns
Dr
35.25
May-01 May-14
Purchases Purchases
S Wager Account May-05
Dr
Dr
Purchases
94.00
Purchases Purchases
258.50 94.00
Cr
D Wong Account Purchase returns
Dr
49.35
May-19
Cr Purchases
352.50
Purchases Purchases
329.00 202.10
Purchases
65.80
Rughani & Co Account May-19 May-31
Dr
Cr
A Davies Account May-31
141.00 70.50 Cr
Ash Bros. Account May-05 May-19
May-27
Cr
Cr
General Ledger Dr May-31
Purchases Account Total PDB
Dr
Purchase Returns Account May-31
Dr May-31 26
© Pearson Education Ltd 2010
Cr
1368.00 Cr Total PRDB
72.00
Total PRDB
12.60
VAT Account Total PDB
239.40
May-31
Cr
10.3X Anderson's Ltd (b) Purchases Day Book Date 2010 Jan 2 Jan 5 Jan 19
Details Naylor's Ltd Roberts & Sons R. James & Co
Goods
VAT
Total
1,300.00 668.00 1,512.00 3,480.00
227.50 116.90 264.60 609.00
1,527.50 784.90 1,776.60 4,089.00
Purchase Returns Day Book Date 2010 Jan 13 Jan 30
Details
Goods
VAT
Total
Naylor's Ltd R. James & Co
84.00 400.00 484.00
14.70 70.00 84.70
98.70 470.00 568.70
Sales Day Book Date 2010 Jan 12 Jan 26 Jan 26 Jan 28 Jan 28
Details
Goods
VAT
Total
Marlow (Fancy Gifts) J. Jeynes Birch Bros F & J Shah Marlow (Fancy Gifts)
656.00
114.80
770.80
2,468.00 340.00 5,000.00 380.00
431.90 59.50 875.00 66.50
2,899.90 399.50 5,875.00 446.50
8,844.00
1,547.70
10,391.70
Goods
VAT
Total
60.00
10.50
70.50
60.00
10.50
70.50
Details Marlow (Fancy Gifts)
Jan 30
Accounting
Sales Returns Day Book Date 2010
10.3X (a) (c) (e) Sales Ledger J. Jeynes Account Jan-01 Jan-26 Feb-01
Balance b/d Sales Balance b/d
1,490.00 2,899.90 4,389.90
Jan-31
Balance c/d
4,389.90 4,389.90
4,389.90 Marlow (Fancy Goods) Account
Jan-01 Jan-12 Jan-28
Balance b/d Sales Sales
552.00 770.80 446.50 1,769.30
Feb-01
Balance b/d
1,698.80
Jan-01 Jan-28
Balance b/d Sales
780.00 5,875.00 6,655.00
Feb-01
Balance b/d
6,655.00
Jan-26
Sales
Jan-30 Jan-31
Sales Returns Balance c/d
70.50 1,698.80 1,769.30
F & J Shah Account Jan-31
Balance c/d
6,655.00 6,655.00
Birch Bros Ltd Account 399.50 © Pearson Education Ltd 2010
27
10.3X (a) (c) (e) Purchase Ledger R. James & Co. Account Jan-30 Jan-31
Purchase Returns Balance c/d
470.00 2,906.60 3,376.60
Jan-01 Jan-19
Balance b/d Purchases
1,600.00 1,776.60 3,376.60
Feb-01
Balance b/d
2,906.60
Jan-01 Jan-02
Balance b/d Purchases
900.00 1,527.50 2,427.50
Feb-01
Balance b/d
2,328.80
Jan-01 Jan-05
Balance b/d Purchases
490.00 784.90 1,274.90
Feb-01
Balance b/d
1,274.90
Naylor's Ltd Account Jan-13 Jan-31
Purchase Returns Balance c/d
98.70 2,328.80 2,427.50
Roberts & Sons Account Jan-31
Balance c/d
1,274.90 1,274.90
10.3X (d) General Ledger Dr
Cr
Sales Account Jan-31
Dr
Total Sales for January
Cr
Sales Returns Account
Jan-31
Total SRDB
Jan-31
Total Purchases for January
60.00
Accounting
Purchases Account 3,480.00 Purchases Return Account Jan-31 Dr Jan-31 Jan-31 Jan-31
Total PRDB
484.00
Jan-31 Jan-31
Total PRDB Total SDB
84.70 1,547.70
*Feb-01
Balance b/d
1,632.40 1,012.90
Cr
VAT Account Total PDB Total SRDB Balance c/d
609.00 10.50 1,012.90 1,632.40
* The balance on the VAT account shows that Anderson's Ltd owe £1,012.90 to HMRC
10.4
28
8,844.00
© Pearson Education Ltd 2010
Perris Design Company Reconciliation of ledger accounts with supplier's statements (a) Bennetts Ltd as at 31 July 2010 £ Balance per our Purchase Ledger 760.28 Add Purchases not received by us 121.50 Add Returns not received by supplier 63.50 Balance per Supplier's Statement 945.28
(b) Kirkhams Products Ltd as at 31 July 2010 Balance per our Purchase Ledger Add Purchases not received by us Add Returns not received by supplier Balance per Supplier's Statement
1,387.68 68.42 54.62 1,510.72
Answers Chapter 11: Cash books 11.1 Cash Book Cash (1) (4) (6) (8) (10) (14) (15) (30) (31) (1)
Capital Sales T Thomas Sales J King J Walters (Loan) Bank J Scott Sales Balances b/d
Bank 4,000
Cash (2) (4) (12) (15) (20)
Fixtures Rent Wages Cash Stationery
500
(22)
J French
277
(28) (31)
Drawings Balances c/d
225 188 308 300
200 66 791
5,273
216
4,247
Bank 660
140 275 200 60 166 100 216
4,247
791
5,273
11.2X Cash Book
2010
Cash
Bank
76.32
Cr
2010
Cash
Bank
Feb 1
Balance b/d
2,376.50
Feb 2
Electricity
Feb 6
D Hill
300.00
Feb 4
Motor expenses
15.00
156.00
Feb 6
A Jackson
275.00
Feb 7
Stationery
3.70
Feb 6
H Wardle
93.20
Feb 12
Palmer & Sons - purchases
723.50
Feb 10
Sales
Feb 14
500.00
Feb 16
217.00 53.00
Feb 17 Feb 17
Wright Brothers Drawings Post office re:
86.20
Feb 22 Feb 26
D Whitman loan J Smith Sales
Feb 28
Balance c/d
590.60
Accounting
Dr
57.10
50.00
Telephone a/c
140.60
Mr S Jepson
133.42 Mar-01
Balances b/d
43.72
Feb 23
Petrol
Feb 27
Brownsons of M/cr
Feb 28
Salaries
Feb 28
Balance c/d
4,405.30
21.00 899.00 2,400.00 43.72 133.42
Mar-01
Balances b/d
4,405.30 590.60
© Pearson Education Ltd 2010
29
11.3 Cash Book Disct (1) (3) (5) (9)
Capital Sales N Morgan S Cooper
(14) (20) (31)
L Curtis P Exeter Sales
Cash
Bank 6,000
407 10 20
210 380
2 32
407
115 78 88 6,871
Disct (1) (2) (4) (7) (12) (16) (31)
Fixtures Purchases Rent S Thompson & Co Rates M Monroe Calances c/d
Cash
Bank 950 1,240
200 4
76 410
6 10
114 93 407
4,195 6,871
General Ledger Discounts Allowed (31)
Cash Book
32 Discounts Received (31)
Cash Book
10
11.4X M Pinero Cash Book
Dr
Accounting
Disct (1) (2)
Balance b/d Capital
(4) (5) (8) (15) (18)
Sales Cash Sales Bank L Graham
(18) (18) (22) (28) (30)
B Crenshaw H Green T Weiskopf Cash Balance c/d
Cash 58
Bank 1,000
220 200 500 400 4
76
7 11
133 209 204 755 6,049
22
1,382
Disct (1) (3) (5) (6) (6) (6) (12) (15) (16) (20) (26) (28) (31) (31)
8,422
Dr
© Pearson Education Ltd 2010
Cash Book
Discounts Allowed Account Cash Book
22
Cash
Bank 1,470 780
200 2 6 10
78 234 390 77 400 120 210 150 755 4,920
18
(31)
30
Balance b/d Office fixtures Bank B Barnes T Horton T Jackin Motor Expenses Cash Drawings Wages Insurance Bank Motor Van Balance c/d
General Ledger Discounts Received Account
Dr
(31)
Cr
20 1,382
8,422
Cr 18 Cr
Answers Chapter 12: Petty cash and the imprest system 12.1
£
Date
Details
2.00
Total £
Jun 01 Jun 01 Jun 01 Jun 03 Jun 04 Jun 06 Jun 10 Jun 14 Jun 16 Jun 19 Jun 21 Jun 23 Jun 27 Jun 29
Balance b/d Cash Window cleaner Postage stamps Petrol Stationery Jean Ford stamps Office cleaner Parcel postage Magazine Computer disks Petrol Refreshments Office cleaner
p
10.00 7.60 37.60 9.75
32 33 34 35 8 36 37 38 39 40 41 42
20.00 1.35 3.00 7.95 14.10 4.20 20.00 135.55
Jun 30
Balance c/d
Jul 01
Balance b/d
Jul 01
Cash
152.00 16.45 133.55
VAT
Postage
Cleaning
Number
p
2010 18.52 131.48
Voucher
£
p
£
p
£
p
Motor Expenses £ p
Stationery £
p
Sundry Expenses £ p
10.00 7.60 5.60 1.45
32.00 8.30 20.00 1.35 3.00
1.05 2.10
6.90 12.00
4.20
20.00 10.20
8.95
50.00
44.00
15.20
7.20
16.45 152.00
Amount required to restore imprest = Float required
Accounting
Receipts
£ 150.00
Less Cash in hand 16.45 Amount required 133.55
© Pearson Education Ltd 2010
31
Singh's Estate Agents - Petty Cash book
12.2X Receipts
Date
Voucher
Details
Total
VAT
Postage
Cleaning
£
£
£
£
11.66 7.40 8.60 20.00 4.23
1.66
£ 23.40 76.60
3.50
2010 15 Oct 15 Oct 16 Oct 17 Oct 18 Oct 20 Oct 20 Oct 23 Oct 23 Oct 25 Oct 27 Oct 28 Oct
Balance Cash Envelopes and files Tea, Coffee and milk Special delivery Office cleaner Cleaning materials M Lloyd Stationery Postage stamps Travel expenses Flowers Photocopy paper
80 81 82 83 84 78 85 86 87 88
31 Oct Balance
c/d
01 Nov Balance
b/d
Accounting
7.00
4.43
Less Cash in hand
13.80
Amount required
86.20
20.00 3.60
0.63
89.70 13.80 103.50
10.00 7.40
0.74 1.40
01 Nov Cash
© Pearson Education Ltd 2010
£
Sundry Expenses £
8.60
7.00 16.42 4.99 9.40
