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Accounting Textbook answers

This document contains sample accounting documents and questions including: - Trial balances for businesses showing debit and credit balances of accounts - Double entry bookkeeping examples for transactions involving cash, credit, purchases, sales, expenses and assets - Questions testing understanding of concepts like debits and credits, balancing accounts, and preparing trial balances The goal is to introduce basic accounting principles and bookkeeping practices.

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1© Pearson Education Ltd 2010 Accounting Answers 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• (Any one from the above would be acceptable as an answer) 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) Materiality (b) Business entity (c) Money measurement (d) Prudence 1.8 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) Chapter 1: Introduction to accounting principles
2 Accounting © Pearson Education Ltd 2010 Answers 2.1 (a) Purchases - asset (b) Office equipment - asset (c) Bank loan - liability (d) Cash in hand - asset (e) Motor vehicle - asset (f) Loan from financial company - liability 2.2X Wrong: Assets Liabilities Money owing to bank Motor van Stock of goods 2.3 Account to be Debited 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 Account to be credited (a) Bank Capital (b) Purchases Cash (c) Motor car Bank (d) Cash Uncle Joe loan (e) Motor expenses Cash (f) Computer equipment Cash 2.5 Max Morgan Bank Account Jan-01 Capital 30,000 Jan-05 Purchases 2,770 Jan-15 Sales 500 Jan-07 S/H Van 4,800 Jan-27 Computer Equipment 2,100 Jan-30 Purchases 1,090 Capital Account Jan-01 Bank 30,000 Purchases Account Jan-05 Bank 2,770 Jan-30 Bank 1,090 Van Account Jan-07 Bank 4,800 Cash Account Jan-09 Sales 680 Jan-10 Office Furniture 110 Jan-29 Sales 325 Jan-22 Motor Expenses 92 Chapter 2: Double entry for cash transactions
3© Pearson Education Ltd 2010 Accounting Sales Account Jan-09 Cash 680 Jan-15 Bank 500 Jan-29 Cash 325 Office Furniture Account Jan-10 Cash 110 Motor Expenses Account Jan-22 Cash 92 Computer Equipment Account Jan-27 Bank 2,100 2.6X Jane Mellor Cash Account May 1 Capital 22,000 May 3 Bank 20,000 May 20 Sales 328 May 22 Stationery 72 Capital Account May-01 Cash 22,000 Bank Account May 3 Cash 20,000 May 7 Rent 500 May 25 Sales 560 May 10 Purchases 1,700 May 15 Display units 400 May 23 Purchases 400 May 31 S/H Van 3,000 Rent Account May 7 Bank 500 Purchases Account May 10 Bank 1,700 May 23 Bank 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
4 © Pearson Education Ltd 2010 Accounting Answers 3.1 Account to be Debited Account to be Credited (a) Purchases 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 Account to be credited (a) Computer equipment J. Kershaw (b) Stationery Cash (c) Purchases J. Leung (d) Daswami & Co Sales (e) Purchases Bank (f) Sales returns Daswani & Co (g) Cash Sales (h) J. Leung Purchase Returns 3.3 Kendrick Products Cash Account Jan-01 Capital 20,000 Jan-05 Bank 18,000 Jan-24 Stationery 45 Capital Account Jan-01 Cash 20,000 Purchases Account Jan-02 T. Peters 2,543 Jan-07 J. Leigh 349 Jan-09 Bank 592 T. Peters Account Jan-18 Purchase Returns 160 Jan-02 Purchases 2,543 Jan-26 Bank 2,383 Bank Account Jan-05 Cash 18,000 Jan-09 Purchases 592 Jan-26 T. Peters 2,383 J. Leighs Account Jan-07 Purchases 349 Sales Account Jan-16 P. Lamond 210 Jan-26 D. Gurkan 1,008 P. Lamond Acccount Jan-16 Sales 210 Jan-30 Sales Returns 60 Purchase Returns Account Jan-18 T. Peters 160 Chapter 3: Double entry for credit transactions
5© Pearson Education Ltd 2010 Accounting 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 3.4X Mark & Co Bank Account Apr 1 Capital 40,000 Apr 14 Purchases 2,300 Apr 28 C. Chang 950 Apr 30 Ash Car Sales 5,400 Capital Account Apr 01 Bank 40,000 Purchases Account Apr 3 E. Shah 845 Apr 5 C. Chang 950 Apr 14 Bank 2,300 Apr 20 E. Shah 920 E. Shah Account Apr 16 Purchase returns 72 Apr 03 Purchases 845 Apr 20 Purchases 920 C. Chang Account Apr 28 Bank 950 Apr 05 Purchases 950 Motor Van Account Apr 09 Ash Car Sales 10,400 Ash Car Sales Account Apr 30 Bank 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 Cash Account Apr 23 Sales 369 Apr 26 Motor Expenses 40 Curtis & Co Account Apr 29 Sales 420 Motor Expenses Account Apr 26 Cash 40
6 © Pearson Education Ltd 2010 Accounting Answers 4.1 Capital May-01 Bank 2,500 Bank May-01 Capital 2,500 May-12 K Gibson 76 May-09 C Bailey 250 May-12 D Ellis 370 May-10 H Spencer 150 May-31 C Mendez 87 May-31 Balance c/d 2,367 2,900 2,900 Jun-01 Balance b/d 2,367 Cash May-06 Sales 500 May-08 Rent 120 May-15 Stationery 60 May-19 Rent 120 May-31 Balance c/d 200 500 500 Jun-01 Balance b/d 200 Rent May-08 Cash 120 May-31 Balance c/d 240 May-19 Cash 120 240 240 Jun-01 Balance b/d 240 Stationery May-15 Cash 60 Purchases May-02 D Ellis 540 May-31 Balance c/d 1,082 May-02 C Mendez 87 May-02 K Gibson 76 May-18 D Ellis 145 May-18 C Mendez 234 1,082 1,082 Jun-01 Balance b/d 1,082 Sales May-31 Balance c/d 1,496 May-04 C Bailey 430 May-04 B Hughes 62 May-04 H Spencer 176 May-06 Cash 500 May-25 C Bailey 90 May-25 B Hughes 110 May-25 H Spencer 128 1,496 1,496 Jun-01 Balance b/d 1,496 Chapter 4: Balancing of accounts and preparation of a Trial Balance
7© Pearson Education Ltd 2010 Accounting H Spencer May-04 Sales 176 May-10 Bank 150 May-25 Sales 128 May-31 Balance c/d 154 304 304 Jun-01 Balance b/d 154 D Ellis May-12 Bank 370 May-02 Purchases 540 May-31 Balance c/d 315 May-18 Purchases 145 685 685 Jun-01 Balance b/d 315 C Mendez May-31 Bank 87 May-02 Purchases 87 May-31 Balance c/d 234 May-18 C Mendez 234 234 234 Jun-01 Balance b/d 234 K Gibson May-12 Bank 76 May-02 Purchases 76 C Bailey May-04 Sales 430 May-09 Bank 250 May-25 Sales 90 May-31 Balance c/d 270 520 520 Jun-01 Balance b/d 270 B Hughes May-04 Sales 62 May-31 Balance c/d 172 May-25 Sales 110 172 172 Jun-01 Balance b/d 172 Trial Balance as at 31 May 2010 Dr £ Cr £ Capital 2,500 Bank 2,367 Cash 200 Rent 240 Stationery 60 Purchases 1,082 Sales 1,496 H Spencer 154 D Ellis 315 C Mendez 234 C Bailey 270 B Hughes 172 4,545 4,545
8 © Pearson Education Ltd 2010 Accounting 4.2X (a) Bank Account August 1 Capital 22,000 August 1 Rent 1,800 August 14 Sales 980 August 7 Shop fittings 3,230 August 20 Sales 1,300 August 7 Purchases 5,000 August 28 Sales 2,000 August 9 Cash 1,000 August 30 Salaries 2,100 August 30 Balance c/d 13,150 26,280 26,280 Sept 1 Balance b/d 13,150 Cash Account August 9 Bank 1,000 August 9 Stationery 163 August 16 Sundry expenses 28 August 30 Balance c/d 809 1,000 1,000 Sept 1 Balance b/d 809 Sales Account August 30 Balance c/d 4,280 August 1 Bank 980 August 20 Bank 1,300 August 28 Bank 2,000 4,280 4,280 Sept 1 Balance b/d 4,280 Purchases Account August 7 Bank 5,000 August 30 Balance c/d 10,700 August 10 Book Supplies 4,200 August 25 Delta Books 1,500 10,700 10,700 September 1 balance b/d 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 163 Sundry Expenses Account August 16 Cash 28 Salaries Account April 30 Bank 2,100 Book Supplies Accounts August 10 Purchases 4,200 Delta Books Account August 25 Purchases 1,500
9© Pearson Education Ltd 2010 Accounting 4.2X (b) Jenny Moore Trial Balance as at 31 August 2010 Dr £  Cr £ Bank 13,150 Cash 809   Sales 4,280 Purchases 10,700   Shop Fittings 3,230   Capital 22,000 Rent 1,800 Stationery 163   Sundry expenses 28 Salaries 2,100 Book Supplies 4,200 Delta Books 1,500 31,980 31,980 4.3 Bank (1) Capital 15,000 (9) Rent 500 (30) L Clark 440 (11) Rates 190 (30) K Allen 76 (27) Bowman Furnishers 532 (27) Howe Homes 460 (27) W Hunt 2,070 (28) Motor Vehicles 3,000 (30) Bates Motors 5,000 (30) Balance c/d 3,764 15,516 15,516 (1) Balance b/d 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 J Bond (17) Purchases returns 60 (3) Purchases 620 (30) Balance c/d 780 (20) Purchases 220 840 840 (1) Balance b/d 780 Rent (9) Bank 500 (30) Balance c/d 500 (1) Balance b/d 500 L Clark (12) Sales 480 (23) Sales returns 40 (30) Bank 440 480 480
10 © Pearson Education Ltd 2010 Accounting R Gee (12) Sales 1,170 (30) Balance c/d 1,170 (1) Balance b/d 1,170 Purchses Returns (30) Balance c/d 88 (17) Bowman Furnishers 28   (17) J Bond 60 88 88 (1) Balance b/d 88 Motor Vehicles (25) Bates Motors 5,000 (30) Balance c/d 8,000 (28) Bank 3,000 8,000 8,000 (30) Balance b/d 8,000 Stationery (29) Cash 56 (30) Balance c/d 56 (30) Balance b/d 56 Purchases (3) Bowman Furnishers 320 (30) Balance c/d 3,930 (3) Howe Homes 460 (3) W Hunt 1,800 (3) J Bond 620 (20) J Bond 220 (20) W Hunt 270 (20) Bowman 240   3,930 3,930 (1) Balance b/d 3,930 Bowman Furnishers (17) Purchases returns 28 (3) Purchases 320 (27) Bank 532 (20) Purchases 240 560 560 W Hunt (27) Bank 2,070 (3) Purchases 1,800 (20) Purchases 270 2,070 2,070 Sales (30) Balance c/d 2,401 (7) Cash 480 (12) L Clark 480 (12) K Allen 96 (12) R Gee 1,170 (26) Cash 175 2,401 2,401 (1) Balance b/d 2,401 Rates (11) Bank 190 (30) Balance c/d 190 (1) Balance b/d 190
11© Pearson Education Ltd 2010 Accounting K Allen (12) Sales 96 (23) Sales returns 20 (30) Bank 76 96 96 Wages (14) Cash 400 (30) Balance c/d 400 (1) Balance b/d 400 Sales Returns (23) K Allen 20 (30) Balance c/d 60 (23) L Clark 40   60 60 (30) Balance b/d 60 Bates Motors (30) Bank 5,000 (25) Motor vehicles 5,000 Cash (7) Sales 480 (14) Wages 400 (26) Sales 175 (29) Stationery 56   (30) Balance c/d 199   655 655 (1) Balance b/d 199 Trial Balance as at 30 April 2010 Dr £ Cr £ Bank 3,764 Purchases 3,930 Capital 15,000 J Bond 780 Sales 2,401 Rent 500 Rates 190 R Gee 1,170 Wages 400 Purchases returns 88 Sales returns 60 Motor vehicles 8,000 Stationery 56 Cash 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
12 © Pearson Education Ltd 2010 Accounting (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 20,000 Drawings 7,000 General expenses 500 Sales   38,500 Purchases 29,000 Debtors 6,800 Creditors   9,000 Bank 15,100 Cash 200   Plant and equipment 5,000 Heating and lighting 1,500 Rent 2,400 67,500 67,500 4.6 Trial Balance of S Higton as at 30 June 2010 Dr £ Cr £ Capital 19,956 Sales 119,439 Stationery 1,200 General expenses 2,745 Motor expenses 4,476 Cash at the bank 1,950 Stock 1 July 2009 7,668 Wages and salaries 9,492 Rent and rates 10,500 Office equipment 6,000 Purchases 81,753 Heating and lighting 2,208 Rent received   2,139 Debtors 10,353 Drawings 4,200 Creditors   10,230 Motor vehicle 7,500 Interest received   1,725 Insurance 3,444 153,489 153,489
13© Pearson Education Ltd 2010 Accounting 4.7X Trial Balance of Ms Anita Hall as at 31 December 2010 Dr £ Cr £ Plant and machinery 21,450 Motor vehicles 26,000 Premises 80,000 Wages 42,840 Purchases 119,856 Sales 179,744 Rent received 3,360 Telephone, printing and stationery 3,600 Creditors 27,200 Debtors 30,440 Bank overdraft 2,216 Capital 131,250 Drawings 10,680 General Expenses 3,584 Lighting and heating 2,960 Motor expenses 2,360 Motor vehicle 343,770 343,770 4.8X (a) Error of principle (b) Error of commission (c) Error of omission (d) Error of original entry (e) Complete reversal of entries (f) Error of principle
14 © Pearson Education Ltd 2010 Accounting Answers 5.1 (a) C Black Curzon Road Stockport INVOICE No 947T Date: 1 March 2011To: Your Order No. 1697 £ 400.00 470.00 94.0020,000 coils sealing tape x £4.70 per 1,000 180.0040,000 sheets A5 paper x £4.50 per 1,000 126.0030,000 sheets A4 paper x £4.20 per 1,000 70.00VAT at 17.5% J Booth 89 Andrew Lane Stockport VAT Reg No. 542 4483 95 (b) J Booth's Books C Black 2011 01-Mar Purchases 470 C Black's Books J Booth 2011 01-Mar Sales 470 5.2X (a) & (b) & (c) 2010 Name of Customer Net VAT Total £ £ £ Jan 2 D Woolham & Co 230.00 40.25 270.25 Jan 6 C Crawford 348.00 60.90 408.90 Jan 7 S Brocklehurst 1,980.00 346.50 2,326.50 Jan 9 L Price & Partners 520.00 91.00 611.00 Jan 13 D Woolham & Co 56.00 9.80 65.80 Jan 18 L Price & Partners 200.00 35.00 235.00 Jan 21 C Crawford 340.00 59.50 399.50 Jan 24 C Crawford 44.00 7.70 51.70 Jan 29 S Brocklehurst 846.00 148.05 994.05 Jan 31 L Price & Partners 722.00 126.35 848.35 5,286.00 925.05 6,211.05 Chapter 5: Value Added Tax
15© Pearson Education Ltd 2010 Accounting 5.3 (a) Cost of 22 reams of paper at £3.75 £82.50 Input VAT is 17.5% £82.50  17.5____ 100 £14.44 £96.94 Customer Charged £235.00 including VAT Amount before VAT is added, £235  100______ 117.5 £200.00 Therefore, output VAT is £35.00 Amount of VAT due to HMRC, £35.00  £14.44  £20.56 (b) Net Amount VAT Total £40.00 £7.00 £47.00 £ 2.00 £0.35 £ 2.35 £53.28 £9.32 £62.60 £ 3.20 £0.56 £ 3.76 5.4 (a) Ivy & Co Dr VAT Account Cr 2010 2010 Apr-30 Purchases Day Book 8,750 Apr-30 Sales Day Book 9,205 May-31 Purchases Day Book 7,350 May-31 Sales Day Book 8,400 Jun-30 Purchases Day Book 9,625 Jun-30 Sales Day Book 10,500 Jun-30 Balances c/d 2,380 28,105 28,105 Jul-01 Balance b/d 2,380 (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 Dr VAT Account Cr 2010 2010 Oct 31 Purchases Day Book 6,580 Oct 31 Sales Day Book 13,125 Nov 30 Purchases Day Book 6,895 Nov 30 Sales Day Book 10,850 Dec 31 Purchases Day Book 9,100 Dec 31 Sales Day Book 11,900 Dec 31 Balances c/d 13,300 35,875 35,875 Jan 01 Balance b/d 13,300 (b) All business records must be kept for 6 years.