Amount required to restore the imprest = Float required 100.00
32
Stationery
b/d
103.50 13.80 86.20
Travel Expenses £
16.42 4.25 8.00 15.60
23.60
16.42
18.00
11.65
Answers Chapter 13: Bank reconciliation statements Note: Both in theory and in practice you can start with the cash book balance working to the bank statement balance, or you can reverse this method. Many teachers and lecturers have their preferences, but this is a personal matter only. Examiners sometimes ask for them using one way, sometimes the other. Students should therefore be able to tackle them both ways. 13.1 (a) Cash Book 2010 Dec-31
(Totals so far) J Walters
2,328 54
2010 Dec-31 Dec-31
(Totals so far) Bank charges Balance c/d
2,382
497 22 1,863 2,382
(b) Bank Reconciliation Statement as at 31 December 2010 Balance per cash book Add Unpresented cheque Less Bankings not yet on bank statement (249 1 178)
1,863 115 1,978 427
Balance per bank statement
1,551
Accounting
OR Bank Reconciliation Statement as at 31 December 2010 Balance per bank statement Add Bankings not yer on bank statement (249 1 178) Less Unpresented cheque
1,551 427 1,978 115
Balance per cash book
1,863
13.2X (a) Preston & Co Cash Book
Dr Dec 31 Dec 31
Balance b/d BGC: P Todd
9,155 270 9,425
Jan 1
Balance b/d
Dec 31 Dec 31
Cr Bank charges Balance c/d
110 9,315 9,425
9,315
© Pearson Education Ltd 2010
33
(b) Preston & Co Bank Reconciliation Statement as at 31 December 2010 £ 9,315 575
Balance as per cash book Add Unpresented cheque
9,890 Less Bankings not yet on bank statement ( 945 1 300 1 890)
2,135
Balance per bank statement
7,755
OR Preston & Co Bank Reconciliation Statement as at 31 December 2010 £ 7,755 2,135
Balance as per bank statement Add Bankings not yet on bank statement ( 945 1 300 1 890)
9,890 Less Unpresented cheque
575
Balance per cash book
9,315
13.3 (a) Cash Book - James Baxter
Accounting
2010 Mar-31 Mar-31
BGC - A May Balance c/d
£ 929 2,003
2010 Mar-31 Mar-31 Mar-31
£ 2,804 100
Balance b/d Standing order - Oak plc Bank charges
28 2,932
2,932
(b) James Baxter Bank Reconciliation Statement as at 31 March 2010 £ 2,003 160
Bank overdraft per cash book Add Banking not entered on bank statement
2,163 Less Unpresented cheque
490
Bank overdraft per bank statement
1,673
OR James Baxter Bank Reconciliation Statement as at 31 March 2010
34
© Pearson Education Ltd 2010
Balance per bank statement Less Banking not entered on bank statement
£ 1,673 160 1,513 490
O/D
Add Unpresented cheque Balance per cash book
2,003
O/D
O/D
13.4X (a) E Flynn Cash Book 2010 Dec-06 Dec-20 Dec-31 Dec-31 Dec-31
J Hallworth C Walters P Miller K Saunders Balance c/d
155 189 211 180 4,007
2010 Dec-01 Dec-10 Dec-19 Dec-29 Dec-30 Dec-31
Balance b/d P Wood M Roberts P Phillips s/o Mercantile Bank charges
3,872 206 315 84 200 65
4,742
4,742
(b) E Flynn Bank Reconciliation Statement as at 31 December 2010 Bank overdraft per cash book Add Bank lodgements not yet entered on bank statement
4,007 211 4,218
Less Unpresented cheque
84
Bank overdraft per bank statement
4,134
13.5 (a) A cheque that the bank refuses to pay due to insufficent funds in the debtor's account. Apr-01 Apr-07 Apr-13 Apr-20 Apr-30 Apr-22
Narrative Balance b/d Sales banked Sales banked Sales banked Sales banked CT - M Bell
£ 8,000 800 550 650 750 1,230
Date Apr-02 Apr-08 Apr-15 Apr-15 Apr-20 Apr-28 Apr-30 Apr-30
Narrative F Bashir (10123) M Tyler (10124) H Joshi (10125) DD / MTC DD / Pre. Ins Bank charges Dishonoured cheque Balance c/d
11,980 May-01
Balance b/d
£ 1,200 1,300 1,250 250 80 120 280 7,500
Accounting
(b) Date
11,980
7,500
(c) Real Kitchen Suppliers Bank Reconciliation Statement as at 30 April 2010 Balance as per cash book Add: Unpresented cheque - 10125
£
£ 7,500 1,250
Less: cash not yet credited
8,750 750
Balance per bank statement
8,000
© Pearson Education Ltd 2010
35
Answers Chapter 14: The journal 14.1 The Journal Date 2010 Jan-01 Jan-05 Jan-08 Jan-15 Jan-29
Details
Dr £ 4,000
Computer Equipment Data Systems Ltd Drawings Purchases Bad debts J Oddy Motor vehicle Bank
Cr £ 4,000
120 120 220 220 15,500 15,500
Office furniture and fittings
250
J Street
250
Accounting
14.2X (a) Fixtures (b) Drawings
Dr Dr
1,809 500
(c) Drawings
Dr
(d) Office equipment
Purchases
Cr Cr
1,809 500
100
Cash
Cr
100
Dr
500
K Lamb
Cr
500
(e) J Harper
Dr
65
Fixtures
Cr
65
(f)
Dr
68
J Brown
Cr
68
Dr
2,190
Super Offices
Cr
2,190
(a) J Harkness (b) Machinery
Dr Dr
678 4,390
J Harker L Pearson
Cr Cr
678 4,390
(c) Motor Van
Dr
10,800
Motor expenses
Cr
10,800
Bad debts
(g) Office equipment
J Harper
14.3
(d) E Fletcher
Dr
9
(e) Sales
Dr
257
Dr Dr
699 189
Sales
Cr
9
Commissions received
Cr
257
K Webb Bank
Cr Cr
699 189
14.4X (a) H Weld (b) Cash (c) B Maxim
Dr
443
(d) K Innes
Dr
10
(e) H Mersey*
Dr
178
B Gunn
Cr
443
Purchases
Cr
10
Cash
Cr
178
*Needs double the amount to first cancel out the error and then replace it with the correct amount. 36
© Pearson Education Ltd 2010
14.5X (a) Journal Sep 30
Sep 30
Dr 750
Drawings Purchases Bring correction of error of omission L Patel A Patek
Cr 750
500 500
Being correction of your error of commission
(b) Dr Sep 30 Sep 30
Suspense Account Balance b/d Farmer & Co
340 170 510
Sep 30 Sep 30
Cr Sales Pointer Bros
240 270 510
(c) Before discovery of the errors in the Trial Balance the debit side was deficient by £340.
Accounting
(d) The trial balance has its limitations since certain errors can occur and not be revealed, such as:• Error of omission • Error of commission • Error of principle • Error of original entry • Compensating errors • Complete reversal of entries One from the above list.
© Pearson Education Ltd 2010
37
Answers Chapter 15: Sales ledger and purchase ledger control accounts 15.1 Dr
Sales Ledger Control Account
2010 Oct-01 Oct-31
Balance b/d SDB
Nov-01
Balance b/d
12,340 124,790
2010 Oct-31 Oct-31 Oct-31 Oct-31
SRDB Bank & cash Discount allowed Balance c/d
137,130
Cr 2,847 116,225 3,638 14,420 137,130
14,420
15.2X Dr 2010 Feb 1 Feb 28 Feb 28
Sales Ledger Control Account Balance b/d SDB Bank : dishonoured cheques
33,950 347,480 791
2010 Feb 28 Feb 28 Feb 28 Feb 28 Feb 28
Accounting
Feb 28
Bad Debts Purchase ledger set offs Balance c/d
382,221 Mar 1
Balance b/d
332,920 4,497 11,095 977 1,400 31,332 382,221
31,332
15.3 Dr 2010 Jul-31 Jul-31 Jul-31 Jul-31
Purchase Ledger Control Account PRDB Bank Discount received Balance c/d
1,575 26,150 550 19,375 47,650
2010 Jul-01 Jul-31
© Pearson Education Ltd 2010
Balance b/d PDB
Cr 19,450 28,200
47,650 Aug-01
38
Bank & cash Discount allowed SRDB
Cr
Balance b/d
19,375
15.4X Dr 2010 Jan 31 Jan 31 Jan 31 Jan 31 Jan 31
Purchase Ledger Control Account PRDB Bank Discount received Sales ledger set offs Balance c/d
2,835 45,070 990 2,000 34,875 85,770
2010 Jan 31 Jan 31
Balance b/d PDB
Cr 35,010 50,760
85,770 Feb 1
Balance b/d
34,875
15.5X (a) Dr 2009 Jan 1 Dec 31 Dec 31
Sales Ledger Control Account Balance b/d SDB Returned cheque
65,000 453,900 750
2009 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31
519,650
Cr RIDB Bank Discount All Bad Debts Purchase ledger set offs Balance c/d
6,430 432,000 7,540 650 1,650 71,380 519,650
Accounting
(b) Ravi believes there may be errors in his sales ledger because the sales ledger shows £78.540 total debtors at the end of December 2009. Having constructed the control account the total debtors outstanding amounts to £71,380. Therefore there is a discrepancy of £78,540 £71,380 £7,160 which will require investigation. (c) The closing balance of the sales ledger control account would appear under current assets in the balance sheet.
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Answers Chapter 16: Trading account and profit and loss account of a sole trader 16.1
Lucy Chan Trading and Profit and Loss Account for the year ending 31 December 2010 £ Sales Less cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Rent Wages and salaries Printing and stationery Electricity expenses General expenses
84,665 15,085
4,595 28,865 2,940 2,485 1,295
Net Profit
16.2X
Accounting
40,180
Charles Drew Trading and Profit and Loss Account for the year ending 31 December 2010 Sales Less cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Wages Rent Office expenses Motor expenses Electricity expenses Net Profit
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69,580 64,190
24,010
£
40
£ 133,770
96,547 18,495
11,229 5,330 1,620 922 1,350
£ 128,452
78,052 50,400
20,451 29,949
G Singh Trading and Profit and Loss Account for the year ended 31 December 2010 £ Sales Less Cost of goods sold: Purchases Less Closing stock Gross Profit Less Expenses Wages Motor expenses Rates Insurance General expenses
58,516 10,192
14,224 11,300
R Cairns Trading and Profit and Loss Account for the year ended 30 June 2010 £ Sales Less Cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Wages Rates Printing and Stationery Electricity Insurance Sundry Expenses Motor expenses
71,409 11,498
9,492 2,000 562 1,266 605 1,518 3,109
Net Profit
16.5X
48,324 25,524
8,600 2,080 2,680 444 420
Net Profit
16.4X
£ 73,848
£ 99,082
59,911 39,171
Accounting
16.3
18,552 20,619
J Leung Trading and Profit and Loss Account for the year ended 31 March 2010 £ Sales Less Cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Rent and rates Insurance Electricity expenses Motor expenses Salaries and wages General expenses Net Profit
133,171 42,828
6,708 1,312 2,219 2,429 26,855 3,466
£ 153,080
90,343 62,737
42,989 19,748
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Answers Chapter 17: The Balance Sheet 17.1
G Singh Balance Sheet as at 31 December 2010 £ Fixed Assets Buildings Motor vehicle Current Assets Stock Debtors Cash at bank Cash in hand Less Current Liabilities Creditors
£
£
20,000 12,000
20,000 12,000
32,000
32,000
10,192 7,800 6,616 160
24,768
6,418
6,418
Net current assets
18,350 50,350
Financed by Cash introduced
48,000 11,300
Add Net profit for the year
59,300 8,950
Less Drawings
50,350
Accounting
17.2X
R Cairns Balance Sheet as at 30 June 2010 Fixed assets Premises Computer equipment Motor vehicle Current assets Stock Debtors Cash at bank Cash in hand Less Current liabilities Creditors Net current assets Financed by: Capital introduced Add Net profit for the year Less Drawings
£
£
£
145,000 8,000
-
145,000 8,000
16,500
-
16,500
169,500
-
169,500
11,498 9,498 6,541 -
27,537
3,618
3,618 23,919 193,419 185,000 20,619 205,619 12,200 193,419
42
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17.3
J Leung Balance Sheet as at 31 March 2010 £ Fixed Assets Buildings Equipment Motor van
£
£
120,400 17,028 15,050
120,400 17,028 15,050
152,478
152,478
Current Assets Stock Debtors Cash at bank
42,828 29,283 4,876
76,987
Less Current Liabilities Creditors
13,975
13,975
Working Capital
63,012 215,490
Financed by Capital Net profit
212,736 19,748 232,484 16,994
Less Drawings
215,490
17.4X
Sarah Joshi Trading and Profit and Loss Account for the year ended 31 May 2010
Net Profit
85,691 14,998
3,000 822 3,473 605 12,465 1,319 578
£ 103,658
Accounting
£ Sales Less Cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Rent General expenses Motor expenses Printing and stationery Wages and salaries Heating and lighting Insurance
70,693 32,965
22,262 10,703
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Balance Sheet as at 31 May 2010 Fixed Assets Buildings Computer equipment Motor vehicle Current Assets Stock Debtors Cash at bank Less Current Liabilities Creditors Net current assets / working capital Less Long-term liabilities Financed By: Capital Add Net profit Less Drawings
£
£
£
180,000 3,600
-
180,000 3,600
19,800
-
19,800
203,400
-
203,400
14,998 11,398 13,850
40,246
4,343
4,343 35,903 239,303 237,240 10,703 247,943 8,640
Accounting
239,303
44
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Answers Chapter 18: Financial statements: other considerations 18.1
K Jepson Trading account for the year ended 31-Dec-10 £ Sales Less cost of goods sold Opening stock Add purchases Add carriage inwards
12,463 47,536 1,206
Less closing stock
61,205 13,480
Gross profit
47,725 22,011
Jane Li Trading and Profit and Loss Account for the year ended 31 March 2010 £ Sales Less Cost of Goods Sold Opening Stock Add Purchases Add Carriage Inwards
29,686 66,429 2,020
Less Closing Stock
98,135 33,307
Gross profit
£ 98,280
Accounting
18.2X
£ 69,736
64,828 33,452
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18.3
J Mann Trading and Profit and Loss Account for the year ended 31 July 2010 £ Sales Less sales returns Less cost of goods sold Opening stock Add Purchases Add carriage inwards Less purchase returns Less Closing stock Gross Profit Less Expenses Salaries and wages Rent Motor Expenses General expenses Carriage outwards
11,949 65,100 3,570 80,619 1,176 79,443 8,883
10,521 3,066 6,552 882 1,659
Emily Hart Trading and Profit and Loss Account for the year ended 31 December 2010 £
Accounting
Less Cost of Goods Sold Opening Stock Add Purchases Add Carriage Inwards Less Purchase Returns Less Closing Stock Gross Profit Less Expenses Wages Rent and rates General expenses Carriage outwards Printing and stationery Net Profit
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22,680 16,590
Sales Less sales returns
46
70,560 39,270
Net Profit
18.4X
£ 110,859 1,029 109,830
34,732 122,683 400 157,815 3,000 154,815 32,984
£ 189,050 2,850 186,200
121,831 64,369
21,875 2,800 684 931 525
26,815 37,554
S Shah Trading and Profit and Loss Account for the year ended 30 June 2010 £
£ 178,560 1,968 176,592
Sales Less sales returns Less cost of goods sold Opening stock Add Purchases Add carriage inwards
22,733 113,990 2,976 139,699 3,091 136,608 28,320
Less purchase returns Less Closing stock Gross Profit Less Expenses Salaries and wages Rent and rates Insurance Motor Expenses Telephone and internet Electricity Carriage outwards General expenses
108,288 68,304
37,075 2,918 749 4,250 4,198 1,594 1,920 3,014
55,718
Net Profit
12,586
Balance Sheet as at 30 June 2010 £ Fixed Assets Buildings Computer equipment Motor vehicles Current Assets Stock Debtors Cash at bank Less Current Liabilities Creditors Net Current Assets (Working Capital) Less long-term liabilities Long-term loans Financed by Capital account Balance b/f Add net profit for the year Less Drawings
£
80,000 3,360 17,280 100,640
£
Accounting
18.5
80,000 3,360 17,280 100,640
28,320 37,402 4,627
70,349
32,618
32,618 37,731 138,371 Nil 138,371
137,305 12,586 149,891 11,520 138,371 © Pearson Education Ltd 2010
47
18.6X
J Collins Trading and Profit and Loss Account for the year ended 31 March 2010 £ Sales Less Cost of sales Opening stock Add Purchases Carriage inwards
£
15,104 46,224 936 62,264 19,992
Less Closing stock Gross Profit Less Expenses Salaries and wages Carriage outwards Rent Rates Printing and stationery Travel expenses Telephone Sundry expenses
11,788 1,304 1,824 1,080 810 490 756 2,808
Net Profit
£ 74,400
42,272 32,128
20,860 11,268
Balance Sheet as at 31 March 2010 £ Fixed Assets Fixtures and fittings Computer equipment
Accounting
Current Assets Stock Debtors Cash at bank Cash in hand Less Current Liabilities Creditors Net Current assets Financed by: Capital Add net profit
48
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Less Drawings
£
2,400 9,600 12,000
£ 2,400 9,600 12,000
19,992 18,308 15,504 480
54,284
12,180
12,180 42,104 54,104 51,376 11,268 62,644 8,540 54,104
Answers Chapter 19: The concept of depreciation of fixed assets 19.1 J Chen (a) Straight Line
(b) Reducing Balance
Cost Year 1
Depreciation*
£
£
6,000
6,000
1,250
Year 1
Depreciation 40% 3 £6,000
3,600
4,750 Year 2
Depreciation
1,250
Year 2
Depreciation 40% 3 £3,600
3,500 Year 3
Depreciation
1,250
Depreciation
1,250
1,440 2,160
Year 3
Depreciation 40% 3 £2,160
2,250 Year 4
2,400
864 1,296
Year 4
Depreciation 40% 3 £1,296
1,000
519 777
6,000 2 1, 000
Accounting
*Depreciation 5 _____________ 5 £1,250 4 19.2 Machine (a) Straight Line
(b) Reducing Balance
Cost Year 1
Depreciation*
£
£
75,000
75,000
11,070
Year 1
Depreciation 20% 3 £75,000
63,930 Year 2
Depreciation
11,070
60,000 Year 2
Depreciation 20% 3 £60,000
52,860 Year 3
Depreciation
11,070
Depreciation
11,070 30,720
12,000 48,000
Year 3
Depreciation 20% 3 £48,000
41,790 Year 4
15,000
9,600 38,400
Year 4
Depreciation 20% 3 £38,400
7,680 30,720
75,000 2 30,720
*Depreciation 5 _______________ 5 £11,070 4
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19.3X (a) Reducing Balance Cost Year 1 Year 2 Year 3 Year 4
£ 19,200 9,600 9,600 4,800 4,800 2,400 2,400 1,200 1,200
Depreciation 50% of 19,200 Depreciation 50% of 9,600 Depreciation 50% of 4,800 Depreciation 50% of 2,400
(b) Straight Line Cost Year 1 Year 2 Year 3 Year 4
£ 19,200 4,500 14,700 4,500 10,200 4,500 5,700 4,500 1,200
Depreciation Depreciation Depreciation Depreciation
Accounting
19,200 2 1,200 5 18,000 4 4 5 4,500
19.4X Computer Equipment (a) Straight Line Cost Year 1
Depreciation
Year 2
Depreciation
3,600 1,000
Year 2
Year 3
Depreciation
2,600 1,000
Year 3
Year 4
Depreciation
1,600 1,000
Year 4
Depreciation 4,600 2 600 £1,000 *___________________________________ 4
50
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(b) Reducing Balance £ 4,600 * 1,000
600
Cost Year 1
Depreciation 25% 3 4,600 Depreciation 25% 3 3,450 Depreciation 25% 3 2,588 Depreciation 25% 3 1,941
£ 4,600 1,150 3,450 862 2,588 647 1,941 485 1,456
19.5X (a) Reducing Balance £ Cost Year 1
72,900 Depreciation 33 __13 % of 72,900
24,300
Year 2
48,600 Depreciation 33 __13 % of 48,600
16,200
Year 3
32,400 Depreciation 33 __13 % of 32,400
10,800
Year 4
21,600 Depreciation 33 __13 % of 21,600
7,200
Year 5
14,400 Depreciation 33 __13 % of 14,400
4,800
9,600
(b) Straight Line £ Cost
72,900 Depreciation
Year 2
60,240 Depreciation
Year 3
12,660 12,660 47,580
Depreciation
12,660
Accounting
Year 1
34,920
Year 4
Depreciation
Year 5
Depreciation
12,660 22,260
12,660 9,600
72,900 2 9,600 5 63,300 4 5 5 12,660
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19.6 Dumper (a) Reducing Balance
(b) Straight Line £
Cost Year 1
18,000 Depreciation 40% 3 £18,000
Year 2 Year 3
Year 1
Depreciation
Year 2
13,000 Depreciation
Year 3
Depreciation
3,888
19.7X (a) Machinery has straight line depreciation; fixtures has reducing balance. (b) Machinery: 4,800 2 1,600 2 1,600 1,600 Fixtures: 2,025 2 506 2 380 1,139 (c) Machinery: 8,000 2 2,000 2 1,500 2 1,125 2 844 5 2,531 (Depreciation rate is 25% p.a.)