16 © Pearson Education Ltd 2010 Accounting Answers 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 Balance £ £ £ May 1 Balance b/forward 101.50 May 2 Invoice No. 7821 43.75 145.25 May 8 Invoice No. 7955 35.00 180.25 May 17 Credit Note No. 304 10.20 170.05 May 23 Invoice No. 8204 74.50 244.55 May 28 Cheque 51.50 193.05 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. Chapter 6: Business documentation
17© Pearson Education Ltd 2010 Accounting Answers 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 Used up in the short term 7.2 Cairns Engineering Co Capital Revenue £ £ (a) New stationery and brochures - 411 (b) New pickup truck 18,000 - (c) New lathe 5,200 - (d) Delivery costs - lathe 200 - (e) Electricity - wiring - electricity costs 1,800 - - 2,100 (f) Wages - Re: Improvements - Other 20,000 - - 45,000 45,200 47,511 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. Chapter 7: Capital and revenue expenditure
18 © Pearson Education Ltd 2010 Accounting 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) Revenue (b), (d), (e), (g)
19© Pearson Education Ltd 2010 Accounting Answers Chapter 8: Books of original entry and ledgers – Sales day book and sales ledger including VAT 8.1 (a) Sales day book / sales ledger / personal account (b) Cash book / general ledger / nominal account (c) Purchases day book / purchases ledger / personal account (d) Cash book / general ledger / nominal account (e) Sales returns day book / sales ledger / personal account (f) 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. Nominal accounts: record expenses, income and capital. 8.3 Sales Day Book Date Details Folio Goods VAT Total 2010 £ £ £ Nov-02 T Bates 186.00 32.55 218.55 Nov-03 D Cope 166.00 29.05 195.05 Nov-09 F Chan 12.00 2.10 14.10 Nov-11 T Bates 54.00 9.45 63.45 Nov-13 B Ho 66.00 11.55 77.55 Nov-18 D Cope 32.00 5.60 37.60 Nov-23 M Saka Sons 20.00 3.50 23.50 Nov-30 F Chan 320.00 56.00 376.00 856.00 149.80 1005.80
20 © Pearson Education Ltd 2010 Accounting Sales Ledger Dr T Bates Account Cr Nov-02   Sales 218.55 Nov-11   Sales 63.45 Dr D Cope Account Cr Nov-03   Sales 195.05 Nov-18   Sales 37.60 Dr F Chan Account Cr Nov-09   Sales 14.10 Nov-30  Sales 376.00 Dr B Mo Account Cr Nov-13 Sales 77.55 Dr M Saka Sons Account Cr Nov-23   Sales 23.50 General Ledger Dr Sales Account Cr Nov-30 Credit sales for the month 856.00 Dr VAT Account Cr Nov-30 Sales day book: VAT 149.80 8.4X Sales Day Book Date Details Folio Goods VAT Total 2011 Jul 1 Hall Products 520.00 91.00 611.00 Jul 5 Ash Co 62.00 10.85 72.85 Jul 8 K. Meakin 18.00 3.15 21.15 Jul 14 A. Ballearic 110.00 19.25 129.25 Jul 19 Hall Products 880.00 154.00 1,034.00 Jul 26 G. Huang 126.00 22.05 148.05 Jul 28 A. Ballearic 42.00 7.35 49.35 Jul 31 J. Stead 98.00 17.15 115.15 1,856.00 324.80 2,180.80 Sales Ledger Dr Hall Products Account Cr Jul 1   Sales 611.00 Jul 19   Sales 1,034.00 Dr Ash Co Account Cr Jul 5   Sales 72.85 Dr K. Meakin Account Cr Jul 8   Sales 21.15 Dr A. Ballearic Account Cr Jul 14 Sales 129.25 Jul 28 Sales 49.35
21© Pearson Education Ltd 2010 Accounting Dr G. Huang Account Cr Jul 26 Sales 148.05 Dr J Stead Account Cr Jul 31 Sales 115.15 General Ledger Dr Sales Account Cr Jul 31 Credit sales for the month 1,856.00 Dr VAT Account Cr Jul 31 Sales day book : VAT 324.80 8.5 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.•
22 © Pearson Education Ltd 2010 Accounting Answers 9.1 White Bros Purchases Day Book Date Details Goods VAT Total 2010 £ £ £ May-01 Bould Co 104.00 18.20 122.20 May-07 Harlow Brown 48.00 8.40 56.40 May-16 J Adams Ltd 234.00 40.95 274.95 May-23 Bould Co 170.00 29.75 199.75 May-26 J H Products 320.00 56.00 376.00 May-28 Harlow Brown 62.00 10.85 72.85 May-31 P Yeung Ltd 446.00 78.05 524.05 1384.00 242.20 1626.20 Purchase Ledger Dr Bould Co Account Cr May-01 Purchases 122.20 May-23 Purchases 199.75 Dr Harlow and Brown Account Cr May-07 Purchases 56.40 May-28 Purchases 72.85 Dr J Adam Ltd Account Cr May-16 Purchases 274.95 Dr J H Products Account Cr May-26 Purchases 376.00 Dr P Yeung Account Cr May-31 Purchases 524.05 General Ledger Dr Purchases Account Cr May-31 Credit purchases for the month 1384.00 Dr VAT Account Cr May-31 Purchases Day Book : VAT 242.20 Chapter 9: Purchases day book and purchase ledger including VAT
23© Pearson Education Ltd 2010 Accounting 9.2 Bakers Electrical Co Purchases Day Book Date Details Goods VAT Total 2010 £ £ £ Jul-03 Peak Electrical 722.00 126.35 848.35 Jul-08 Leigh Electrics 84.00 14.70 98.70 Jul-12 Thomas Motors 274.00 47.95 321.95 Jul-17 Naik Sons 160.00 28.00 188.00 Jul-21 Peak Electrical 158.00 27.65 185.65 Jul-23 W D Services 46.00 8.05 54.05 Jul-25 Leighs Electrics 210.00 36.75 246.75 Jul-30 Naik Sons 178.00 31.15 209.15 1832.00 320.60 2152.60 Purchases Ledger Dr Peak Electrical Ltd Account Cr Jul-03 Purchases 848.35 Jul-21 Purchases 185.65 Dr Leigh Electrics Account Cr Jul-08 Purchases 98.70 Jul-25 Purchases 246.75 Dr Thomas Motors Account Cr Jul-12 Purchases 321.95 Dr Naik Sons Account Cr Jul-17 Purchases 188.00 Jul-30 Purchases 209.15 Dr W D Services Account Cr Jul-23 Purchases 54.05 General Ledger Dr Purchases Account Cr Jul-31 Credit purchases for the month 1832.00 Dr VAT Account Cr Jul-31 Purchases Day Book : VAT 320.60
24 © Pearson Education Ltd 2010 Accounting 9.3X Tasty Foods Purchases Day Book Date Details Goods VAT Total 2010 £ £ £ Aug 1 Barker Foods Ltd 62.00 10.85 72.85 Aug 6 Fern Bros 48.00 8.40 56.40 Aug 10 Ash Catering Co 224.00 39.20 263.20 Aug 14 Barker Foods Ltd 136.00 23.80 159.80 Aug 22 Farm Produce 98.00 17.15 115.15 Aug 27 Fern Bros 166.00 29.05 195.05 Aug 29 Leigh Sons 84.00 14.70 98.70 Aug 30 Ash Catering Co 366.00 64.05 430.05 1,184.00 207.20 1,391.20 Purchases Ledger Dr Barker Foods Ltd Account Cr Aug 1 Purchases 72.85 Aug 14 Purchases 159.80 Dr Fern Bros Account Cr Aug 6 Purchases 56.40 Aug 27 Purchases 195.05 Dr Ash Catering Co Account Cr Aug 10 Purchases 263.20 Aug 30 Purchases 430.05 Dr Farm Products Account Cr Aug 22 Purchases 115.15 Dr Leigh Sons Account Cr Aug 29 Purchases 98.70 General Ledger Dr Purchases Account Cr Aug 31 Credit purchases for the month 1,184.00 Dr VAT Account Cr Aug 31 Purchases Day Book : VAT 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•
25© Pearson Education Ltd 2010 Accounting Answers Chapter 10: Sales returns day book and purchase returns day book 10.1 Sales Day Book (Page 7) Date 2010 Details Goods £ VAT £ Total £ Jun-01 J Alcock 180.00 31.50 211.50 Jun-01 P Twigg 60.00 10.50 70.50 Jun-09 Bell Products 140.00 24.50 164.50 Jun-09 Travis Ltd 330.00 57.75 387.75 Jun-23 B Seddon 780.00 136.50 916.50 Jun-30 P Twigg 440.00 77.00 517.00 1930.00 337.75 2267.75 Sales Returns Day Book Date Details Goods VAT Total 2010 £ £ £ Jun-12 J Alcock 12.00 2.10 14.10 Jun-28 Travis Ltd 50.00 8.75 58.75 62.00 10.85 72.85 Sales Ledger Dr J Alcock Account Cr Jun-01 Sales 211.50 Jun-12 Sales returns 14.10 Dr P Twigg Account Cr Jun-01 Sales 70.50 517.00Jun-30 Sales Dr Bell Products Account Cr Jun-09 Sales 164.50 Dr Travis Ltd Account Cr Jun-09 Sales 387.75 Jun-28 Sales returns 58.75 Dr B Seddon Account Cr Jun-23 Sales 916.50 General Ledger Dr Sales Account Cr Jun-30 Total SDB 1930.00 Dr Sales Returns Account Cr Jun-30 Total SRDB 62.00 Dr VAT Account Cr Jun-30 Total SRDB 10.85 Jun-30 Total SDB 337.75
26 © Pearson Education Ltd 2010 Accounting 10.2 Purchases Day Book Date Details Goods VAT Total 2010 £ £ £ May-01 J Yau Ltd 120.00 21.00 141.00 May-05 S Wager 80.00 14.00 94.00 May-05 Ash Bros 220.00 38.50 258.50 May-14 J Yau Ltd 60.00 10.50 70.50 May-19 D Wong 300.00 52.50 352.50 May-19 Rughani Co 280.00 49.00 329.00 May-19 Ash Bros 80.00 14.00 94.00 May-31 A Davies 56.00 9.80 65.80 May-31 Rughani Co 172.00 30.10 202.10 1368.00 239.40 1607.40 Purchase Returns Day Book Date Details Goods VAT Total 2010 £ £ £ May-09 J Yau Ltd 30.00 5.25 35.25 May-27 D Wong 42.00 7.35 49.35 72.00 12.60 84.60 Purchase Ledger Dr J Yau Ltd Account Cr May-09 Purchase returns 35.25 May-01 Purchases 141.00 May-14 Purchases 70.50 Dr S Wager Account Cr May-05 Purchases 94.00 Dr Ash Bros. Account Cr May-05 Purchases 258.50 May-19 Purchases 94.00 Dr D Wong Account Cr May-27 Purchase returns 49.35 May-19 Purchases 352.50 Dr Rughani Co Account Cr May-19 Purchases 329.00 May-31 Purchases 202.10 Dr A Davies Account Cr May-31 Purchases 65.80 General Ledger Dr Purchases Account Cr May-31 Total PDB 1368.00 Dr Purchase Returns Account Cr May-31 Total PRDB 72.00 Dr VAT Account Cr May-31 Total PDB 239.40 May-31 Total PRDB 12.60
27© Pearson Education Ltd 2010 Accounting 10.3X Anderson's Ltd (b) Purchases Day Book Date Details Goods VAT Total 2010 Jan 2 Naylor's Ltd 1,300.00 227.50 1,527.50 Jan 5 Roberts Sons 668.00 116.90 784.90 Jan 19 R. James Co 1,512.00 264.60 1,776.60 3,480.00 609.00 4,089.00 Purchase Returns Day Book Date Details Goods VAT Total 2010 Jan 13 Naylor's Ltd 84.00 14.70 98.70 Jan 30 R. James Co 400.00 70.00 470.00 484.00 84.70 568.70 Sales Day Book Date Details Goods VAT Total 2010 Jan 12 Marlow (Fancy Gifts) 656.00 114.80 770.80 Jan 26 J. Jeynes 2,468.00 431.90 2,899.90 Jan 26 Birch Bros 340.00 59.50 399.50 Jan 28 F J Shah 5,000.00 875.00 5,875.00 Jan 28 Marlow (Fancy Gifts) 380.00 66.50 446.50 8,844.00 1,547.70 10,391.70 Sales Returns Day Book Date Details Goods VAT Total 2010 Jan 30 Marlow (Fancy Gifts) 60.00 10.50 70.50 60.00 10.50 70.50 10.3X (a) (c) (e) Sales Ledger J. Jeynes Account Jan-01 Balance b/d 1,490.00 Jan-31 Balance c/d 4,389.90 Jan-26 Sales 2,899.90 4,389.90 4,389.90 Feb-01 Balance b/d 4,389.90 Marlow (Fancy Goods) Account Jan-01 Balance b/d 552.00 Jan-30 Sales Returns 70.50 Jan-12 Sales 770.80 Jan-31 Balance c/d 1,698.80 Jan-28 Sales 446.50 1,769.30 1,769.30 Feb-01 Balance b/d 1,698.80 F J Shah Account Jan-01 Balance b/d 780.00 Jan-31 Balance c/d 6,655.00 Jan-28 Sales 5,875.00 6,655.00 6,655.00 Feb-01 Balance b/d 6,655.00 Birch Bros Ltd Account Jan-26 Sales 399.50
28 © Pearson Education Ltd 2010 Accounting 10.3X (a) (c) (e) Purchase Ledger R. James Co. Account Jan-30 Purchase Returns 470.00 Jan-01 Balance b/d 1,600.00 Jan-31 Balance c/d 2,906.60 Jan-19 Purchases 1,776.60 3,376.60 3,376.60 Feb-01 Balance b/d 2,906.60 Naylor's Ltd Account Jan-13 Purchase Returns 98.70 Jan-01 Balance b/d 900.00 Jan-31 Balance c/d 2,328.80 Jan-02 Purchases 1,527.50 2,427.50 2,427.50 Feb-01 Balance b/d 2,328.80 Roberts Sons Account Jan-31 Balance c/d 1,274.90 Jan-01 Balance b/d 490.00 Jan-05 Purchases 784.90 1,274.90 1,274.90 Feb-01 Balance b/d 1,274.90 10.3X (d) General Ledger Dr Sales Account Cr Jan-31 Total Sales for January 8,844.00 Dr Sales Returns Account Cr Jan-31 Total SRDB 60.00 Purchases Account Jan-31 Total Purchases for January 3,480.00 Purchases Return Account Jan-31 Total PRDB 484.00 Dr VAT Account Cr Jan-31 Total PDB 609.00 Jan-31 Total PRDB 84.70 Jan-31 Total SRDB 10.50 Jan-31 Total SDB 1,547.70 Jan-31 Balance c/d 1,012.90 1,632.40 1,632.40 *Feb-01 Balance b/d 1,012.90 * The balance on the VAT account shows that Anderson's Ltd owe £1,012.90 to HMRC 10.4 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 1,387.68 Add Purchases not received by us 68.42 Add Returns not received by supplier 54.62 Balance per Supplier's Statement 1,510.72
29© Pearson Education Ltd 2010 Accounting Answers 11.1 Cash Book Cash Bank Cash Bank (1) Capital 4,000 (2) Fixtures 660 (4) Sales 225 (4) Rent 140 (6) T Thomas 188 (12) Wages 275 (8) Sales 308 (15) Cash 200 (10) J King 300 (20) Stationery 60 (14) J Walters (Loan) 500 (22) J French 166 (15) Bank 200 (28) Drawings 100 (30) J Scott 277 (31) Balances c/d 216 4,247 (31) Sales 66 791 5,273 791 5,273 (1) Balances b/d 216 4,247 11.2X Dr Cash Book Cr 2010 Cash Bank 2010 Cash Bank Feb 1 Balance b/d 76.32 2,376.50 Feb 2 Electricity 156.00 Feb 6 D Hill 300.00 Feb 4 Motor expenses 15.00 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 57.10 Feb 14 D Whitman - loan 500.00 Feb 16 Wright Brothers 86.20 Feb 22 J Smith 217.00 Feb 17 Drawings 50.00 Feb 26 Sales 53.00 Feb 17 Post office re: Feb 28 Balance c/d 590.60 Telephone a/c 140.60 Mr S Jepson Feb 23 Petrol 21.00 Feb 27 Brownsons of M/cr 899.00 Feb 28 Salaries 2,400.00 Feb 28 Balance c/d 43.72 133.42 4,405.30 133.42 4,405.30 Mar-01 Balances b/d 43.72 Mar-01 Balances b/d 590.60 Chapter 11: Cash books
30 © Pearson Education Ltd 2010 Accounting 11.3 Cash Book Disct Cash Bank Disct Cash Bank (1) Capital 6,000 (1) Fixtures 950 (3) Sales 407 (2) Purchases 1,240 (5) N Morgan 10 210 (4) Rent 200 (9) S Cooper 20 380 (7) S Thompson 4 76   Co (14) L Curtis 115 (12) Rates 410 (20) P Exeter 2 78 (16) M Monroe 6 114 (31) Sales 88 (31) Calances c/d 93 4,195 32 407 6,871 10 407 6,871 General Ledger Discounts Allowed (31) Cash Book 32 Discounts Received (31) Cash Book 10 11.4X Dr M Pinero Cash Book Cr Disct Cash Bank Disct Cash Bank (1) Balance b/d 58 (1) Balance b/d 1,470 (2) Capital 1,000 (3) Office fixtures 780 (4) Sales 220 (5) Bank 200 (5) Cash 200 (6) B Barnes 2 78 (8) Sales 500 (6) T Horton 6 234 (15) Bank 400 (6) T Jackin 10 390 (18) L Graham 4 76 (12) Motor Expenses 77 (18) B Crenshaw 7 133 (15) Cash 400 (18) H Green 11 209 (16) Drawings 120 (22) T Weiskopf 204 (20) Wages 210 (28) Cash 755 (26) Insurance 150 (30) Balance c/d 6,049 (28) Bank 755 (31) Motor Van 4,920 (31) Balance c/d 20 22 1,382 8,422 18 1,382 8,422 Dr General Ledger Discounts Received Account Cr (31) Cash Book 18 Dr Discounts Allowed Account Cr (31) Cash Book 22
31© Pearson Education Ltd 2010 Accounting Answers 12.1 Receipts £ 32 33 34 35 8 36 37 38 40 41 42 39 Balance b/d Cash Window cleaner Postage stamps Petrol Stationery Jean Ford stamps Office cleaner Parcel postage Magazine Computer disks Petrol Refreshments Office cleaner Balance c/d Balance b/d Jun 01 2010 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 Jun 30 Jul 01 CashJul 01 18.52 131.48 152.00 16.45 133.55 2.00 p Date Details Total VAT Postage Cleaning Motor Expenses Expenses Stationery SundryVoucher Number £ 5.60 10.00 1.45 1.05 2.10 10.20 p£ £ p £ 1.35 7.60 8.95 p £ 6.90 20.00 50.00 p £ 32.00 12.00 44.00 p 8.30 15.20 £ p 3.00 7.20 £ p Amount required to restore imprest = Float required 150.00 Less Cash in hand 16.45 Amount required 133.55 10.00 7.60 37.60 9.75 20.00 3.00 14.10 20.00 20.00 16.45 135.55 152.00 1.35 7.95 4.20 4.20 Chapter 12: Petty cash and the imprest system
32 © Pearson Education Ltd 2010 Accounting Receipts £ 80 81 82 83 84 78 85 86 88 87 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 Balance Balance 15 Oct 2010 15 Oct 16 Oct 17 Oct 18 Oct 20 Oct 20 Oct 23 Oct 23 Oct 25 Oct 27 Oct 28 Oct 31 Oct 01 Nov Cash01 Nov 23.40 76.60 103.50 13.80 86.20 3.50 Date Details Total VAT Postage Cleaning Travel Expenses Expenses Stationery SundryVoucher £ 1.66 0.63 0.74 1.40 4.43 £ £ 7.00 8.60 3.60 15.60 £ £ 8.00 20.00 23.60 16.42 16.42 10.00 18.00 £ 7.40 11.65 £ Amount required to restore the imprest = Float required 100.00 Less Cash in hand 13.80 Amount required 86.20 11.66 7.40 8.60 20.00 4.23 16.42 9.40 13.80 89.70 103.50 7.00 4.99 4.25 b/d c/d b/d Singh's Estate Agents - Petty Cash book12.2X
33© Pearson Education Ltd 2010 Accounting Answers 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 (Totals so far) 2,328 2010 (Totals so far) 497 Dec-31 J Walters 54 Dec-31 Bank charges 22 Dec-31 Balance c/d 1,863 2,382 2,382 (b) Bank Reconciliation Statement as at 31 December 2010 Balance per cash book 1,863 Add Unpresented cheque 115 1,978 Less Bankings not yet on bank statement (249 1 178) 427 Balance per bank statement 1,551 OR Bank Reconciliation Statement as at 31 December 2010 Balance per bank statement 1,551 Add Bankings not yer on bank statement (249 1 178) 427 1,978 Less Unpresented cheque 115 Balance per cash book 1,863 13.2X (a) Dr Preston Co Cash Book Cr Dec 31 Balance b/d 9,155 Dec 31 Bank charges 110 Dec 31 BGC: P Todd 270 Dec 31 Balance c/d 9,315 9,425 9,425 Jan 1 Balance b/d 9,315 Chapter 13: Bank reconciliation statements
34 © Pearson Education Ltd 2010 Accounting (b) Preston Co Bank Reconciliation Statement as at 31 December 2010 £ Balance as per cash book 9,315 Add Unpresented cheque 575 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 £ Balance as per bank statement 7,755 Add Bankings not yet on bank statement ( 945 1 300 1 890) 2,135 9,890 Less Unpresented cheque 575 Balance per cash book 9,315 13.3 (a) Cash Book - James Baxter 2010 £ 2010 £ Mar-31 BGC - A May 929 Mar-31 Balance b/d 2,804 Mar-31 Balance c/d 2,003 Mar-31 Standing order - Oak plc 100 Mar-31 Bank charges 28 2,932 2,932 (b) James Baxter Bank Reconciliation Statement as at 31 March 2010 £ Bank overdraft per cash book 2,003 Add Banking not entered on bank statement 160 2,163 Less Unpresented cheque 490 Bank overdraft per bank statement 1,673 OR James Baxter Bank Reconciliation Statement as at 31 March 2010 £ Balance per bank statement 1,673 O/D Less Banking not entered on bank statement 160 1,513 O/D Add Unpresented cheque 490 Balance per cash book 2,003 O/D
35© Pearson Education Ltd 2010 Accounting 13.4X (a) E Flynn Cash Book 2010 2010 Dec-06 J Hallworth 155 Dec-01 Balance b/d 3,872 Dec-20 C Walters 189 Dec-10 P Wood 206 Dec-31 P Miller 211 Dec-19 M Roberts 315 Dec-31 K Saunders 180 Dec-29 P Phillips 84 Dec-31 Balance c/d 4,007 Dec-30 s/o Mercantile 200 Dec-31 Bank charges 65 4,742 4,742 (b) E Flynn Bank Reconciliation Statement as at 31 December 2010 Bank overdraft per cash book 4,007 Add Bank lodgements not yet entered on bank statement 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. (b)  Date Narrative £ Date Narrative £ Apr-01 Balance b/d 8,000 Apr-02 F Bashir (10123) 1,200 Apr-07 Sales banked 800 Apr-08 M Tyler (10124) 1,300 Apr-13 Sales banked 550 Apr-15 H Joshi (10125) 1,250 Apr-20 Sales banked 650 Apr-15 DD / MTC 250 Apr-30 Sales banked 750 Apr-20 DD / Pre. Ins 80 Apr-22 CT - M Bell 1,230 Apr-28 Bank charges 120 Apr-30 Dishonoured cheque 280 Apr-30 Balance c/d 7,500 11,980 11,980 May-01 Balance b/d 7,500 (c) Real Kitchen Suppliers Bank Reconciliation Statement as at 30 April 2010 £ £ Balance as per cash book 7,500 Add: Unpresented cheque - 10125 1,250 8,750 Less: cash not yet credited 750 Balance per bank statement 8,000
36 © Pearson Education Ltd 2010 Accounting Answers 14.1 The Journal Date Details Dr Cr 2010 £ £ Jan-01 Computer Equipment 4,000 Data Systems Ltd 4,000 Jan-05 Drawings 120 Purchases 120 Jan-08 Bad debts 220 J Oddy 220 Jan-15 Motor vehicle 15,500 Bank 15,500 Jan-29 Office furniture and fittings 250 J Street 250 14.2X (a) Fixtures Dr 1,809 J Harper Cr 1,809 (b) Drawings Dr 500 Purchases Cr 500 (c) Drawings Dr 100 Cash Cr 100 (d) Office equipment Dr 500 K Lamb Cr 500 (e) J Harper Dr 65 Fixtures Cr 65 (f) Bad debts Dr 68 J Brown Cr 68 (g) Office equipment Dr 2,190 Super Offices Cr 2,190 14.3 (a) J Harkness Dr 678 J Harker Cr 678 (b) Machinery Dr 4,390 L Pearson Cr 4,390 (c) Motor Van Dr 10,800 Motor expenses Cr 10,800 (d) E Fletcher Dr 9 Sales Cr 9 (e) Sales Dr 257 Commissions received Cr 257 14.4X (a) H Weld Dr 699 K Webb Cr 699 (b) Cash Dr 189 Bank Cr 189 (c) B Maxim Dr 443 B Gunn Cr 443 (d) K Innes Dr 10 Purchases Cr 10 (e) H Mersey* Dr 178 Cash Cr 178 *Needs double the amount to first cancel out the error and then replace it with the correct amount. Chapter 14: The journal
37© Pearson Education Ltd 2010 Accounting 14.5X (a) Journal Dr Cr Sep 30 Drawings 750 Purchases 750 Bring correction of error of omission Sep 30 L Patel 500 A Patek 500 Being correction of your error of commission (b) Dr Suspense Account Cr Sep 30 Balance b/d 340 Sep 30 Sales 240 Sep 30 Farmer Co 170 Sep 30 Pointer Bros 270 510 510 (c) Before discovery of the errors in the Trial Balance the debit side was deficient by £340. (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.