Accounting
5,000
2,592
18,000 2 3,000
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5,000 8,000
Depreciation ______________ £5,000 3
52
5,000
4,320 6,480
Depreciation 40% 3 £6,480
18,000
7,200 10,800
Depreciation 40% 3 £10,800
£
3,000
Answers Chapter 20: Double entry for depreciation and disposal of a fixed asset 20.1 (a) Motor Car Account
Dr 2001 Jan-01
Cr
£ 12,500
Bank
£
(b) 2001 Dec-31 2002 Dec-31
Provision for Depreciation - Motor Car Account
Cr
Balance c/d
£ 2,500
2001 Dec-31
Profit and loss a/c
Balance c/d
4,500
2002 Jan-01 Dec-31
Balance b/d Profit and loss a/c
2,500 2,000 4,500
2003 Jan-01 Dec-31
Balance b/d Profit and loss a/c
4,500 1,600 6,100
2004 Jan-01
Balance b/d
6,100
4,500 2003 Dec-31
Balance c/d
6,100 6,100
£ 2,500
Accounting
Dr
(c) Profit and Loss Account (extracts) for the year ended 31 December 2001
Depreciation
£ 2,500
2002
Depreciation
2,000
2003
Depreciation
1,600
(d) Balance Sheet (extracts) as at 31 December 2001 Motor Car
Cost £ 12,500
Total Depreciation £ 2,500
Net book value £ 10,000
2002 Motor Car
12,500
4,500
8,000
2003 Motor Car
12,500
6,100
6,400
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20.2X (a)
Straight Line Method
Dr
Machinery Account
2001 Nov 01
Bank
Dr
Balance c/d
2004 Oct 31
Accounting
2004 Oct 31
(c)
5,400 5,400
2002 Oct 31
Cr
Profit and loss a/c
£ 1,800
Nov 1 2003 Oct 31
Balance b/d
1,800
Profit and loss a/c
1,800 3,600
Nov 1
Balance b/d
3,600
2004 Oct 31
Profit and loss a/c
1,800 5,400
Nov 1
Balance b/d
5,400
Reducing Balance Method Machinery Account
2001 Nov 01
2003 Oct 31
3,600 3,600
Balance c/d
Dr
2002 Oct 31
£ 1,800
Balance c/d
2003 Oct 31
Dr
£
Provision for Depreciation - Machinery Account
2002 Oct 31
(b)
Cr
£ 18,000
Cr
£ 18,000
Bank
£
Provision for Depreciation - Machinery Account Balance c/d
Balance c/d
Balance c/d
£ 1,800
3,420 3,420
4,878 4,878
2002 Oct 31
Cr
Profit and loss a/c
£ 1,800
Nov 1 2003 Oct 31
Balance b/d
1,800
Profit and loss a/c
1,620 3,420
Nov 1
Balance b/d
3,420
2004 Oct 31
Profit and loss a/c
1,458 4,878
Nov 1
Balance b/d
4,878
Straight Line Method Profit and Loss Account (extracts) for the year ended 31 October
54
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2002
Depreciation - Machinery
£ 1,800
2003
Depreciation - Machinery
1,800
2004
Depreciation - Machinery
1,800
Balance Sheet (extracts) as at 31 October 2002 Machinery
Cost £ 18,000
Total Depreciation £ 1,800
Net Book Value £ 16,200
2003 Machinery
18,000
3,600
14,400
2004 Machinery
18,000
5,400
12,600
(d)
Reducing Balance Method Profit and Loss Account (extracts) for the year ended 31 October
2002
Depreciation - Machinery
£ 1,800
2003
Depreciation - Machinery
1,620
2004
Depreciation - Machinery
1,458
Balance Sheet (extracts) as at 31 October 2002 Machinery
Cost £ 18,000
Total Depreciation £ 1,800
Net Book Value £ 16,200
2003 Machinery
18,000
3,420
14,580
2004 Machinery
18,000
4,878
13,122
Computer equipment disposals
9,500
Accounting
20.3 (a) Computer Equipment Account 2001 Jan-01
Balance b/d
9,500
2004 Jan-01
(b) Provision for Depreciation : Computer Equipment Account 2001
2001 Computer equipment
Dec-31
Balance c/d
1,900
Jan-01
2002 Dec-31
Balance c/d
3,800
2002 Jan-01 Dec-31
Balance b/d Profit and loss
1,900 1,900 3,800
2003 Jan-01 Dec-31
Balance b/d Profit and loss
3,800 1,900 5,700
2004 Jan-01
Balance b/d
5,700
3,800 2003 Dec-31
Balance c/d
5,700 5,700
2004 Jan-01
Computer equipment disposals
5,700
1,900
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(c) Computer Equipment Disposals Account 2004 Jan-01 Dec-31
Computer Profit and loss
2004 Jan-01 Jan-01
9,500 450 9,950
Depreciaiton Bank
5,700 4,250 9,950
(d) Profit and Loss Account (extracts) for the year ended 31 December 2001
Depreciation - Computer Equipment
£ 1,900
2002
Depreciation - Computer Equipment
1,900
2003
Depreciation - Computer Equipment
1,900
(e) Balance Sheet (extracts) as at 31 December 2001 Computer Equipment
Cost £ 9,500
Total Depreciation £ 1,900
Net book value £ 7,600
2002 Computer Equipment
9,500
3,800
5,700
2003 Computer Equipment
9,500
5,700
3,800
Provision for depreciation
9,700
Bank
1,850
20.4X
Accounting
(a) Motor Van Disposals Account Motor Van
12,000
Profit and loss : loss on sale 12,000
450 12,000
(b) Machinery Disposals Account Machinery Profit and loss : profit on sale
27,900
2,770
Provision for depreciation
19,400
Bank
11,270
30,670
30,670
(c) Fixtures Disposals Account Fixtures
8,420
Provision for depreciation Bank Profit and loss : loss on sale
8,420 56
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7,135 50 1,235 8,420
(d) Buildings Disposals Account Buildings
200,000
Profit and loss : profit on sale
59,000
Provision for depreciation
110,000
Bank
149,000
259,000
259,000
20.5 (a)
Straight Line Method
_________________ No. of Years
35,000 2 11,000 £6,000 per annum ______________
Cost 2 Scrap Value
4
(b) Provision for Depreciation - Vehicles Account
2005 Mar-31 2006 Mar-31
Balance c/d
Balance c/d
£ 7,000
12,600 12,600
2005 Mar-31
Profit and loss
7,000
Balance b/d
7,000
Apr-01 2006 Mar-31
Profit and loss
5,600 12,600
Apr-01
Balance b/d
12,600
WORKINGS
Year ended 31/03/05 20% 3 35,000 £7,000 per annum
Year ended 31/03/06 20% 3 (35,000 2 7,000) £5,600 per annum
(c)
Any two from: Wear and tear, obsolence, time factors, inadequacy, depletion.
Cr
Accounting
Dr
20.6X (a) RIALTO TRADERS Plant and Machinery Account 2007 May 1
Balance b/d
500,000
2007 Dec 31 2008 Apr 30
500,000 2008 May 1
Balance b/d
Plant and machinery disposals
200,000
Balance c/d
300,000 500,000
300,000
© Pearson Education Ltd 2010
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(b) Motor Vehicles Account 2007 May 1 2008 Feb 1 May 1
Balance b/d
200,000
Bank
100,000 300,000
Balance b/d
300,000
2008 Apr 30
Balance c/d
300,000 300,000
(c) Provision for Depreciation - Plant and Machinery Account 2007 Dec 31 2008 Apr 30
Plant and MachineryDisposals
150,000
Balance c/d
80,000 230,000
2007 May 1
Balance b/d
200,000
2008 Apr 30
Profit and Loss
30,000 230,000
May 1
Balance b/d
80,000
(d) Plant and Machinery - Disposal Account 2007 Dec 31
Plant and Machinery
200,000
2007 Dec 31 Dec 31 Dec 31
Accounting
200,000
58
Provision for Depreciation Bank Profit and Loss
150,000 40,000 10,000 200,000
(e) (i) Concept 1 – Consistency Concept 2 – Accruals
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(ii) It is important to apply the consistency concept so that comparisons can be made between different years. Therefore in the above example depreciation is changed at 10% using the straight line method, the company needs to be consistent in using this method and the rate of depreciation in future final accounts. In applying the accruals concept the benefit that a fixed asset provides over its useful life is matched with the depreciation for the same period.