38 © Pearson Education Ltd 2010 Accounting Answers 15.1 Dr Sales Ledger Control Account Cr 2010 2010 Oct-01 Balance b/d 12,340 Oct-31 SRDB 2,847 Oct-31 SDB 124,790 Oct-31 Bank cash 116,225 Oct-31 Discount allowed 3,638 Oct-31 Balance c/d 14,420 137,130 137,130 Nov-01 Balance b/d 14,420 15.2X Dr Sales Ledger Control Account Cr 2010 2010 Feb 1 Balance b/d 33,950 Feb 28 Bank cash 332,920 Feb 28 SDB 347,480 Feb 28 Discount allowed 4,497 Feb 28 Bank : dishonoured cheques 791 Feb 28 SRDB 11,095 Feb 28 Bad Debts 977 Feb 28 Purchase ledger set offs 1,400 Feb 28 Balance c/d 31,332 382,221 382,221 Mar 1 Balance b/d 31,332 15.3 Dr Purchase Ledger Control Account Cr 2010 2010 Jul-31 PRDB 1,575 Jul-01 Balance b/d 19,450 Jul-31 Bank 26,150 Jul-31 PDB 28,200 Jul-31 Discount received 550 Jul-31 Balance c/d 19,375 47,650 47,650 Aug-01 Balance b/d 19,375 Chapter 15: Sales ledger and purchase ledger control accounts
39© Pearson Education Ltd 2010 Accounting 15.4X Dr Purchase Ledger Control Account Cr 2010 2010 Jan 31 PRDB 2,835 Jan 31 Balance b/d 35,010 Jan 31 Bank 45,070 Jan 31 PDB 50,760 Jan 31 Discount received 990 Jan 31 Sales ledger set offs 2,000 Jan 31 Balance c/d 34,875 85,770 85,770 Feb 1 Balance b/d 34,875 15.5X (a) Dr Sales Ledger Control Account Cr 2009 2009 Jan 1 Balance b/d 65,000 Dec 31 RIDB 6,430 Dec 31 SDB 453,900 Dec 31 Bank 432,000 Dec 31 Returned cheque 750 Dec 31 Discount All 7,540 Dec 31 Bad Debts 650 Dec 31 Purchase ledger set offs 1,650 Dec 31 Balance c/d 71,380 519,650 519,650 (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.
40 © Pearson Education Ltd 2010 Accounting Answers 16.1 Lucy Chan Trading and Profit and Loss Account for the year ending 31 December 2010 £ £ Sales 133,770 Less cost of goods sold Purchases 84,665 Less closing stock 15,085 69,580 Gross Profit 64,190 Less Expenses Rent 4,595 Wages and salaries 28,865 Printing and stationery 2,940 Electricity expenses 2,485 General expenses 1,295 40,180 Net Profit 24,010 16.2X Charles Drew Trading and Profit and Loss Account for the year ending 31 December 2010 £ £ Sales 128,452 Less cost of goods sold Purchases 96,547 Less closing stock 18,495 78,052 Gross Profit 50,400 Less Expenses Wages 11,229 Rent 5,330 Office expenses 1,620 Motor expenses 922 Electricity expenses 1,350 20,451 Net Profit 29,949 Chapter 16: Trading account and profit and loss account of a sole trader
41© Pearson Education Ltd 2010 Accounting 16.3 G Singh Trading and Profit and Loss Account for the year ended 31 December 2010 £ £ Sales 73,848 Less Cost of goods sold: Purchases 58,516 Less Closing stock 10,192 48,324 Gross Profit 25,524 Less Expenses Wages 8,600 Motor expenses 2,080 Rates 2,680 Insurance 444 General expenses 420 14,224 Net Profit 11,300 16.4X R Cairns Trading and Profit and Loss Account for the year ended 30 June 2010 £ £ Sales 99,082 Less Cost of goods sold Purchases 71,409 Less closing stock 11,498 59,911 Gross Profit 39,171 Less Expenses Wages 9,492 Rates 2,000 Printing and Stationery 562 Electricity 1,266 Insurance 605 Sundry Expenses 1,518 Motor expenses 3,109 18,552 Net Profit 20,619 16.5X J Leung Trading and Profit and Loss Account for the year ended 31 March 2010 £ £ Sales 153,080 Less Cost of goods sold Purchases 133,171 Less closing stock 42,828 90,343 Gross Profit 62,737 Less Expenses Rent and rates 6,708 Insurance 1,312 Electricity expenses 2,219 Motor expenses 2,429 Salaries and wages 26,855 General expenses 3,466 42,989 Net Profit 19,748
42 © Pearson Education Ltd 2010 Accounting Answers 17.1 G Singh Balance Sheet as at 31 December 2010 £ £ £ Fixed Assets Buildings 20,000 20,000 Motor vehicle 12,000 12,000 32,000 32,000 Current Assets Stock 10,192 Debtors 7,800 Cash at bank 6,616 Cash in hand 160 24,768 Less Current Liabilities Creditors 6,418 6,418 Net current assets 18,350 50,350 Financed by Cash introduced 48,000 Add Net profit for the year 11,300 59,300 Less Drawings 8,950 50,350 17.2X R Cairns Balance Sheet as at 30 June 2010 £ £ £ Fixed assets Premises 145,000 - 145,000 Computer equipment 8,000 - 8,000 Motor vehicle 16,500 - 16,500 169,500 - 169,500 Current assets Stock 11,498 Debtors 9,498 Cash at bank 6,541 Cash in hand - 27,537 Less Current liabilities Creditors 3,618 3,618 Net current assets 23,919 193,419 Financed by: Capital introduced 185,000 Add Net profit for the year 20,619 205,619 Less Drawings 12,200 193,419 Chapter 17: The Balance Sheet
43© Pearson Education Ltd 2010 Accounting 17.3 J Leung Balance Sheet as at 31 March 2010 £ £ £ Fixed Assets Buildings 120,400 120,400 Equipment 17,028 17,028 Motor van 15,050 15,050 152,478 152,478 Current Assets Stock 42,828 Debtors 29,283 Cash at bank 4,876 76,987 Less Current Liabilities Creditors 13,975 13,975 Working Capital 63,012 215,490 Financed by Capital 212,736 Net profit 19,748 232,484 Less Drawings 16,994 215,490 17.4X Sarah Joshi Trading and Profit and Loss Account for the year ended 31 May 2010 £ £ Sales 103,658 Less Cost of goods sold Purchases 85,691 Less closing stock 14,998 70,693 Gross Profit 32,965 Less Expenses Rent 3,000 General expenses 822 Motor expenses 3,473 Printing and stationery 605 Wages and salaries 12,465 Heating and lighting 1,319 Insurance 578 22,262 Net Profit 10,703
44 © Pearson Education Ltd 2010 Accounting Balance Sheet as at 31 May 2010 £ £ £ Fixed Assets Buildings 180,000 - 180,000 Computer equipment 3,600 - 3,600 Motor vehicle 19,800 - 19,800 203,400 - 203,400 Current Assets Stock 14,998 Debtors 11,398 Cash at bank 13,850 40,246 Less Current Liabilities Creditors 4,343 4,343 Net current assets / working capital 35,903 Less Long-term liabilities - 239,303 Financed By: Capital 237,240 Add Net profit 10,703 247,943 Less Drawings 8,640 239,303
45© Pearson Education Ltd 2010 Accounting Answers 18.1 K Jepson Trading account for the year ended 31-Dec-10 £ £ Sales 69,736 Less cost of goods sold Opening stock 12,463 Add purchases 47,536 Add carriage inwards 1,206 61,205 Less closing stock 13,480 47,725 Gross profit 22,011 18.2X Jane Li Trading and Profit and Loss Account for the year ended 31 March 2010 £ £ Sales 98,280 Less Cost of Goods Sold Opening Stock 29,686 Add Purchases 66,429 Add Carriage Inwards 2,020 98,135 Less Closing Stock 33,307 64,828 Gross profit 33,452 Chapter 18: Financial statements: other considerations
46 © Pearson Education Ltd 2010 Accounting 18.3 J Mann Trading and Profit and Loss Account for the year ended 31 July 2010 £ £ Sales 110,859 Less sales returns 1,029 109,830 Less cost of goods sold Opening stock 11,949 Add Purchases 65,100 Add carriage inwards 3,570 80,619 Less purchase returns 1,176 79,443 Less Closing stock 8,883 70,560 Gross Profit 39,270 Less Expenses Salaries and wages 10,521 Rent 3,066 Motor Expenses 6,552 General expenses 882 Carriage outwards 1,659 22,680 Net Profit 16,590 18.4X Emily Hart Trading and Profit and Loss Account for the year ended 31 December 2010 £ £ Sales 189,050 Less sales returns 2,850 186,200 Less Cost of Goods Sold Opening Stock 34,732 Add Purchases 122,683 Add Carriage Inwards 400 157,815 Less Purchase Returns 3,000 154,815 Less Closing Stock 32,984 121,831 Gross Profit 64,369 Less Expenses Wages 21,875 Rent and rates 2,800 General expenses 684 Carriage outwards 931 Printing and stationery 525 26,815 Net Profit 37,554
47© Pearson Education Ltd 2010 Accounting S Shah Trading and Profit and Loss Account for the year ended 30 June 2010 £ £ Sales 178,560 Less sales returns 1,968 176,592 Less cost of goods sold Opening stock 22,733 Add Purchases 113,990 Add carriage inwards 2,976 139,699 Less purchase returns 3,091 136,608 Less Closing stock 28,320 108,288 Gross Profit 68,304 Less Expenses Salaries and wages 37,075 Rent and rates 2,918 Insurance 749 Motor Expenses 4,250 Telephone and internet 4,198 Electricity 1,594 Carriage outwards 1,920 General expenses 3,014 55,718 Net Profit 12,586 Balance Sheet as at 30 June 2010 £ £ £ Fixed Assets Buildings 80,000 80,000 Computer equipment 3,360 3,360 Motor vehicles 17,280 17,280 100,640 100,640 Current Assets Stock 28,320 Debtors 37,402 Cash at bank 4,627 70,349 Less Current Liabilities Creditors 32,618 32,618 Net Current Assets (Working Capital) 37,731 138,371 Less long-term liabilities Long-term loans Nil 138,371 Financed by Capital account Balance b/f 137,305 Add net profit for the year 12,586 149,891 Less Drawings 11,520 138,371 18.5
48 © Pearson Education Ltd 2010 Accounting 18.6X J Collins Trading and Profit and Loss Account for the year ended 31 March 2010 £ £ £ Sales 74,400 Less Cost of sales Opening stock 15,104 Add Purchases 46,224 Carriage inwards 936 62,264 Less Closing stock 19,992 42,272 Gross Profit 32,128 Less Expenses Salaries and wages 11,788 Carriage outwards 1,304 Rent 1,824 Rates 1,080 Printing and stationery 810 Travel expenses 490 Telephone 756 Sundry expenses 2,808 20,860 Net Profit 11,268 Balance Sheet as at 31 March 2010 £ £ £ Fixed Assets Fixtures and fittings 2,400 2,400 Computer equipment 9,600 9,600 12,000 12,000 Current Assets Stock 19,992 Debtors 18,308 Cash at bank 15,504 Cash in hand 480 54,284 Less Current Liabilities Creditors 12,180 12,180 Net Current assets 42,104 54,104 Financed by: Capital 51,376 Add net profit 11,268 62,644   Less Drawings 8,540 54,104
49© Pearson Education Ltd 2010 Accounting Answers 19.1 J Chen (a) Straight Line (b) Reducing Balance £ £ Cost 6,000 6,000 Year 1 Depreciation* 1,250 Year 1 Depreciation 40% 3 £6,000 2,400 4,750 3,600 Year 2 Depreciation 1,250 Year 2 Depreciation 40% 3 £3,600 1,440 3,500 2,160 Year 3 Depreciation 1,250 Year 3 Depreciation 40% 3 £2,160 864 2,250 1,296 Year 4 Depreciation 1,250 Year 4 Depreciation 40% 3 £1,296 519 1,000 777 *Depreciation 5 6,000 2 1, 000_____________ 4 5 £1,250 19.2 Machine (a) Straight Line (b) Reducing Balance £ £ Cost 75,000 75,000 Year 1 Depreciation* 11,070 Year 1 Depreciation 20% 3 £75,000 15,000 63,930 60,000 Year 2 Depreciation 11,070 Year 2 Depreciation 20% 3 £60,000 12,000 52,860 48,000 Year 3 Depreciation 11,070 Year 3 Depreciation 20% 3 £48,000 9,600 41,790 38,400 Year 4 Depreciation 11,070 Year 4 Depreciation 20% 3 £38,400 7,680 30,720 30,720 *Depreciation 5 75,000 2 30,720_______________ 4 5 £11,070 Chapter 19: The concept of depreciation of fixed assets
50 © Pearson Education Ltd 2010 Accounting 19.3X (a) Reducing Balance £ Cost 19,200 Year 1 Depreciation 50% of 19,200 9,600   9,600 Year 2 Depreciation 50% of 9,600 4,800   4,800 Year 3 Depreciation 50% of 4,800 2,400   2,400 Year 4 Depreciation 50% of 2,400 1,200   1,200 (b) Straight Line £ Cost 19,200 Year 1 Depreciation 4,500   14,700 Year 2 Depreciation 4,500   10,200 Year 3 Depreciation 4,500   5,700 Year 4 Depreciation 4,500   1,200 19,200 2 1,200 5 18,000 4 4 5 4,500 19.4X Computer Equipment (a) Straight Line (b) Reducing Balance £ £ Cost 4,600 Cost 4,600 Year 1 Depreciation * 1,000 Year 1 Depreciation 25% 3 4,600 1,150   3,600   3,450 Year 2 Depreciation 1,000 Year 2 Depreciation 25% 3 3,450 862   2,600   2,588 Year 3 Depreciation 1,000 Year 3 Depreciation 25% 3 2,588 647   1,600   1,941 Year 4 Depreciation 1,000 Year 4 Depreciation 25% 3 1,941 485   600   1,456 * ​  Depreciation  4,600 2 600  £1,000    ___________________________________   4   ​
51© Pearson Education Ltd 2010 Accounting 19.5X (a) Reducing Balance £ Cost 72,900 Year 1 Depreciation 33​ 1  __  3  ​% of 72,900 24,300   48,600 Year 2 Depreciation 33​ 1  __  3  ​% of 48,600 16,200   32,400 Year 3 Depreciation 33​ 1  __  3  ​% of 32,400 10,800   21,600 Year 4 Depreciation 33​ 1  __  3  ​% of 21,600 7,200   14,400 Year 5 Depreciation 33​ 1  __  3  ​% of 14,400 4,800   9,600 (b) Straight Line £ Cost 72,900 Year 1 Depreciation 12,660   60,240 Year 2 Depreciation 12,660   47,580 Year 3 Depreciation 12,660   34,920 Year 4 Depreciation 12,660 22,260 Year 5 Depreciation 12,660   9,600 72,900 2 9,600 5 63,300 4 5 5 12,660
52 © Pearson Education Ltd 2010 Accounting 19.6 Dumper (a) Reducing Balance (b) Straight Line £ £ Cost 18,000   18,000 Year 1 Depreciation 40% 3 £18,000 7,200 Year 1 Depreciation 5,000   10,800   13,000 Year 2 Depreciation 40% 3 £10,800 4,320 Year 2 Depreciation 5,000   6,480   8,000 Year 3 Depreciation 40% 3 £6,480 2,592 Year 3 Depreciation 5,000   3,888   3,000 Depreciation  ​  18,000 2 3,000   ______________  3   ​ £5,000 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.)