Answers Chapter 21: Bad debts and provision for doubtful debts (a)
Hart & Partners Dr
Bad Debts Account
2009 May-16 Jul-31 Nov-09
S Bayley J Carter T Roche
2009 Dec-31
550 223 467 1,240
Dr
Profit & loss
Provision For Doubtful Debts Account
Cr
Profit & loss
520
Profit and Loss Account for the year ended 31 December 2009 (extracts) Gross profit Less Expenses Bad debts written off Provision for doubtful debts
(c)
1,240 520
1,760
26,000 520
25,480
Balance Sheet as at 31 December 2009 (extract) Current Assets Debtors Less Provision for doubtful debts
21.2
1,240
1,240 2009 Dec-31
(b)
Cr
Date 31-Dec 2007 2008 2009 2010
Total debtors 7,000 8,000 6,000 7,000
Profit and loss 70 10 20 10
Dr/Cr Dr Dr Cr Dr
Accounting
21.1
Final figure for balance sheet 6,930 (net) 7,920 (net) 5,940 (net) 6,930 (net)
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21.3X Bad Debts 2007 31 Dec 2008 31 Dec
Debtors Debtors
298
2007 31 Dec
Profit and loss a/c
298
386
2008 31 Dec
Profit and loss a/c
386
Profit and loss a/c
344
Profit and loss a/c
477
2009 31 Dec
Debtors
344
2009 31 Dec
2010 31 Dec
Debtors
477
2010 31 Dec
Provision for Doubtful Debts 2007 31 Dec 2008 31 Dec
100
Balance c/d Balance c/d
130
2007 31 Dec
Profit and loss a/c
100
2008 1 Jan 31 Dec
Balance b/d Profit and loss a/c
100 30 130
2009 1 Jan
Balance b/d
130
130 2009 31 Dec 31 Dec
Profit and loss a/c Balance c/d
15 115
130
130 2010 31 Dec
Balance c/d
150
2010 1 Jan 31 Dec
Balance b/d Profit and loss a/c
115 35 150
2011 1 Jan
Balance b/d
150
Accounting
150
60
Profit and Loss Accounts for the years ended 31 December (extracts) 2007 Bad debts Provision for doubtful debts 2008 Bad debts Provision for doubtful debts 2009 Bad debts 2010 Bad debts Provision for doubtful debts
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£ 298 100
£
386 30 344 477 35
2009 Provision for doubtful debts
15
Balance Sheet as at 31 Decemeber (extracts) Debtors Less Provision for doubtful debts
£ 12,000 100
11,900
2008
Debtors Less Provision for doubtful debts
15,000 130
14,870
2009
Debtors Less Provision for doubtful debts
14,000 115
13,885
2010
Debtors Less Provision for doubtful debts
18,000 150
17,850
2007
£
21.4X (a) The Journal Date Apr 30
Bad Debts A. Carter Being bad debt written off
Debit
Credit
£ 500
£ 500
(b) Double entry for the creation of a Provision for Doubtful Debts Debit: Profit and Loss Account Credit: Provision for Doubtful Debts Account
Accounting
(c) The prudence concept requires that the financial statements provide a ‘true and fair’ view of the business at the date of the balance sheet. In addition profits should also reveal a correct and true figure. Therefore any anticipated losses need to be accounted for in the profit and loss account. Providing for a ‘provision for doubtful debts’ anticipates any potential loss should a debtor fail to pay. By deducting the provision from the debtors in the balance sheet a more accurate figure of debtors is given.
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Answers Chapter 22: Accruals, prepayments and other adjustments for financial statements 22.1 (a)
C Homer Rent Account 2008 Dec-31 Dec-31
Bank Owing c/d
1,600 400 2,000
2008 Dec-31
Owing b/d
400
Profit and loss Prepaid c/d
635 265 900
Profit and loss
7,381
Insurance Account 2008 Dec-31
Bank
900
2008 Dec-31 Dec-31
900 2009 Jan-01
Prepaid b/d
(c) 2008 Dec-31 Dec-31
Accounting
265
Motor Expenses Account Bank Owing c/d
7,215 166 7,381
2008 Dec-31
7,381 2009 Jan-01
(d)
Owing b/d
Bank
Jul-01
Bank
2009 Jan-01
Prepaid b/d
(e)
750
2008 Dec-31
Profit and loss
1,125
Dec-31
Prepaid c/d
1,500 375 1,875
375
Rents Receivable Account 2008 Dec-31 Dec-31
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166
Rates Account 2008 Jan-01
1,875
62
2,000 2,000
2009 Jan-01
(b)
Profit and loss
Profit and loss In advance c/d
4,800 1,600 6,400
2008 Apr-15 Dec-15
Bank Bank
2,000 4,400 6,400
2009 Jan-01
In advance b/d
1,600
22.2 (a)
T Norton General Expenses Account 2009 Dec-31 Dec-31
Bank Owing c/d
615 56 671
2009 Dec-31
671 671
2010 Jan-01
(b)
Profit and loss
Owing b/d
56
Telephone Account 2009 Dec-31 Dec-31
Bank Owing c/d
980 117 1,097
2009 Dec-31
1,097 1,097
2010 Jan-01
(c)
Profit and loss
Owing b/d
117
Bank Owing c/d
3,056 175 3,231
Commission Received Account Profit and loss
3,231
2009 Dec-31 Dec-31
3,231 2010 Jan-01
Owing b/d
(d)
175
Accounting
2009 Dec-31
Carriage Outwards Account 2009 Dec-31 Dec-31
Bank Owing c/d
666 122 788
2009 Dec-31
788 788
2010 Jan-01
(e)
Profit and loss
Owing b/d
122
Insurance Account 2009 Jan-01 Oct-01
Bank Bank
2010 Jan-01
Prepaid b/d
1,080 1,080 2,160
2009 Dec-31 Dec-31
Profit and loss Prepaid c/d
1,440 720 2,160
720
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22.3X (a)
T Dale Stationery Account 2008 01 Jul 2009 30 Jun
Stock b/d Cash and bank
(b)
290 855 1,145
2009 30 Jun 2009 30 Jun
Profit and loss Stock c/d
Cash and bank Owing c/d
(c)
590 90 680
2008 01 Jul 2009 30 Jun
Owing b/d Profit and loss
616
Rent and Rates Account
2009 30 Jun 30 Jun
Cash and bank Owing c/d
3,890 360
2009 30 Jun 30 Jun
Owing b/d: Rent Rates Profit and loss Rent prepaid and c/d
4,250
Accounting
64
680
2008 01 Jul
(d)
160 205 3,635 250 4,250
Motor Expenses Account
2009 30 Jun
Cash and bank
4,750
30 Jun
Owing c/d
375 5,125
(e)
2008 01 Jul
Owing b/d
2009 30 Jun
Profit and loss
180 4,945 5,125
Commission Receivable Account 2008 01 Jul 2009 30 Jun
Owing b/d Profit and loss
80 915 995
© Pearson Education Ltd 2010
345 1,145
General Expenses Account
2009 30 Jun 30 Jun
64
800
2009 30 Jun 30 Jun
Cash and bank Owin c/d
850 145 995
C Cainen Trading and Profit and Loss Account for the year ended 31 December 2009 £ Sales Less cost of goods sold Opening stock Add Purchases Less Closing stock Gross Profit Less Expenses Rent (640 2 160) Wages and salaries (2,140 1 290) Insurance (590 2 190) Bad debts Telephone (300 1 110) General Expenses Net Profit
22.5
£ 18,590
2,050 11,170 13,220 3,910 9,310 9,280 480 2,430 400 270 410 180
4,170 5,110
K Tyler Trading and Profit and Loss Account for the year ended 31 December 2010 Sales Less Sales returns Less cost of goods sold Opening stock Add Purchases Less Closing stock Gross Profit Less Expenses Wages and salaries (£4,960 1 £510) Motor expenses Rent and rates (£1,200 2 £160) Discounts allowed Lighting expenses (£580 1 £170) Computer running expenses (£1,210 2 £140) General expenses Depreciation : Motor vehicles Net Profit
£ 54,190 200 8,620 30,560 39,180 12,120
5,470 2,120 1,040 290 750 1,070 360 700
£ 53,990
Accounting
22.4
27,060 26,930
11,800 15,130
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22.6X
J Sears Trading and Profit and Loss Account for the year ended 31 December 2010 Sales Less Sales returns
80,000 1,000 79,000
Less Cost of goods sold: Opening stock Add Purchases Less Purchase returns Less Closing stock Gross Profit Less Expenses Wages and salaries (7,200 1 450) Telephone (200 2 20) Bad debts Provision for doubtful debts (1,960 3 10% 2 160) Depreciation: Store fittings Motor van Net Profit
20,000 70,000 90,000 1,240 88,760 24,000
64,760 14,240
7,650 180 40 36 800 1,200
9,906 4,334
J Sears Balance Sheet as at 31 December 2010
Accounting
Cost Fixed Assets Store fittings Motor van Current Assets Stock Debtors Less Provision for doubtful debts Prepaid expenses Bank
1,960 196
Less Current Liabilities Creditors Expenses owing Net current assets
1,400 450
Financed by: Capital Balance 1.1.2010 Add Net profit Less Drawings
66
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8,000 6,000 14,000
Depreciation
Net Book Value
800 1,200 2,000
7,200 4,800 12,000
24,000 1,764 20 600 26,384
1,850 24,534 36,534
35,800 4,334 40,134 3,600 36,534
Answers Chapter 23: Incomplete records 23.1 (a)
Total Debtors Balances b/d Sales (difference)
2,760 14,940 17,700
Cash Balances c/d
14,610 3,090 17,700
Total Creditors Cash Balances c/d
(b)
9,390 1,320 10,710
Balances b/d Purchases (difference)
1,080 9,630 10,710
K Rogers Trading Account for the year ended 31 October 2009 £ Sales Less Cost of Goods sold Opening Stock Add Purchases
2,010 9,630 11,640 2,160
Less Closing Stock Gross Profit
23.2X
£ 14,940
9,480 5,460
2008 1 Jun 2009 31 May
Balance b/d Sales
5,670 45,550 51,220
2009 31 May
Bank
45,112
31 May
Balance c/d
6,108 51,220
Balances b/d
3,410
Accounting
Total Debtors
Total Creditors
2009 31 May 31 May
Bank Balances c/d
29,375 4,126 33,501
2008 1 Jun 2009 31 May
Purchases
30,091 33,501
Trading Account for the year ended 31 May 2009 £ Sales Less Cost Of Goods Sold Opening Stock Add Purchases Less Closing Stock Gross Profit
11,590 30,091 41,681 13,425
£ 45,550
28,256 17,294 © Pearson Education Ltd 2010
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23.3 (a) Capital is £62,550 (b)
D Lewinski Balance Sheet as at 30 June 2009 £ Fixed assets Plant Fixtures
£ 36,000 3,600 39,600
Current assets Stock Debtors Bank Cash
13,500 9,300 6,000 1,350 30,150
Less Current Liabilities Creditors Net current assets
7,200 22,950 62,550
Financed by: Capital Cash introduction Add Net profit
60,000 18,550 78,550 16,000
Less Drawings
62,550
23.4
J Marcano Statement of Affairs as at 31 August 2009
Accounting
£ Fixed assets Fixtures Motor Van Current assets Stock Debtors Bank Cash
£ 3,500 3,500 7,000
16,740 11,890 2,209 115 30,954
Less Current liabilities Creditors
9,952
21,002 28,002
68
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Statement of Affairs as at 31 August 2009 £ Fixed assets Fixtures Less Depreciation Motor Van Less Depreciation
£ 5,500 300 3,500 700
Current assets Stock Debtors Bank Cash
£
5,200 2,800 8,000
24,891 15,821 72 84 40,868
Less Current liabilities Trade creditors Expenses owing Bank overdraft Net current assets
6,002 236 165
6,403 34,465 42,465
Capital Balance as at 31/08/2009 Add Cash introduced Add Net profit
(C) (B)
Less Drawings
28,002 12,800 9,223 50,025 7,560
(A)
Found as the figure to make balance sheet totals agree 42,465.
(B)
Less 7,560 5 (A) 42,465, therefore (B) is 50,025.
(C)
Missing figure to total 50,025 5 9,223.
42,465
Accounting
(A)
23.5X (a)
Total Debtors Account
Dr 2008 1 Apr 2009 31 Mar
Balances b/d
Cr
2,980
Sales
11,520
2009 31 Mar 31 Mar
Cash Balances (difference) c/d
14,500
Dr
2009 31 Mar 31 Mar
14,500
Total Creditors Account
Cash Balance (difference) c/d
7,780 2,220 10,000
10,820 3,680
2008 1 Apr 2009 31 Mar
Cr Balance b/d
1,880
Purchases
8,120
10,000 © Pearson Education Ltd 2010
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(b)
A Hanson Calculation of Capital as at 31 March 2008 and 31 March 2009 31.3.2008 £ 1,460 600 2,320 60 2,980 7,420 1,880 5,540
Bank Office furniture Stock Cash Debtors Less Creditors Capital
(c) Capital as at 31 March 2008 Add Net profit
(B) (A)
31.3.2009 £ 1,740 500 2,620 80 3,680 8,620 2,220 6,400
£ 5,540 3,400 8,940
Less Drawings
2,540
Capital as at 31 March 2009
6,400
Note: By arithmetical deduction, (A) is £8,940. Thus £5,540 1 (B) 5 £8,940, i.e (B) is £3,400.
23.6X (a) (i)
Total Debtors Account
Accounting
Dec-01
Balances b/d Sales
450 7,628 8,078
Calculation of Sales Credit Sales Cash Sales Drawings 12 3 £1,500
£ 7,628 200,552 18,000 226,180
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Nov 30 Nov 30
Bank Balance c/d
7,500 578 8,078
(ii)
Rent Account Dec 01 Nov 30
Balance b/d Bank
Nov 30 Nov 30
Bank Balance c/d
(iii)
Nov 30 Nov 30
Profit and loss Balance c/d
8,760 490 9,250
Nov 30
Profit and loss
700
Dec 1
Balance b/d
700 100
Loan Interest Account 600 100 700
he loan interest needs adjusting so that the amount incurred for the year is T ultimately charged to the profit and loss account i.e 7% 3 £10,000 5 £700. According to the records only £600 has been paid, therefore the difference between the amount due and paid (£700 2 £600 5 £100. £100 needs to be accrued. The whole of the interest i.e. £700 is charged to the profit and loss account. The interest owing £100 is shown as a current liability so giving a true balance sheet. Without the adjustment the profit would be inaccurate.
Accounting
(b)
350 8,900 9,250
© Pearson Education Ltd 2010
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Answers Chapter 24: Accounting for non-profit making organisations 24.1
(a) A receipts and payments account is a summary of the cash book that shows the sources and uses of money for a non-profit making organisation. An income and expenditure account is the same as a business's proft and loss account. However, any surplus is not classed as profit but is called 'surplus of income over expenditure' any loss incurred is stated as 'excess of expenditure over income'. (b) Capital - is the total resources invested in a business by the owner(s) and is represented by assets - liabilities. Accumulated fund - this is in effect the same as the capital account in that it is the difference between an organisation's assets and liabilities. (c) Profit is the difference between the selling price of goods and their cost less any expenses incurred in running the business. A surplus of income over expenditure is the equivalent of a business's profit for a non-profit making organisation.
24.2 (a) Horton Hockey Club Receipts and Payments Account for the year ended 30 June 2009
Accounting
Receipts Bank balance b/f Subscriptions Donations Receipts from raffles
2,715 8,570 1,500 3,816
Payments Teams' travel expenses Groundsman wages Postage and stationery Rent of pitches and club house
1,598 3,891 392 4,800
General expenses
419
Prizes for raffles
624
Bank balance c/f
4,877
16,601
16,601
(b) Horton Hockey Club Income and Expenditure Account for the year ended 30 June 2009 Income: Subscriptions (8,570 1 160) Donations Profit on raffles (3,816 2 624) Less Expenditure: Teams' travel expenses Groundsman's wages (3,891 1 75) Postage and stationery Rent of pitches and club house (4,800 1 400) General expenses Surplus of income over expenditure 72
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8,730 1,500 3,192 13,422 1,598 3,966 392 5,200 419
11,575 1,847
24.3X (a) Superball Football Club Receipts and Payments Account for the year ended 31 May 2009 Receipts Cash & bank balnces b/d Subscriptions Disco receipts Collections at matches Prize money
905 8,124 3,149 5,090 1,000
Payments Hire of transport Ground maintenance costs Groundsman's wages Committee expenses Costs of disco
3,710 1,156 5,214 906 1,112
Rent of ground
2,450
General expenses
814
Cash & bank balances c/d 18,268
2,906 18,268
(b) Superball Football Club Income and Expenditure Account for the year ended 31 May 2009 Income: Subscriptions (8,124 2 160 1 94) Profit on disco (3,149 2 1,112) Collections at matches Prize money received
8,058 2,037 5,090 1,000 16,185
Hire of transport (3,710 1 90)
3,800
Ground maintenance costs
1,156
Groundsman's wages
5,214
Committee expenses (906 1 170)
1,076
Rent of ground (2,450 2 200)
2,250
General expenses Surplus of income over expenditure
814
Accounting
Less Expenditure:
14,310 1,875
© Pearson Education Ltd 2010
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24.4 (a) Accumulated fund as at 1 June 2007:
£
Bar Stocks
88
Equipment
340
Bank Balance
286 714
(b) Down Town Sports and Social Club Bar Trading Account Year Ended 31 May 2008 £ Bar Takings Less Cost of goods sold Opening stock
£ 463
88
Add Purchases
397 485
Less Closing Stock
101
384 79
Gross Profit
(c) Down Town Sports and Social Club Income and Expenditure Account Year Ended 31 May 2008 £
Accounting
Income Subscriptions (135 1 14) Net proceeds of jumble sale Net proceeds of dance
149 91 122
Gross profit from bar
79 441
Less Expenditure Wages
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198
Hire of rooms
64
Loss on sale of equipment (92 2 80)
12
Depreciation : equipment
30
Surplus of income over expenditure
74
£
304 137
24.5X (a) Sevenoaks College Drama Society Trading Account Year Ended 31 December 2010 £ Sale of refreshments Less cost of goods sold Opening stock
100
Add Purchases
845
£ 1,200
945 Less Closing Stock
165
780 420
Gross Profit
(b) Income and Expenditure Account Year Ended 31 December 2010 Income Subscriptions Profit on sale of refreshments Ticket sales
£
£ 1,600 420 4,000 6,020
Expenditure 850
Rent of theatre
750
Administrative expenses
440
*Depreciation of scenery
2,000
4,040
Surplus of income over expenditure
Accounting
Hire of costumes (1,500 - 650)
1,980
(c) Balance Sheet as at 31 December 2010 £ Fixed Assets Scenery (at valuation) Current Assets Stock of refreshments Less Current Liabilities Subscriptions in advance Bank Overdraft
£
£ 12,500
165 90 595
685 (520) 11,980
Represented by Accumulated Fund Add Surplus of income over expenditure
* Workings - Scenery - Balance as at 1 January 2010 Add Purchase of new scenery Less Value as at 31 December 2010 Depreciation
10,000 1,980 11,980 7,500 7,000 14,500 14,000 2,000 © Pearson Education Ltd 2010
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Accounting
24.6X (a) Accumulated fund – this is a form of capital account for a non-profit making organisation and represents the net worth of club. It can be found by deducting liabilities from the assets. A surplus is the amount that income exceeds expenditure and is the same as the profit made by a business. (b) In the balance sheet subscriptions in arrears would appear under Current Assets and rent of cricket pitch accrued under Current Liabilities. (c) (i) Receipts and payments account – is a summary of the cash book for a club or society and details all cash received and payments made. (ii) Current Assets. (iii) Payment for the purchase of a fixed asset. (iv) Depreciation of a fixed asset. (d) Since the donation is a substantial amount it would be added to the accumulated fund in the balance sheet. The reason for this is that the donation is not a regular income but a one off receipt and as such should not be shown on the income expenditure account.