53© Pearson Education Ltd 2010 Accounting Answers 20.1 (a) Dr Motor Car Account Cr 2001 £ £ Jan-01 Bank 12,500 (b) Dr Provision for Depreciation - Motor Car Account Cr 2001 £ 2001 £ Dec-31 Balance c/d 2,500 Dec-31 Profit and loss a/c 2,500 2002 2002 Dec-31 Balance c/d 4,500 Jan-01 Balance b/d 2,500 Dec-31 Profit and loss a/c 2,000 4,500 4,500 2003 2003 Dec-31 Balance c/d 6,100 Jan-01 Balance b/d 4,500 Dec-31 Profit and loss a/c 1,600 6,100 6,100 2004 Jan-01 Balance b/d 6,100 (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 Cost Total Depreciation Net book value 2001 £ £ £ Motor Car 12,500 2,500 10,000 2002 Motor Car 12,500 4,500 8,000 2003 Motor Car 12,500 6,100 6,400 Chapter 20: Double entry for depreciation and disposal of a fixed asset
54 © Pearson Education Ltd 2010 Accounting 20.2X (a) Straight Line Method Dr Machinery Account Cr 2001 £ £ Nov 01 Bank 18,000 Dr Provision for Depreciation - Machinery Account Cr 2002 £ 2002 £ Oct 31 Balance c/d 1,800 Oct 31 Profit and loss a/c 1,800 Nov 1 Balance b/d 1,800 2003 2003 Oct 31 Balance c/d 3,600 Oct 31 Profit and loss a/c 1,800 3,600 3,600 Nov 1 Balance b/d 3,600 2004 2004 Oct 31 Balance c/d 5,400 Oct 31 Profit and loss a/c 1,800 5,400 5,400 Nov 1 Balance b/d 5,400 (b) Reducing Balance Method Dr Machinery Account Cr 2001 £ £ Nov 01 Bank 18,000 Dr Provision for Depreciation - Machinery Account Cr 2002 £ 2002 £ Oct 31 Balance c/d 1,800 Oct 31 Profit and loss a/c 1,800 Nov 1 Balance b/d 1,800 2003 2003 Oct 31 Balance c/d 3,420 Oct 31 Profit and loss a/c 1,620 3,420 3,420 Nov 1 Balance b/d 3,420 2004 2004 Oct 31 Balance c/d 4,878 Oct 31 Profit and loss a/c 1,458 4,878 4,878 Nov 1 Balance b/d 4,878 (c) Straight Line Method Profit and Loss Account (extracts) for the year ended 31 October £ 2002 Depreciation - Machinery 1,800 2003 Depreciation - Machinery 1,800 2004 Depreciation - Machinery 1,800
55© Pearson Education Ltd 2010 Accounting Balance Sheet (extracts) as at 31 October Cost Total Depreciation Net Book Value 2002 £ £ £ Machinery 18,000 1,800 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 Cost Total Depreciation Net Book Value 2002 £ £ £ Machinery 18,000 1,800 16,200 2003 Machinery 18,000 3,420 14,580 2004 Machinery 18,000 4,878 13,122 20.3 (a) Computer Equipment Account 2001 2004 Jan-01 Balance b/d 9,500 Jan-01 Computer equipment disposals 9,500 (b) Provision for Depreciation : Computer Equipment Account 2001 2001 Dec-31 Balance c/d 1,900 Jan-01 Computer equipment 1,900 2002 2002 Dec-31 Balance c/d 3,800 Jan-01 Balance b/d 1,900 Dec-31 Profit and loss 1,900 3,800 3,800 2003 2003 Dec-31 Balance c/d 5,700 Jan-01 Balance b/d 3,800 Dec-31 Profit and loss 1,900 5,700 5,700 2004 2004 Jan-01 Computer equipment disposals 5,700 Jan-01 Balance b/d 5,700
56 © Pearson Education Ltd 2010 Accounting (c) Computer Equipment Disposals Account 2004 2004 Jan-01 Computer 9,500 Jan-01 Depreciaiton 5,700 Dec-31 Profit and loss 450 Jan-01 Bank 4,250 9,950 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 Cost Total Depreciation Net book value 2001 £ £ £ Computer Equipment 9,500 1,900 7,600 2002 Computer Equipment 9,500 3,800 5,700 2003 Computer Equipment 9,500 5,700 3,800 20.4X (a) Motor Van Disposals Account Motor Van 12,000 Provision for depreciation 9,700 Bank 1,850 Profit and loss : loss on sale 450 12,000 12,000 (b) Machinery Disposals Account Machinery 27,900 Provision for depreciation 19,400 Profit and loss : profit on sale 2,770 Bank 11,270 30,670 30,670 (c) Fixtures Disposals Account Fixtures 8,420 Provision for depreciation 7,135 Bank 50 Profit and loss : loss on sale 1,235 8,420 8,420
57© Pearson Education Ltd 2010 Accounting (d) Buildings Disposals Account Buildings 200,000 Provision for depreciation 110,000 Profit and loss : profit on sale 59,000 Bank 149,000 259,000 259,000 20.5 (a) Straight Line Method  ​  Cost 2 Scrap Value   _________________  No. of Years   ​  ​ 35,000 2 11,000  ______________  4   ​ £6,000 per annum (b) Dr Provision for Depreciation - Vehicles Account Cr 2005 £ 2005 Mar-31 Balance c/d 7,000 Mar-31 Profit and loss 7,000 Apr-01 Balance b/d 7,000 2006 2006 Mar-31 Balance c/d 12,600 Mar-31 Profit and loss 5,600 12,600 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. 20.6X (a) RIALTO TRADERS Plant and Machinery Account 2007 2007 May 1 Balance b/d 500,000 Dec 31 Plant and machinery disposals 200,000 2008 Apr 30 Balance c/d 300,000 500,000 500,000 2008 May 1 Balance b/d 300,000
58 © Pearson Education Ltd 2010 Accounting (b) Motor Vehicles Account 2007 May 1 Balance b/d 200,000 2008 2008 Feb 1 Bank 100,000 Apr 30 Balance c/d 300,000 300,000 300,000 May 1 Balance b/d 300,000 (c) Provision for Depreciation - Plant and Machinery Account 2007 2007 Dec 31 Plant and Machinery- Disposals 150,000 May 1 Balance b/d 200,000 2008 2008 Apr 30 Balance c/d 80,000 Apr 30 Profit and Loss 30,000 230,000 230,000 May 1 Balance b/d 80,000 (d) Plant and Machinery - Disposal Account 2007 2007 Dec 31 Plant and Machinery 200,000 Dec 31 Provision for Depreciation 150,000 Dec 31 Bank 40,000 Dec 31 Profit and Loss 10,000 200,000 200,000 (e) (i) Concept 1 – Consistency Concept 2 – Accruals (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.
59© Pearson Education Ltd 2010 Accounting Answers 21.1 Hart Partners (a) Dr Bad Debts Account Cr 2009 2009 May-16 S Bayley 550 Dec-31 Profit loss 1,240 Jul-31 J Carter 223 Nov-09 T Roche 467 1,240 1,240 Dr Provision For Doubtful Debts Account Cr 2009 Dec-31 Profit loss 520 (b) Profit and Loss Account for the year ended 31 December 2009 (extracts) Gross profit Less Expenses Bad debts written off 1,240 Provision for doubtful debts 520 1,760 (c) Balance Sheet as at 31 December 2009 (extract) Current Assets Debtors 26,000 Less Provision for doubtful debts 520 25,480 21.2 Date 31-Dec Total debtors Profit and loss Dr/Cr Final figure for balance sheet 2007 7,000 70 Dr 6,930 (net) 2008 8,000 10 Dr 7,920 (net) 2009 6,000 20 Cr 5,940 (net) 2010 7,000 10 Dr 6,930 (net) Chapter 21: Bad debts and provision for doubtful debts
60 © Pearson Education Ltd 2010 Accounting 21.3X Bad Debts 2007 2007 31 Dec Debtors 298 31 Dec Profit and loss a/c 298 2008 2008 31 Dec Debtors 386 31 Dec Profit and loss a/c 386 2009 2009 31 Dec Debtors 344 31 Dec Profit and loss a/c 344 2010 2010 31 Dec Debtors 477 31 Dec Profit and loss a/c 477 Provision for Doubtful Debts 2007 2007 31 Dec Balance c/d 100 31 Dec Profit and loss a/c 100 2008 2008 31 Dec Balance c/d 130 1 Jan Balance b/d 100 31 Dec Profit and loss a/c 30 130 130 2009 2009 31 Dec Profit and loss a/c 15 1 Jan Balance b/d 130 31 Dec Balance c/d 115 130 130 2010 2010 31 Dec Balance c/d 150 1 Jan Balance b/d 115 31 Dec Profit and loss a/c 35 150 150 2011 1 Jan Balance b/d 150 Profit and Loss Accounts for the years ended 31 December (extracts) 2007 £ £ Bad debts 298 Provision for doubtful debts 100 2008 Bad debts 386 Provision for doubtful debts 30 2009 2009 Bad debts 344 Provision for doubtful debts 15 2010 Bad debts 477 Provision for doubtful debts 35
61© Pearson Education Ltd 2010 Accounting Balance Sheet as at 31 Decemeber (extracts) £ £ 2007 Debtors 12,000 Less Provision for doubtful debts 100 11,900 2008 Debtors 15,000 Less Provision for doubtful debts 130 14,870 2009 Debtors 14,000 Less Provision for doubtful debts 115 13,885 2010 Debtors 18,000 Less Provision for doubtful debts 150 17,850 21.4X (a) The Journal Date Debit Credit £ £ Apr 30 Bad Debts 500   A. Carter 500 Being bad debt written off (b) Double entry for the creation of a Provision for Doubtful Debts Debit: Profit and Loss Account Credit: Provision for Doubtful Debts Account (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.
62 © Pearson Education Ltd 2010 Accounting Answers C Homer Rent Account 2008 2008 Dec-31 Bank 1,600 Dec-31 Profit and loss 2,000 Dec-31 Owing c/d 400 2,000 2,000 2009 Jan-01 Owing b/d 400 Insurance Account 2008 2008 Dec-31 Bank 900 Dec-31 Profit and loss 635 Dec-31 Prepaid c/d 265 900 900 2009 Jan-01 Prepaid b/d 265 Motor Expenses Account 2008 2008 Dec-31 Bank 7,215 Dec-31 Profit and loss 7,381 Dec-31 Owing c/d 166 7,381 7,381 2009 Jan-01 Owing b/d 166 Rates Account 2008 2008 Jan-01 Bank 750 Dec-31 Profit and loss 1,500 Jul-01 Bank 1,125 Dec-31 Prepaid c/d 375 1,875 1,875 2009 Jan-01 Prepaid b/d 375 Rents Receivable Account 2008 2008 Dec-31 Profit and loss 4,800 Apr-15 Bank 2,000 Dec-31 In advance c/d 1,600 Dec-15 Bank 4,400 6,400 6,400 2009 Jan-01 In advance b/d 1,600 Chapter 22: Accruals, prepayments and other adjustments for financial statements 22.1 (a) (b) (c) (d) (e)
63© Pearson Education Ltd 2010 Accounting T Norton General Expenses Account 2009 2009 Dec-31 Bank 615 Dec-31 Profit and loss 671 Dec-31 Owing c/d 56 671 671 2010 Jan-01 Owing b/d 56 Telephone Account 2009 2009 Dec-31 Bank 980 Dec-31 Profit and loss 1,097 Dec-31 Owing c/d 117 1,097 1,097 2010 Jan-01 Owing b/d 117 Commission Received Account 2009 2009 Dec-31 Profit and loss 3,231 Dec-31 Bank 3,056 Dec-31 Owing c/d 175 3,231 3,231 2010 Jan-01 Owing b/d 175 Carriage Outwards Account 2009 2009 Dec-31 Bank 666 Dec-31 Profit and loss 788 Dec-31 Owing c/d 122 788 788 2010 Jan-01 Owing b/d 122 Insurance Account 2009 2009 Jan-01 Bank 1,080 Dec-31 Profit and loss 1,440 Oct-01 Bank 1,080 Dec-31 Prepaid c/d 720 2,160 2,160 2010 Jan-01 Prepaid b/d 720 22.2 (a) (b) (c) (d) (e)
64 © Pearson Education Ltd 2010 Accounting T Dale Stationery Account 2008 2009 01 Jul Stock b/d 290 30 Jun Profit and loss 800 2009 2009 30 Jun Cash and bank 855 30 Jun Stock c/d 345 1,145 1,145 General Expenses Account 2008 01 Jul Owing b/d 64 2009 2009 30 Jun Cash and bank 590 30 Jun Profit and loss 616 30 Jun Owing c/d 90 680 680 Rent and Rates Account 2008 01 Jul Owing b/d: Rent 160 Rates 205 2009 2009 30 Jun Cash and bank 3,890 30 Jun Profit and loss 3,635 30 Jun Owing c/d 360 30 Jun Rent prepaid and c/d 250 4,250 4,250 Motor Expenses Account 2008 01 Jul Owing b/d 180 2009 2009 30 Jun Cash and bank 4,750 30 Jun Profit and loss 4,945 30 Jun Owing c/d 375 5,125 5,125 Commission Receivable Account 2008 01 Jul Owing b/d 80 2009 2009 30 Jun Profit and loss 915 30 Jun Cash and bank 850 30 Jun Owin c/d 145 995 995 22.3X (a) (b) (c) (d) (e)
65© Pearson Education Ltd 2010 Accounting C Cainen Trading and Profit and Loss Account for the year ended 31 December 2009 £ £ Sales 18,590 Less cost of goods sold   Opening stock 2,050   Add Purchases 11,170   13,220   Less Closing stock 3,910   9,310 Gross Profit 9,280 Less Expenses   Rent (640 2 160) 480   Wages and salaries (2,140 1 290) 2,430   Insurance (590 2 190) 400   Bad debts 270   Telephone (300 1 110) 410   General Expenses 180 4,170 Net Profit 5,110 K Tyler Trading and Profit and Loss Account for the year ended 31 December 2010 £ £ Sales 54,190 Less Sales returns 200 53,990 Less cost of goods sold   Opening stock 8,620   Add Purchases 30,560   39,180   Less Closing stock 12,120 27,060 Gross Profit 26,930 Less Expenses   Wages and salaries (£4,960 1 £510) 5,470   Motor expenses 2,120   Rent and rates (£1,200 2 £160) 1,040   Discounts allowed 290   Lighting expenses (£580 1 £170) 750   Computer running expenses (£1,210 2 £140) 1,070   General expenses 360   Depreciation : Motor vehicles 700 11,800 Net Profit 15,130 22.4 22.5
66 © Pearson Education Ltd 2010 Accounting J Sears Trading and Profit and Loss Account for the year ended 31 December 2010 Sales 80,000 Less Sales returns 1,000 79,000 Less Cost of goods sold:   Opening stock 20,000   Add Purchases 70,000   90,000 Less Purchase returns 1,240   88,760 Less Closing stock 24,000 64,760 Gross Profit 14,240 Less Expenses   Wages and salaries (7,200 1 450) 7,650   Telephone (200 2 20) 180   Bad debts 40   Provision for doubtful debts (1,960 3 10% 2 160) 36   Depreciation:    Store fittings 800    Motor van 1,200 9,906 Net Profit 4,334 J Sears Balance Sheet as at 31 December 2010 Cost Depreciation Net Book Value Fixed Assets   Store fittings 8,000 800 7,200   Motor van 6,000 1,200 4,800 14,000 2,000 12,000 Current Assets   Stock 24,000   Debtors 1,960   Less Provision for doubtful debts 196 1,764   Prepaid expenses 20   Bank 600 26,384 Less Current Liabilities Creditors 1,400 Expenses owing 450 1,850 Net current assets 24,534 36,534 Financed by: Capital Balance 1.1.2010 35,800 Add Net profit 4,334 40,134 Less Drawings 3,600 36,534 22.6X
67© Pearson Education Ltd 2010 Accounting Answers Total Debtors Balances b/d 2,760 Cash 14,610 Sales (difference) 14,940 Balances c/d 3,090 17,700 17,700 Total Creditors Cash 9,390 Balances b/d 1,080 Balances c/d 1,320 Purchases (difference) 9,630 10,710 10,710 K Rogers Trading Account for the year ended 31 October 2009 £ £ Sales 14,940 Less Cost of Goods sold Opening Stock 2,010 Add Purchases 9,630 11,640 Less Closing Stock 2,160 9,480 Gross Profit 5,460 Total Debtors 2008 2009 1 Jun Balance b/d 5,670 31 May Bank 45,112 2009 31 May Sales 45,550 31 May Balance c/d 6,108 51,220 51,220 Total Creditors 2008 1 Jun Balances b/d 3,410 2009 2009 31 May Bank 29,375 31 May Purchases 30,091 31 May Balances c/d 4,126 33,501 33,501 Trading Account for the year ended 31 May 2009 £ £ Sales 45,550 Less Cost Of Goods Sold Opening Stock 11,590 Add Purchases 30,091 41,681 Less Closing Stock 13,425 28,256 Gross Profit 17,294 Chapter 23: Incomplete records 23.1 (a) (b) 23.2X
68 © Pearson Education Ltd 2010 Accounting D Lewinski Balance Sheet as at 30 June 2009 £ £ Fixed assets Plant 36,000 Fixtures 3,600 39,600 Current assets Stock 13,500 Debtors 9,300 Bank 6,000 Cash 1,350 30,150 Less Current Liabilities Creditors 7,200 Net current assets 22,950 62,550 Financed by: Capital Cash introduction 60,000 Add Net profit 18,550 78,550 Less Drawings 16,000 62,550 J Marcano Statement of Affairs as at 31 August 2009 £ £ Fixed assets   Fixtures 3,500   Motor Van 3,500 7,000 Current assets   Stock 16,740   Debtors 11,890   Bank 2,209   Cash 115 30,954 Less Current liabilities   Creditors 9,952 21,002 28,002 23.3 (a) Capital is £62,550 (b) 23.4
69© Pearson Education Ltd 2010 Accounting Statement of Affairs as at 31 August 2009 £ £ £ Fixed assets   Fixtures 5,500   Less Depreciation 300 5,200   Motor Van 3,500   Less Depreciation 700 2,800 8,000 Current assets   Stock 24,891   Debtors 15,821   Bank 72   Cash 84 40,868 Less Current liabilities   Trade creditors 6,002   Expenses owing 236   Bank overdraft 165 6,403 Net current assets 34,465 42,465 Capital   Balance as at 31/08/2009 28,002   Add Cash introduced 12,800   Add Net profit (C) 9,223 (B) 50,025   Less Drawings 7,560 (A) 42,465 (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. Dr Total Debtors Account Cr 2008 1 Apr Balances b/d 2,980 2009 2009 31 Mar Sales 11,520 31 Mar Cash 10,820 31 Mar Balances (difference) c/d 3,680 14,500 14,500 Dr Total Creditors Account Cr 2008 1 Apr Balance b/d 1,880 2009 2009 31 Mar Cash 7,780 31 Mar Purchases 8,120 31 Mar Balance (difference) c/d 2,220 10,000 10,000 23.5X (a)
70 © Pearson Education Ltd 2010 Accounting A Hanson Calculation of Capital as at 31 March 2008 and 31 March 2009 31.3.2008 31.3.2009 £ £ Bank 1,460 1,740 Office furniture 600 500 Stock 2,320 2,620 Cash 60 80 Debtors 2,980 3,680 7,420 8,620 Less Creditors 1,880 2,220 Capital 5,540 6,400 £ Capital as at 31 March 2008 5,540 Add Net profit (B) 3,400 (A) 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. Total Debtors Account Dec-01 Balances b/d 450 Nov 30 Bank 7,500 Sales 7,628 Nov 30 Balance c/d 578 8,078 8,078 Calculation of Sales £ Credit Sales 7,628 Cash Sales 200,552 Drawings 12 3 £1,500 18,000 226,180 (b) (c) 23.6X (a)  (i)
71© Pearson Education Ltd 2010 Accounting Rent Account Dec 01 Balance b/d 350 Nov 30 Profit and loss 8,760 Nov 30 Bank 8,900 Nov 30 Balance c/d 490 9,250 9,250 Loan Interest Account Nov 30 Bank 600 Nov 30 Profit and loss 700 Nov 30 Balance c/d 100 700 700 Dec 1 Balance b/d 100 The loan interest needs adjusting so that the amount incurred for the year is 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. (ii) (iii) (b)
72 © Pearson Education Ltd 2010 Accounting Answers 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 Receipts Payments Bank balance b/f 2,715 Teams' travel expenses 1,598 Subscriptions 8,570 Groundsman wages 3,891 Donations 1,500 Postage and stationery 392 Receipts from raffles 3,816 Rent of pitches and club house 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) 8,730 Donations 1,500 Profit on raffles (3,816 2 624) 3,192 13,422 Less Expenditure: Teams' travel expenses 1,598 Groundsman's wages (3,891 1 75) 3,966 Postage and stationery 392 Rent of pitches and club house (4,800 1 400) 5,200 General expenses 419 11,575 Surplus of income over expenditure 1,847 Chapter 24: Accounting for non-profit making organisations
73© Pearson Education Ltd 2010 Accounting 24.3X (a) Superball Football Club Receipts and Payments Account for the year ended 31 May 2009 Receipts Payments Cash bank balnces b/d 905 Hire of transport 3,710 Subscriptions 8,124 Ground maintenance costs 1,156 Disco receipts 3,149 Groundsman's wages 5,214 Collections at matches 5,090 Committee expenses 906 Prize money 1,000 Costs of disco 1,112 Rent of ground 2,450 General expenses 814 Cash bank balances c/d 2,906 18,268 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) 8,058 Profit on disco (3,149 2 1,112) 2,037 Collections at matches 5,090 Prize money received 1,000 16,185 Less Expenditure: 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 814 14,310 Surplus of income over expenditure 1,875
74 © Pearson Education Ltd 2010 Accounting 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 463 Less Cost of goods sold Opening stock 88 Add Purchases 397 485 Less Closing Stock 101 384 Gross Profit 79 (c) Down Town Sports and Social Club Income and Expenditure Account Year Ended 31 May 2008 £ £ Income Subscriptions (135 1 14) 149 Net proceeds of jumble sale 91 Net proceeds of dance 122 Gross profit from bar 79 441 Less Expenditure Wages 198 Hire of rooms 64 Loss on sale of equipment (92 2 80) 12 Depreciation : equipment 30 304 Surplus of income over expenditure 137
75© Pearson Education Ltd 2010 Accounting 24.5X (a) Sevenoaks College Drama Society Trading Account Year Ended 31 December 2010 £ £ Sale of refreshments 1,200 Less cost of goods sold   Opening stock 100   Add Purchases 845 945   Less Closing Stock 165 780 Gross Profit 420 (b) Income and Expenditure Account Year Ended 31 December 2010 Income £ £ Subscriptions 1,600 Profit on sale of refreshments 420 Ticket sales 4,000 6,020 Expenditure Hire of costumes (1,500 - 650) 850 Rent of theatre 750 Administrative expenses 440 *Depreciation of scenery 2,000 4,040 Surplus of income over expenditure   1,980 (c) Balance Sheet as at 31 December 2010 £ £ £ Fixed Assets Scenery (at valuation) 12,500 Current Assets Stock of refreshments 165 Less Current Liabilities Subscriptions in advance 90 Bank Overdraft 595 685 (520) 11,980 Represented by Accumulated Fund 10,000 Add Surplus of income over expenditure 1,980 11,980 * Workings - Scenery - Balance as at 1 January 2010 7,500 Add Purchase of new scenery 7,000 14,500 Less Value as at 31 December 2010 14,000 Depreciation 2,000
76 © Pearson Education Ltd 2010 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.