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Answers Chapter 25: Manufacturing accounts 25.1
E Smith Manufacturing and Trading Account for the year ended 31 March 2009 £ Stock of raw material 1.4.2008 Add Purchases Carriage inwards Less Stock of raw materials 31.3.2009 Cost of raw materials consumed Manufacturing wages Prime cost Add factory overhead expenses Rent and rates Power
2,300 6,220
Other expenses
1,430
£ 2,400 21,340 321 24,061 2,620 21,441 13,280 34,721
Less Work in progress 31.3.2009
9,950 44,671 955 45,626 870
Production cost of goods completed c/d
44,756
Sales
69,830
Add Work in progress 1.4.2008
Less Stock finished goods 31.3.2009 Gross profit
6,724 44,756 51,480 7,230
Accounting
Less Cost of goods sold Stock finished goods 1.4.2008 Add Production cost of goods completed b/d
44,250 25,580
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25.2X
P Lucas Manufacturing, Trading and Profit and Loss Account for the year ended 30 September 2009 £
£
Stock of raw materials 1.10.2008 Add Purchases Carriage inwards
38,720 2,720
Less Stock of raw materials 30.9.2009 Cost of raw materials consumed Manufacturing wages Prime cost Factory Overhead Expenses Power Factory expenses Depreciation: Plant and machinery
6,120 12,650 7,560
Add Work-in-progress 1.10.2008 Less Work-in-progress 30.9.2009 Production cost of goods completed c/d Sales
86,840 99,220 14,570
Accounting
Less Stock of finished goods 30.9.2009 Gross profit c/d Less Expenses: Salesmen's salaries and expenses
26,420
Office and administration expenses
25,910
Net Profit
78
© Pearson Education Ltd 2010
26,330 86,230 3,070 89,300 2,460 86,840
12,380
Add Production cost of goods completed b/d
Office equipment
41,440 49,900 10,970 38,930 20,970 59,900
174,610
Less Cost of goods sold: Stock of finished goods 1.10.2008
Delivery van expenses Advertising Depreciation: Delivery van expenses
£ 8,460
84,650 89,960
5,890 5,080 3,040 807
3,847
67,147 22,813
25.3X (a) Joey Peterson Manufacturing Account for the year ended 30 June 2010 £ Stock of raw materials 1.7.2009 Add Purchases Less Stock of raw material 30.6.2010 Cost of raw materials consumed Direct Wages (450,000 1 8,900) Direct factory power Prime cost Add Indirect manufacturing cost Factory rent and rates Indirect factory wages General expenses
96,000 98,600 14,400
Insurance (66,900 2 6,900) 3 __ 13
20,000
Depreciation : Plant and Machinery
50,000
Add Work in progress 1.7.2009 Less Work in progress 30.6.2010
£ 81,600 314,000 395,600 94,500 301,100 458,900 40,000 800,000
279,000 1,079,000 125,300 1,204,300 154,300
Production Cost
1,050,000
(b) Trading Account for the year ended 30 June 2010
Less Stock of furnished goods 30.6.2010
2,000,000
Accounting
Sales Less Cost of goods sold Stock of finished goods 1.7.2009 Add Production Cost
115,440 1,050,000 1,165,440 85,440
Gross Profit
1,080,000 920,000
25.4X (a) (i) Cost of raw materials consumed £560,000 (ii) Prime cost £1,280,000 (iii) Total factory overheads £740,000 (iv) Value of closing stock of work in progress £80,000 £3,000,000
(b) (i) Selling price of one engine 1 £2,000,000 1 50% 5 _____________ 1,000 engines 5 £3,000 (ii) Total gross profit 5 750 engines 3 £1,000 5 £750,000 (iii) Value of closing stock of finished goods based on factory cost of production : 250 engines 3 £2,000 5 £500,000
© Pearson Education Ltd 2010
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Answers Chapter 26: Partnership accounts 26.1
(a) Stead and Jackson Appropriation Account for the year ended 31 December 2010 £ 45,000 5,000 40,000
Net profit Less Salary: Jackson Balance of profits shared: 1 __ Stead 2 Jackson
20,000
1 __
20,000
2
40,000
(b) Capital Accounts Stead
Jackson 2010 Dec 31 Balance b/d
Stead
Jackson
24,000
16,000
Stead
Jackson
2,300 20,000 22,300
3,500 5,000 20,000 28,500
7,300
9,500
(c) Current Accounts
Accounting
2010 Dec 31 Drawings Dec 31 Balances c/d
Stead
Jackson
15,000 7,300
19,000 9,500
22,300
28,500
2010 Dec 31 Balance b/d Dec 31 Salary Dec 31 Share of profits 2011 Jan 1 Balance b/d
26.2X (a) Wain, Brown and Cairns Appropriation Account for the year ended 31 March 2010 £ Net profit Less: Salaries Wain
10,000
Brown
8,000
Balance of profits shared: Wain 50%
80
© Pearson Education Ltd 2010
£ 60,000
18,000 42,000
21,000
Brown 30%
12,600
Cairns 20%
8,400
42,000
(b) Capital Accounts Wain
Brown
Cairns 2010 Mar 31 Balance b/d
Wain
Brown
Cairns
30,000
50,000
70,000
Wain
Brown
Cairns
2,400
3,100
5,700
10,000
8,000
—
21,000
12,600
8,400
Current Accounts Wain 2010 Mar 31 Drawings Mar 31 Balances c/d
Brown
Cairns
12,000
15,050
14,980
21,400
8,650
—
2010 Mar 31 Balance b/d Mar 31 Salaries Mar 31 Share of profits Mar 31 Balances c/d
33,400 2010 Apr 1 Balance b/d
—
23,700 —
14,980 880
2010 Apr 1 Balance b/d
880 33,400
23,700
14,980
21,400
8,650
—
26.3 Simpson and Young Tradign and Profit and Loss Appropriation Account for the year ended 30 June 2010
Opening stock
18,000
Add Purchases
184,980 202,980 19,000
Less Closing stock Gross profit Less Expenses: Wages and salaries (32,700 500) Rent, Rates and insurance (3,550 250) Electricity Stationery and printing Motor expenses General office expenses Depreciation: Motor van (20% of 16,000) Office equipment (10% of 5,600) Net profit Less interest on capital: Simpson (10% of 50,000) Young (10% of 20,000) Share of profits: Simpson 3/5ths Young 2/5ths
33,200 3,300 980 420 3,480 1,700 3,200 560
5,000 2,000
10,020 6,680
£ 254,520
Accounting
£ Sales Less Cost of sales:
183,980 70,540
46,840 23,700
7,000 16,700
16,700 © Pearson Education Ltd 2010
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Simpson and Young Balance Sheet as at 30 June 2010 Cost
Fixed assets Buildings Office equipment Motor vans Current assests Stock Debtors Prepayments Cash at bank Less Current liabilites Creditors Accruals Net current assets Financed by: Capital accounts Balance b/f
Accounting
Current accounts Balance b/f Add Share fo profit Add Interest on capital Less Drawings
£
Accumulated Depreciation £
28,000 8,400 16,000 52,400
3,360 8,200 11,560
19,000 28,000 250 7,250
54,500
15,200 500
15,700
Young 20,000
Total 70,000
640 10,020 5,000 15,660 10,000 5,660
300 6,680 2,000 8,980 5,000 3,980
9,640 79,640
8,400 5,600 560 3,360
(W2) Provision for depreciation on motor vans:
82
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28,000 5,040 7,800 40,840
Simpson 50,000
(W1) Provision for depreciation on office equipment:
(W1) (W2)
38,800 79,640
Net Book Value £
16,000 11,000 3,200 8,200
26.4X (a) Michael and Morgan Profit and Loss Account (Including Appropriation) for the year ended 30 September 2009 £
£ 385,000 15,000 400,000
Gross Profit Add Discounts Received Less Expenses Administrative Expenses Advertising (7,375 125) Rent and rates (12,000 2 1,500) Wages and salaries (135,000 5,000) Depreciation - Shop fittings * Net Profit Less Salary - Michael
6,790 7,500 10,500 140,000 12,000
Share of profits: Michael 2/5ths Morgan 3/5ths
176,790 223,210 30,000 193,210
77,284 115,926 193,210 2
(b) Balance b/d Drawings Balance c/d
1,500 9,650 96,259 107,409
Sep 30 Sep 30 Sep 30
Salary Profit share Advertising
30,000 77,284 125 107,409
Oct 01
Balance b/d
96,259
Accounting
Michael — Current Account Oct 01 Sep 30 Sep 30
(c) Michael and Morgan Balance Sheet Extract as at 30 September 2009 Michael 50,000
Morgan 40,000
(1,500)
2,000
Add Share of Profits
77,284
115,926
Add Salary
30,000
2
Capital Accounts Balance Current Accounts Balance
Add Advertising Less Drawings
125
2
105,909
117,926
9,650
8,200
96,259
109,726
Total 90,000
205,985 295,985
* Workings Shop fittings : Cost Less : Depreciation to date
£ 76,000 28,000 48,000
Reducing Balance Method 5 25% 3 £48,000 5 £12,000 © Pearson Education Ltd 2010
83
Answers Chapter 27: Limited company accounts 27.1 (a)
C Blake Ltd Appropriation Account for the year ended 31 December 2009 £ Net profit b/d Less Appropriations Transfer to General Reserve Dividends payable:
£ 11,340
1,500 1,000 7,500
Preference dividend 10% (£10,000 3 10%) Ordinary dividend 12.5% (£60,000 3 12.5%)
10,000 1,340
Retained profits carried forward to next year C Blake Ltd Balance Sheet as at 31 December 2009
(b)
Fixed Assets Buildings at cost Equipment at cost Less Accumulated depreciation
£
£ 45,000 4,500
£ 50,000 40,500 90,500
Accounting
Current Assets Stock Debtors Less Provision for doubtful debts
8,800 4,120 350
Bank (balancing figure) Cash
3,770 9,660 2,160 24,390
Less Creditors: amounts falling due within one year Creditors Dividends payable (£1,000 1 £7,500)
3,550 8,500
12,050
12,340 102,840
Less Creditors: amounts due after more than one year 30,000
Debentures
72,840 Financed by: Share Capital Called-up share capital 60,000 ordinary £1 shares 10,000 preference £1 shares Revenue reserves General reserve Profit and loss account
60,000 10,000 1,500 1,340
70,000
2,840 72,840
Note: The Authorised Share Capital is 90,000 £1 ordinary shares and 10,000 - 10% preference shares.