77© Pearson Education Ltd 2010 Accounting Answers 25.1 E Smith Manufacturing and Trading Account for the year ended 31 March 2009 £ £ Stock of raw material 1.4.2008 2,400 Add Purchases 21,340 Carriage inwards 321 24,061 Less Stock of raw materials 31.3.2009 2,620 Cost of raw materials consumed 21,441 Manufacturing wages 13,280 Prime cost 34,721 Add factory overhead expenses Rent and rates 2,300 Power 6,220 Other expenses 1,430 9,950 44,671 Add Work in progress 1.4.2008 955 45,626 Less Work in progress 31.3.2009 870 Production cost of goods completed c/d 44,756 Sales 69,830 Less Cost of goods sold Stock finished goods 1.4.2008 6,724 Add Production cost of goods completed b/d 44,756 51,480 Less Stock finished goods 31.3.2009 7,230 44,250 Gross profit 25,580 Chapter 25: Manufacturing accounts
78 © Pearson Education Ltd 2010 Accounting 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 8,460 Add Purchases 38,720   Carriage inwards 2,720 41,440 49,900 Less Stock of raw materials 30.9.2009 10,970 Cost of raw materials consumed 38,930 Manufacturing wages 20,970 Prime cost 59,900 Factory Overhead Expenses   Power 6,120   Factory expenses 12,650   Depreciation: Plant and machinery 7,560 26,330 86,230 Add Work-in-progress 1.10.2008 3,070 89,300 Less Work-in-progress 30.9.2009 2,460 Production cost of goods completed c/d 86,840 Sales 174,610 Less Cost of goods sold: Stock of finished goods 1.10.2008 12,380 Add Production cost of goods completed b/d 86,840 99,220 Less Stock of finished goods 30.9.2009 14,570 84,650 Gross profit c/d 89,960 Less Expenses:   Salesmen's salaries and expenses 26,420   Office and administration expenses 25,910   Delivery van expenses 5,890   Advertising 5,080   Depreciation:    Delivery van expenses 3,040    Office equipment 807 3,847 67,147 Net Profit 22,813
79© Pearson Education Ltd 2010 Accounting 25.3X (a) Joey Peterson Manufacturing Account for the year ended 30 June 2010 £ £ Stock of raw materials 1.7.2009 81,600 Add Purchases 314,000 395,600 Less Stock of raw material 30.6.2010 94,500 Cost of raw materials consumed 301,100 Direct Wages (450,000 1 8,900) 458,900 Direct factory power 40,000 Prime cost 800,000 Add Indirect manufacturing cost Factory rent and rates 96,000 Indirect factory wages 98,600 General expenses 14,400 Insurance (66,900 2 6,900) 3 ​ 1  __  3  ​ 20,000 Depreciation : Plant and Machinery 50,000 279,000 1,079,000 Add Work in progress 1.7.2009 125,300 1,204,300 Less Work in progress 30.6.2010 154,300 Production Cost 1,050,000 (b) Trading Account for the year ended 30 June 2010 Sales 2,000,000 Less Cost of goods sold Stock of finished goods 1.7.2009 115,440 Add Production Cost 1,050,000 1,165,440 Less Stock of furnished goods 30.6.2010 85,440 1,080,000 Gross Profit 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 (b) (i) Selling price of one engine 1 £2,000,000 1 50% 5 ​  £3,000,000  _____________  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
80 © Pearson Education Ltd 2010 Accounting Answers (a) Stead and Jackson Appropriation Account for the year ended 31 December 2010 £ Net profit 45,000 Less Salary: Jackson 5,000 40,000 Balance of profits shared: Stead 1__ 2 20,000 Jackson 1__ 2 20,000 40,000 (b) Capital Accounts Stead Jackson Stead Jackson 2010 Dec 31 Balance b/d 24,000 16,000 (c) Current Accounts Stead Jackson Stead Jackson 2010 2010 Dec 31 Drawings 15,000 19,000 Dec 31 Balance b/d 2,300 3,500 Dec 31 Balances c/d 7,300 9,500 Dec 31 Salary 5,000 Dec 31 Share of profits 20,000 20,000 22,300 28,500 22,300 28,500 2011 Jan 1 Balance b/d 7,300 9,500 (a) Wain, Brown and Cairns Appropriation Account for the year ended 31 March 2010 £ £ Net profit 60,000 Less: Salaries Wain 10,000 Brown 8,000 18,000 42,000 Balance of profits shared: Wain 50% 21,000 Brown 30% 12,600 Cairns 20% 8,400 42,000 Chapter 26: Partnership accounts 26.1 26.2X
81© Pearson Education Ltd 2010 Accounting (b) Capital Accounts Wain Brown Cairns Wain Brown Cairns 2010 Mar 31 Balance b/d 30,000 50,000 70,000 Current Accounts Wain Brown Cairns Wain Brown Cairns 2010 2010 Mar 31 Drawings 12,000 15,050 14,980 Mar 31 Balance b/d 2,400 3,100 5,700 Mar 31 Balances c/d 21,400 8,650 — Mar 31 Salaries 10,000 8,000 — Mar 31 Share of profits 21,000 12,600 8,400 Mar 31 Balances c/d 880 33,400 23,700 14,980 33,400 23,700 14,980 2010 2010 Apr 1 Balance b/d — — 880 Apr 1 Balance b/d 21,400 8,650 — 26.3 Simpson and Young Tradign and Profit and Loss Appropriation Account for the year ended 30 June 2010 £ £ Sales 254,520 Less Cost of sales: Opening stock 18,000 Add Purchases 184,980 202,980 Less Closing stock 19,000 183,980 Gross profit 70,540 Less Expenses: Wages and salaries (32,700  500) 33,200 Rent, Rates and insurance (3,550  250) 3,300 Electricity 980 Stationery and printing 420 Motor expenses 3,480 General office expenses 1,700 Depreciation: Motor van (20% of 16,000) 3,200 Office equipment (10% of 5,600) 560 46,840 Net profit 23,700 Less interest on capital: Simpson (10% of 50,000) 5,000 Young (10% of 20,000) 2,000 7,000 16,700 Share of profits: Simpson 3/5ths Young 2/5ths 10,020 6,680 16,700
82 © Pearson Education Ltd 2010 Accounting Simpson and Young Balance Sheet as at 30 June 2010 Cost Accumulated Depreciation Net Book Value £ £ £ Fixed assets   Buildings 28,000 28,000   Office equipment 8,400 3,360 (W1) 5,040   Motor vans 16,000 8,200 (W2) 7,800 52,400 11,560 40,840 Current assests   Stock 19,000   Debtors 28,000   Prepayments 250   Cash at bank 7,250 54,500 Less Current liabilites   Creditors 15,200   Accruals 500 15,700 Net current assets 38,800   79,640 Financed by: Capital accounts Simpson Young Total   Balance b/f 50,000 20,000 70,000 Current accounts   Balance b/f 640 300   Add Share fo profit 10,020 6,680   Add Interest on capital 5,000 2,000   15,660 8,980   Less Drawings 10,000 5,000   5,660 3,980 9,640   79,640 (W1) Provision for depreciation on office equipment: 8,400  5,600  560  3,360 (W2) Provision for depreciation on motor vans: 16,000  11,000  3,200  8,200
83© Pearson Education Ltd 2010 Accounting 26.4X (a) Michael and Morgan Profit and Loss Account (Including Appropriation) for the year ended 30 September 2009 £ £ Gross Profit 385,000 Add Discounts Received 15,000 400,000 Less Expenses Administrative Expenses 6,790 Advertising (7,375  125) 7,500 Rent and rates (12,000 2 1,500) 10,500 Wages and salaries (135,000  5,000) 140,000 Depreciation - Shop fittings * 12,000 176,790 Net Profit 223,210 Less Salary - Michael 30,000 193,210 Share of profits: Michael 2/5ths 77,284         Morgan 3/5ths 115,926 193,210 2 (b) Michael — Current Account Oct 01 Balance b/d 1,500 Sep 30 Salary 30,000 Sep 30 Drawings 9,650 Sep 30 Profit share 77,284 Sep 30 Balance c/d 96,259 Sep 30 Advertising 125 107,409 107,409 Oct 01 Balance b/d 96,259 (c) Michael and Morgan Balance Sheet Extract as at 30 September 2009 Michael Morgan Total Capital Accounts Balance 50,000 40,000 90,000 Current Accounts Balance (1,500) 2,000 Add Share of Profits 77,284 115,926 Add Salary 30,000 2 Add Advertising 125 2 105,909 117,926 Less Drawings 9,650 8,200 96,259 109,726 205,985 295,985 * Workings £ Shop fittings : Cost 76,000 Less : Depreciation to date 28,000 48,000 Reducing Balance Method 5 25% 3 £48,000 5 £12,000
84 © Pearson Education Ltd 2010 Accounting Answers 27.1 (a) C Blake Ltd Appropriation Account for the year ended 31 December 2009 £ £ Net profit b/d 11,340 Less Appropriations Transfer to General Reserve 1,500 Dividends payable: Preference dividend 10% (£10,000 3 10%) 1,000 Ordinary dividend 12.5% (£60,000 3 12.5%) 7,500 10,000 Retained profits carried forward to next year 1,340 (b) C Blake Ltd Balance Sheet as at 31 December 2009 Fixed Assets £ £ £ Buildings at cost 50,000 Equipment at cost 45,000 Less Accumulated depreciation 4,500 40,500 90,500 Current Assets Stock 8,800 Debtors 4,120 Less Provision for doubtful debts 350 3,770 Bank (balancing figure) 9,660 Cash 2,160 24,390 Less Creditors: amounts falling due within one year Creditors 3,550 Dividends payable (£1,000 1 £7,500) 8,500 12,050 12,340 102,840 Less Creditors: amounts due after more than one year Debentures 30,000 72,840 Financed by: Share Capital Called-up share capital 60,000 ordinary £1 shares 60,000 10,000 preference £1 shares 10,000 70,000 Revenue reserves General reserve 1,500 Profit and loss account 1,340 2,840 72,840 Note: The Authorised Share Capital is 90,000 £1 ordinary shares and 10,000 - 10% preference shares. Chapter 27: Limited company accounts
85© Pearson Education Ltd 2010 Accounting 27.2X (a) Reynolds Ltd Profit and Loss Appropriation Account for the year ended 30 September 2010 £ £ Net profit 70,000 Add Retained profits b/f from last year 30,000 100,000 Less Appropriations: General reserve 8,000 Dividends payable: Ordinary shares — (150,000 3 6p) Paid 9,000 — (150,000 3 14p) Proposed 21,000 Preference shares — (7% 3 50,000) Proposed 3,500 41,500 Retained profits carried to next year 58,500 (b) Reynolds Ltd Balance Sheet as at 30 September 2010 (Extract) £ £ Financed by: Called-up share capital Preference shares 50,000 Ordinary shares 150,000 200,000 Revenue Reserves General Reserve (45,000 1 8,000) 53,000 Profit and loss account 58,500 111,500 311,500 Note: The Authorised Share Capital is 200,000 £1 ordinary shares and 50,000 - 7% preference shares.
86 © Pearson Education Ltd 2010 Accounting 27.3 Chang Ltd Trading and Profit and Loss Account for the year ended 31 December 2010 Sales 316,810 Less Cost of goods sold: Opening stock 25,689 Add Purchases 201,698 227,387 Less Closing stock 29,142 198,245 Gross profit 118,565 Less Expenses   Wages and salaries (54,207 1 581) 54,788   Rent (4,300 2 300) 4,000   Lighting expenses 1,549   Bad debts 748   Provision for doubtful debts (938 2 861) 77   General expenses 32,168   Deprecation: Machinery (55,000 3 10%) 5,500 98,830 Net profit 19,735 Add Retained profits b/f from last year 34,280 54,015 Less Proposed dividend 10,000 Retained profits c/f to next year  44,015 Balance Sheet as at 31 December 2010 Fixed Assets   Premises 65,000   Machinery 55,000   Less Aggregated depreciation (15,800 1 5,500) 21,300 33,700 Current Assets 98,700   Stock 29,142   Debtors 21,784   Less Provision for doubtful debts 938 20,846   Prepayments 300   Bank 23,101 73,389 Less Creditors falling due wihtin one year   Dividend payable 10,000   Creditors 17,493   Expenses owing 581 28,074 Net current assets 45,315 144,015 Financed by: Capital and reserves   Called -up share capital 100,000 Revenue reserves   Profit and loss account 44,015 144,015
87© Pearson Education Ltd 2010 Accounting 27.4X (a) Wayland Limited Appreciation Account for the year ended 31 December 2010 £ '000's £ '000's Net profit 250 Add Profit and Loss Balance 1st January 2010 195 445 Less Appropriations   Transfer to general reserve 25   Preference dividend (6% 3 250,000) 15   Ordinary dividend 2 (Interim Dividend) 20           2 (8% 3 750,000) 60 120 Retained profits carried forward 325 (b) Wayland Limited Balance Sheet as at 31 December 2010 Cost Aggregate Depreciation Net Book Value £ '000's £ '000's £ '000's Fixed Assets   Land and buildings 1,500 — 1,500   Fixtures and fittings 50 10 40   Motor vehicles 85 15 70 1,635 25 1,610 Current Assets   Stock 165   Debtors 103   Bank 107 375 Current Liabilities   Creditors 135   Value added tax 25   Dvidends Payable:    Preference shares 15    Ordinary shares 60 235   Working capital 140 1,750 Creditors: amounts falling due after one year 5% debentures 250 1,500 Capital and Reserves   Called up capital    Ordinary shares 750    6% Preference shares 250 1,000 Capital reserves   Share premium 100 Revenue Reserves   General reserve 75   Profit and loss account shareholders' funds 325 400 1,500
88 © Pearson Education Ltd 2010 Accounting Answers (a) M Ltd (i) Current ratio £200,000________ £50,000  4 : 1 (ii) Acid test ratio £200,000 2 £100,000___________________ £50,000  2 : 1 (iii) Stockturn £288,000______________________ £120,000 1 £100,000 4 2  2.6 times (iv) Debtors : Sales ratio £60,000________ £360,000  12 months  2 months (v) Creditors : Purchases ratio £50,000________ £268,000  12 months  2.2 months (vi) Gross profit % £72,000________ £360,000  100%  20% (vii) Net profit % £43,200________ £360,000  100%  12% (viii) Rate of return on shareholders' sunds £43,200________ £350,000  100%  12.3 % N Ltd £130,000________ £65,000  2 : 1 £130,000 2 £64,000__________________ £65,000  1 : 1 £187,500____________________ £60,000 1 £64,000 4 2  3.0 times £62,500________ £250,000  12 months  3 months £65,000________ £191,500  12 months  4 months £62,500________ £250,000  100%  25% £35,000________ £250,000  100%  14% £35,000________ £255,000  100%  13.7% Chapter 28: Analysis and interpretation of financial statements (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%) 28.1
89© Pearson Education Ltd 2010 Accounting (a) Cruise Furnishings Holmes Supplies (i) Gross profit margin 600_____ 1,800  100  33 1__ 3 % 600_____ 2,400  100  25% (ii) Net profit margin 150_____ 1,800  100  8.33% 160_____ 2,400  100  6.67% (iii) Current ratio 210____ 66  3.18 : 1 180____ 60  3 : 1 (b) Rate of stock tunover for Cruise Furnishings 1200_____ 120  10 Times a year (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 Holmes 210 2 111__________ 66  1.5 : 1 180 2 120__________ 60  1 : 1 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 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. 28.2
90 © Pearson Education Ltd 2010 Accounting (a) Year Ended 28.02.2009 29.02.2010 Net Profit Margin ​  Net profit  _________  Sales   ​ ​ 100  ____  1   ​ ​  16,000  ______ 35,000  ​ ​ 100  ____  1   ​ 45.71% ​  26,000  ______ 52,000  ​ ​ 100  ____  1   ​ 50% (b) Mark — up ​ Gross Profit  ____________  Cost of Sales  ​ ​ 100  ____  1   ​ ​  21,600  _______  *13,400  ​ 100  161.19% ​  35,500  ________  **16,500  ​ 100  215.15% *2,900 1 14,500 2 4,000 5 13,400 **4,000 1 19.500 2 7,000 5 16,500 (c) Rate of stock turnover ​  Cost of sales  _____________  Average Stock  ​ ​  13,400  ________________  2,900 1 4,000 4 2  ​ ​  16,500  _________________  4,000 1 7,000 4 2  ​  3.88 times  3 times (d) 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? 28.3X
91© Pearson Education Ltd 2010 Accounting Answers 29.1 To: Director of Finance From: Administrative Assistant Date: June 2010 Re: 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.• 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.• 29.2 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. Chapter 29: Computers and accounting systems
92 © Pearson Education Ltd 2010 Accounting 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• 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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Accounting Textbook answers

  • 1.
    1© Pearson EducationLtd 2010 Accounting Answers 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• (Any one from the above would be acceptable as an answer) 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) Materiality (b) Business entity (c) Money measurement (d) Prudence 1.8 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) Chapter 1: Introduction to accounting principles
  • 2.
    2 Accounting © Pearson EducationLtd 2010 Answers 2.1 (a) Purchases - asset (b) Office equipment - asset (c) Bank loan - liability (d) Cash in hand - asset (e) Motor vehicle - asset (f) Loan from financial company - liability 2.2X Wrong: Assets Liabilities Money owing to bank Motor van Stock of goods 2.3 Account to be Debited 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 Account to be credited (a) Bank Capital (b) Purchases Cash (c) Motor car Bank (d) Cash Uncle Joe loan (e) Motor expenses Cash (f) Computer equipment Cash 2.5 Max Morgan Bank Account Jan-01 Capital 30,000 Jan-05 Purchases 2,770 Jan-15 Sales 500 Jan-07 S/H Van 4,800 Jan-27 Computer Equipment 2,100 Jan-30 Purchases 1,090 Capital Account Jan-01 Bank 30,000 Purchases Account Jan-05 Bank 2,770 Jan-30 Bank 1,090 Van Account Jan-07 Bank 4,800 Cash Account Jan-09 Sales 680 Jan-10 Office Furniture 110 Jan-29 Sales 325 Jan-22 Motor Expenses 92 Chapter 2: Double entry for cash transactions
  • 3.