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27.2X (a) Reynolds Ltd Profit and Loss Appropriation Account for the year ended 30 September 2010 £ Net profit Add Retained profits b/f from last year Less Appropriations: General reserve Dividends payable: Ordinary shares — (150,000 3 6p) Paid — (150,000 3 14p) Proposed Preference shares — (7% 3 50,000) Proposed Retained profits carried to next year
£ 70,000 30,000 100,000
8,000 9,000 21,000 3,500
41,500 58,500
(b) Reynolds Ltd Balance Sheet as at 30 September 2010 (Extract) £ Financed by: Called-up share capital Preference shares Ordinary shares
50,000 150,000 200,000 53,000 58,500
111,500 311,500
Accounting
Revenue Reserves General Reserve (45,000 1 8,000) Profit and loss account
£
Note: The Authorised Share Capital is 200,000 £1 ordinary shares and 50,000 - 7% preference shares.
© Pearson Education Ltd 2010
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27.3
Chang Ltd Trading and Profit and Loss Account for the year ended 31 December 2010 Sales Less Cost of goods sold: Opening stock Add Purchases
316,810 25,689 201,698
Less Closing stock
227,387 29,142
Gross profit Less Expenses Wages and salaries (54,207 1 581) Rent (4,300 2 300) Lighting expenses Bad debts Provision for doubtful debts (938 2 861) General expenses Deprecation: Machinery (55,000 3 10%)
198,245 118,565
54,788 4,000 1,549 748 77 32,168 5,500
98,830
Net profit Add Retained profits b/f from last year
19,735 34,280
Less Proposed dividend Retained profits c/f to next year
54,015 10,000 44,015
Balance Sheet as at 31 December 2010
Accounting
Fixed Assets Premises Machinery Less Aggregated depreciation (15,800 1 5,500) Current Assets Stock Debtors Less Provision for doubtful debts
65,000 55,000 21,300
33,700 98,700
29,142 21,784 938
Prepayments Bank
20,846 300 23,101 73,389
Less Creditors falling due wihtin one year Dividend payable Creditors Expenses owing Net current assets
10,000 17,493 581
28,074 45,315 144,015
Financed by: Capital and reserves Called -up share capital Revenue reserves Profit and loss account
100,000 44,015 144,015
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27.4X (a) Wayland Limited Appreciation Account for the year ended 31 December 2010 £ '000's Net profit Add Profit and Loss Balance 1st January 2010 Less Appropriations Transfer to general reserve Preference dividend (6% 3 250,000) Ordinary dividend 2 (Interim Dividend) 2 (8% 3 750,000) Retained profits carried forward
25 15 20 60
£ '000's 250 195 445
120 325
(b) Wayland Limited Balance Sheet as at 31 December 2010 Cost
Motor vehicles Current Assets Stock Debtors Bank Current Liabilities Creditors Value added tax Dvidends Payable: Preference shares Ordinary shares Working capital
£ '000's
Net Book Value £ '000's
1,500 50
— 10
1,500 40
85
15
70
1,635
25
1,610
165 103 107
375
Accounting
Fixed Assets Land and buildings Fixtures and fittings
Aggregate Depreciation £ '000's
135 25 15 60
235 140 1,750
Creditors: amounts falling due after one year 5% debentures
250 1,500
Capital and Reserves Called up capital Ordinary shares 6% Preference shares Capital reserves Share premium Revenue Reserves General reserve Profit and loss account shareholders' funds
750 250
1,000 100
75 325
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Answers Chapter 28: Analysis and interpretation of financial statements N Ltd
28.1 (a) M Ltd (i) Current ratio £200,000 ________ 4:1 £50,000
£130,000 ________ 2:1 £65,000
(ii) Acid test ratio £200,000 2 £100,000 ___________________ 2:1 £50,000
£130,000 2 £64,000 __________________ 1:1 £65,000
(iii) Stockturn £288,000 ______________________ 2.6 times £120,000 1 £100,000 4 2
£187,500 ____________________ 3.0 times £60,000 1 £64,000 4 2
(iv) Debtors : Sales ratio £60,000 ________ 12 months 2 months £360,000
£62,500 ________ 12 months 3 months £250,000
(v) Creditors : Purchases ratio £50,000 ________ 12 months 2.2 months £268,000
£65,000 ________ 12 months 4 months £191,500
(vi) Gross profit % £72,000 ________ 100% 20%
Accounting
£360,000
£62,500 ________ 100% 25% £250,000
(vii) Net profit % £43,200 ________ 100% 12% £360,000
£35,000 ________ 100% 14% £250,000
(viii) Rate of return on shareholders' sunds £43,200 ________ 100% 12.3 % £350,000
£35,000 ________ 100% 13.7% £255,000
(b) Briefly N Ltd gives a better return to shareholders because of (viii) above. Reasons include: • M Ltd's current ratio is higher. This indicates that M Ltd is in a better liquidity position. • N Ltd’s stock turnover is higher than that of M Ltd. This shows that N Ltd manages its sales performance more effectively. • The gross profit percentage of N Ltd is 5% higher than that of M Ltd. This is due to better purchasing and selling prices. Net profit margins differ by a smaller margin of 2% suggesting, that M Ltd has tighter control of its overhead expenses when compared with its sales volume (8% compared with 11%)
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(a) Cruise Furnishings
Holmes Supplies
(i) Gross profit margin
600 _____ 100 33 __1 %
600 _____ 100 25%
(ii) Net profit margin
150 _____ 100 8.33% 1,800
160 _____ 100 6.67%
(iii) Current ratio
210 ____ 3.18 : 1 66
180 ____ 3:1
1,800
3
2,400 2,400 60
(b) Rate of stock tunover for Cruise Furnishings 1200 _____ 10 Times a year 120
(c) Profitability Both businesses are making good net profits, Cruise £150,000 and Holmes £160,000. However, both the gross profit percentage and net profit percentage for Cruise is better than Holmes, with the net profit percentage being 8.33% for Cruise against Holmes 6.67%. This could be due to Cruise selling goods at a higher price and their cost of sales being lower. Liquidity The current ratio for both Cruise and Holmes are very similiar with Cruise being slightly higher at 3.18 : 1 against Holmes 3 : 1. If we calculate the acid test, i.e, we remove stock from the calculation, Cruise 210 2 111 __________ 1.5 : 1 66
Holmes 180 2 120 __________ 1:1 60
then Cruise is in a stronger position since it could raise £1.50 for every £1 owed compared to Holmes who could raise £1 for every £1 of debt. Conclusion
Accounting
28.2
Whilst Holmes has a greater turnover than Cruise the company is not as profitable. In terms of liquidity again Cruise is in a stronger position which may in part be due to Holmes long term liabilities of £2,070,000.
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28.3X (a) Year Ended 28.02.2009
29.02.2010
Net Profit Margin Net profit 16,000 26,000 _________ 35,000 ____ 100 45.71% ______ ____ 100 50% ____ 100 ______ 52,000 Sales
1
1
1
(b) Mark — up 21,600 35,500 ____________ Gross Profit ____ 100 _______ 100 161.19% ________ 100 215.15% Cost of Sales
1
*13,400
*2,900 1 14,500 2 4,000 5 13,400
**16,500
**4,000 1 19.500 2 7,000 5 16,500
(c) Rate of stock turnover 13,400
16,500
Cost of sales _____________ ________________ _________________ 2,900 1 4,000 4 2 4,000 1 7,000 4 2 Average Stock
3.88 times 3 times
(d)
Accounting
Overall the profitability of the business is improving with the Net Profit % increasing from 45.71% to 50%. Mark-up has also increased considerably from 161.19% to 215.15%. However, the stock is taking longer to sell/turnover a decrease from 3.88 to 3 times a year. This is possibly due to the business stock in hand increasing from £2,900 at the beginning of the first financial year to £7,000 at the end of February 2010?
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Answers Chapter 29: Computers and accounting systems 29.1
To: From: Date: Re:
Director of Finance Administrative Assistant June 2010 Proposed Integrated Computerised Accounting System
Points in favour of the new system: • Faster data input and automatic processing. • Greater accuracy especially via automatic processing. • Documentation such as invoices, credit notes, statements, remittance advices produced automatically. • Up-to-date information on customers’ accounts, etc. is readily available. • Provides management information. • The system may be linked to the internet to allow for transactions such as ordering goods to be carried out electronically. • Provides access to the organisation’s bank account via the internet. • More efficient and makes better use of resources.
29.2
Accounting
Arguments against the new system • The cost of the installation plus ongoing costs of maintenance and updating software. • Training costs of staff. • Staff resentment of new system. • System downtime may be disruptive. • Fraudulent access can seriously affect business operation and profitability. • Security measures that are necessary. • Health and safety issues associated with using computers. Measures a medium-sized company may adopt to safeguard the security of its financial data and records would include: • All company’s financial information should be regarded as confidential except where legislation states otherwise. Staff should be made aware of this requirement in the company’s code of conduct. • Staff should be allocated passwords to monitor accessibility to specific areas of work. • Passwords need to be changed frequently. • Installation of anti-virus computer packages to prevent the threat of fraud. • Ensure data is saved and backed up regularly. • Store back-up data in an off-site location if deemed necessary.
29.3X Refer to text, Sections 29.3 and 29.4.
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29.4X (a) Benefits to a small business when it has the use of internet facilities would include: • access to web sites to obtain further information in many areas including competitors, product ranges, location of customers/suppliers etc • transactions such as ordering, purchasing, selling, making payments to customers and staff, receiving monies etc., can all be carried out online • the use of email for correspondence is quick, efficient and cost effective.
(b) A web designer would bring many benefits to a business as follows: • development of initial user-friendly web site • maintain an up-to-date web site • develop online facilities for business to offer online ordering and purchasing from suppliers and sales to customers • promote a range of company products/services over a wider area which could lead to increased sales and ultimately greater profits • advertising and marketing benefits to a larger consumer market.
(c) The disadvantages of offering a web site service: • keeping the web site up-to-date • the cost of maintaining the web site • ensuring that the web site is user friendly with appropriate easy to navigate links.
29.5X Benefits of investing in a computerised accounting system would include: • quick and easy to install • capital outlays reasonable since packages are now much cheaper • less time to carry out book-keeping/accounting transactions • easier/less onerous work • more financial information available for management • greater accuracy • can process documents, e.g. invoices, credit notes, statements, payslips etc
Accounting
Adverse effects: • cost and disruption on installation • training • reluctance to change by staff • security issues • health risks • problems if the system goes down.
29.6 Other business uses for a computerised accounting system would be: • Payroll • Book-keeping • Budgeting • Preparation of financial statements • Cash management.
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