    3© Pearson EducationLtd 2010 Accounting Sales Account Jan-09 Cash 680 Jan-15 Bank 500 Jan-29 Cash 325 Office Furniture Account Jan-10 Cash 110 Motor Expenses Account Jan-22 Cash 92 Computer Equipment Account Jan-27 Bank 2,100 2.6X Jane Mellor Cash Account May 1 Capital 22,000 May 3 Bank 20,000 May 20 Sales 328 May 22 Stationery 72 Capital Account May-01 Cash 22,000 Bank Account May 3 Cash 20,000 May 7 Rent 500 May 25 Sales 560 May 10 Purchases 1,700 May 15 Display units 400 May 23 Purchases 400 May 31 S/H Van 3,000 Rent Account May 7 Bank 500 Purchases Account May 10 Bank 1,700 May 23 Bank 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
  • 4.
    4 © PearsonEducation Ltd 2010 Accounting Answers 3.1 Account to be Debited Account to be Credited (a) Purchases 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 Account to be credited (a) Computer equipment J. Kershaw (b) Stationery Cash (c) Purchases J. Leung (d) Daswami & Co Sales (e) Purchases Bank (f) Sales returns Daswani & Co (g) Cash Sales (h) J. Leung Purchase Returns 3.3 Kendrick Products Cash Account Jan-01 Capital 20,000 Jan-05 Bank 18,000 Jan-24 Stationery 45 Capital Account Jan-01 Cash 20,000 Purchases Account Jan-02 T. Peters 2,543 Jan-07 J. Leigh 349 Jan-09 Bank 592 T. Peters Account Jan-18 Purchase Returns 160 Jan-02 Purchases 2,543 Jan-26 Bank 2,383 Bank Account Jan-05 Cash 18,000 Jan-09 Purchases 592 Jan-26 T. Peters 2,383 J. Leighs Account Jan-07 Purchases 349 Sales Account Jan-16 P. Lamond 210 Jan-26 D. Gurkan 1,008 P. Lamond Acccount Jan-16 Sales 210 Jan-30 Sales Returns 60 Purchase Returns Account Jan-18 T. Peters 160 Chapter 3: Double entry for credit transactions
  • 5.
    5© Pearson EducationLtd 2010 Accounting 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 3.4X Mark & Co Bank Account Apr 1 Capital 40,000 Apr 14 Purchases 2,300 Apr 28 C. Chang 950 Apr 30 Ash Car Sales 5,400 Capital Account Apr 01 Bank 40,000 Purchases Account Apr 3 E. Shah 845 Apr 5 C. Chang 950 Apr 14 Bank 2,300 Apr 20 E. Shah 920 E. Shah Account Apr 16 Purchase returns 72 Apr 03 Purchases 845 Apr 20 Purchases 920 C. Chang Account Apr 28 Bank 950 Apr 05 Purchases 950 Motor Van Account Apr 09 Ash Car Sales 10,400 Ash Car Sales Account Apr 30 Bank 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 Cash Account Apr 23 Sales 369 Apr 26 Motor Expenses 40 Curtis & Co Account Apr 29 Sales 420 Motor Expenses Account Apr 26 Cash 40
  • 6.
    6 © PearsonEducation Ltd 2010 Accounting Answers 4.1 Capital May-01 Bank 2,500 Bank May-01 Capital 2,500 May-12 K Gibson 76 May-09 C Bailey 250 May-12 D Ellis 370 May-10 H Spencer 150 May-31 C Mendez 87 May-31 Balance c/d 2,367 2,900 2,900 Jun-01 Balance b/d 2,367 Cash May-06 Sales 500 May-08 Rent 120 May-15 Stationery 60 May-19 Rent 120 May-31 Balance c/d 200 500 500 Jun-01 Balance b/d 200 Rent May-08 Cash 120 May-31 Balance c/d 240 May-19 Cash 120 240 240 Jun-01 Balance b/d 240 Stationery May-15 Cash 60 Purchases May-02 D Ellis 540 May-31 Balance c/d 1,082 May-02 C Mendez 87 May-02 K Gibson 76 May-18 D Ellis 145 May-18 C Mendez 234 1,082 1,082 Jun-01 Balance b/d 1,082 Sales May-31 Balance c/d 1,496 May-04 C Bailey 430 May-04 B Hughes 62 May-04 H Spencer 176 May-06 Cash 500 May-25 C Bailey 90 May-25 B Hughes 110 May-25 H Spencer 128 1,496 1,496 Jun-01 Balance b/d 1,496 Chapter 4: Balancing of accounts and preparation of a Trial Balance
  • 7.
    7© Pearson EducationLtd 2010 Accounting H Spencer May-04 Sales 176 May-10 Bank 150 May-25 Sales 128 May-31 Balance c/d 154 304 304 Jun-01 Balance b/d 154 D Ellis May-12 Bank 370 May-02 Purchases 540 May-31 Balance c/d 315 May-18 Purchases 145 685 685 Jun-01 Balance b/d 315 C Mendez May-31 Bank 87 May-02 Purchases 87 May-31 Balance c/d 234 May-18 C Mendez 234 234 234 Jun-01 Balance b/d 234 K Gibson May-12 Bank 76 May-02 Purchases 76 C Bailey May-04 Sales 430 May-09 Bank 250 May-25 Sales 90 May-31 Balance c/d 270 520 520 Jun-01 Balance b/d 270 B Hughes May-04 Sales 62 May-31 Balance c/d 172 May-25 Sales 110 172 172 Jun-01 Balance b/d 172 Trial Balance as at 31 May 2010 Dr £ Cr £ Capital 2,500 Bank 2,367 Cash 200 Rent 240 Stationery 60 Purchases 1,082 Sales 1,496 H Spencer 154 D Ellis 315 C Mendez 234 C Bailey 270 B Hughes 172 4,545 4,545
  • 8.
    8 © PearsonEducation Ltd 2010 Accounting 4.2X (a) Bank Account August 1 Capital 22,000 August 1 Rent 1,800 August 14 Sales 980 August 7 Shop fittings 3,230 August 20 Sales 1,300 August 7 Purchases 5,000 August 28 Sales 2,000 August 9 Cash 1,000 August 30 Salaries 2,100 August 30 Balance c/d 13,150 26,280 26,280 Sept 1 Balance b/d 13,150 Cash Account August 9 Bank 1,000 August 9 Stationery 163 August 16 Sundry expenses 28 August 30 Balance c/d 809 1,000 1,000 Sept 1 Balance b/d 809 Sales Account August 30 Balance c/d 4,280 August 1 Bank 980 August 20 Bank 1,300 August 28 Bank 2,000 4,280 4,280 Sept 1 Balance b/d 4,280 Purchases Account August 7 Bank 5,000 August 30 Balance c/d 10,700 August 10 Book Supplies 4,200 August 25 Delta Books 1,500 10,700 10,700 September 1 balance b/d 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 163 Sundry Expenses Account August 16 Cash 28 Salaries Account April 30 Bank 2,100 Book Supplies Accounts August 10 Purchases 4,200 Delta Books Account August 25 Purchases 1,500
  • 9.
    9© Pearson EducationLtd 2010 Accounting 4.2X (b) Jenny Moore Trial Balance as at 31 August 2010 Dr £  Cr £ Bank 13,150 Cash 809   Sales 4,280 Purchases 10,700   Shop Fittings 3,230   Capital 22,000 Rent 1,800 Stationery 163   Sundry expenses 28 Salaries 2,100 Book Supplies 4,200 Delta Books 1,500 31,980 31,980 4.3 Bank (1) Capital 15,000 (9) Rent 500 (30) L Clark 440 (11) Rates 190 (30) K Allen 76 (27) Bowman Furnishers 532 (27) Howe Homes 460 (27) W Hunt 2,070 (28) Motor Vehicles 3,000 (30) Bates Motors 5,000 (30) Balance c/d 3,764 15,516 15,516 (1) Balance b/d 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 J Bond (17) Purchases returns 60 (3) Purchases 620 (30) Balance c/d 780 (20) Purchases 220 840 840 (1) Balance b/d 780 Rent (9) Bank 500 (30) Balance c/d 500 (1) Balance b/d 500 L Clark (12) Sales 480 (23) Sales returns 40 (30) Bank 440 480 480
  • 10.
    10 © PearsonEducation Ltd 2010 Accounting R Gee (12) Sales 1,170 (30) Balance c/d 1,170 (1) Balance b/d 1,170 Purchses Returns (30) Balance c/d 88 (17) Bowman Furnishers 28   (17) J Bond 60 88 88 (1) Balance b/d 88 Motor Vehicles (25) Bates Motors 5,000 (30) Balance c/d 8,000 (28) Bank 3,000 8,000 8,000 (30) Balance b/d 8,000 Stationery (29) Cash 56 (30) Balance c/d 56 (30) Balance b/d 56 Purchases (3) Bowman Furnishers 320 (30) Balance c/d 3,930 (3) Howe Homes 460 (3) W Hunt 1,800 (3) J Bond 620 (20) J Bond 220 (20) W Hunt 270 (20) Bowman 240   3,930 3,930 (1) Balance b/d 3,930 Bowman Furnishers (17) Purchases returns 28 (3) Purchases 320 (27) Bank 532 (20) Purchases 240 560 560 W Hunt (27) Bank 2,070 (3) Purchases 1,800 (20) Purchases 270 2,070 2,070 Sales (30) Balance c/d 2,401 (7) Cash 480 (12) L Clark 480 (12) K Allen 96 (12) R Gee 1,170 (26) Cash 175 2,401 2,401 (1) Balance b/d 2,401 Rates (11) Bank 190 (30) Balance c/d 190 (1) Balance b/d 190
  • 11.
    11© Pearson EducationLtd 2010 Accounting K Allen (12) Sales 96 (23) Sales returns 20 (30) Bank 76 96 96 Wages (14) Cash 400 (30) Balance c/d 400 (1) Balance b/d 400 Sales Returns (23) K Allen 20 (30) Balance c/d 60 (23) L Clark 40   60 60 (30) Balance b/d 60 Bates Motors (30) Bank 5,000 (25) Motor vehicles 5,000 Cash (7) Sales 480 (14) Wages 400 (26) Sales 175 (29) Stationery 56   (30) Balance c/d 199   655 655 (1) Balance b/d 199 Trial Balance as at 30 April 2010 Dr £ Cr £ Bank 3,764 Purchases 3,930 Capital 15,000 J Bond 780 Sales 2,401 Rent 500 Rates 190 R Gee 1,170 Wages 400 Purchases returns 88 Sales returns 60 Motor vehicles 8,000 Stationery 56 Cash 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
  • 12.
    12 © PearsonEducation Ltd 2010 Accounting (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 20,000 Drawings 7,000 General expenses 500 Sales   38,500 Purchases 29,000 Debtors 6,800 Creditors   9,000 Bank 15,100 Cash 200   Plant and equipment 5,000 Heating and lighting 1,500 Rent 2,400 67,500 67,500 4.6 Trial Balance of S Higton as at 30 June 2010 Dr £ Cr £ Capital 19,956 Sales 119,439 Stationery 1,200 General expenses 2,745 Motor expenses 4,476 Cash at the bank 1,950 Stock 1 July 2009 7,668 Wages and salaries 9,492 Rent and rates 10,500 Office equipment 6,000 Purchases 81,753 Heating and lighting 2,208 Rent received   2,139 Debtors 10,353 Drawings 4,200 Creditors   10,230 Motor vehicle 7,500 Interest received   1,725 Insurance 3,444 153,489 153,489
  • 13.
    13© Pearson EducationLtd 2010 Accounting 4.7X Trial Balance of Ms Anita Hall as at 31 December 2010 Dr £ Cr £ Plant and machinery 21,450 Motor vehicles 26,000 Premises 80,000 Wages 42,840 Purchases 119,856 Sales 179,744 Rent received 3,360 Telephone, printing and stationery 3,600 Creditors 27,200 Debtors 30,440 Bank overdraft 2,216 Capital 131,250 Drawings 10,680 General Expenses 3,584 Lighting and heating 2,960 Motor expenses 2,360 Motor vehicle 343,770 343,770 4.8X (a) Error of principle (b) Error of commission (c) Error of omission (d) Error of original entry (e) Complete reversal of entries (f) Error of principle
  • 14.
    14 © PearsonEducation Ltd 2010 Accounting Answers 5.1 (a) C Black Curzon Road Stockport INVOICE No 947T Date: 1 March 2011To: Your Order No. 1697 £ 400.00 470.00 94.0020,000 coils sealing tape x £4.70 per 1,000 180.0040,000 sheets A5 paper x £4.50 per 1,000 126.0030,000 sheets A4 paper x £4.20 per 1,000 70.00VAT at 17.5% J Booth 89 Andrew Lane Stockport VAT Reg No. 542 4483 95 (b) J Booth's Books C Black 2011 01-Mar Purchases 470 C Black's Books J Booth 2011 01-Mar Sales 470 5.2X (a) & (b) & (c) 2010 Name of Customer Net VAT Total £ £ £ Jan 2 D Woolham & Co 230.00 40.25 270.25 Jan 6 C Crawford 348.00 60.90 408.90 Jan 7 S Brocklehurst 1,980.00 346.50 2,326.50 Jan 9 L Price & Partners 520.00 91.00 611.00 Jan 13 D Woolham & Co 56.00 9.80 65.80 Jan 18 L Price & Partners 200.00 35.00 235.00 Jan 21 C Crawford 340.00 59.50 399.50 Jan 24 C Crawford 44.00 7.70 51.70 Jan 29 S Brocklehurst 846.00 148.05 994.05 Jan 31 L Price & Partners 722.00 126.35 848.35 5,286.00 925.05 6,211.05 Chapter 5: Value Added Tax
  • 15.
    15© Pearson EducationLtd 2010 Accounting 5.3 (a) Cost of 22 reams of paper at £3.75 £82.50 Input VAT is 17.5% £82.50  17.5____ 100 £14.44 £96.94 Customer Charged £235.00 including VAT Amount before VAT is added, £235  100______ 117.5 £200.00 Therefore, output VAT is £35.00 Amount of VAT due to HMRC, £35.00  £14.44  £20.56 (b) Net Amount VAT Total £40.00 £7.00 £47.00 £ 2.00 £0.35 £ 2.35 £53.28 £9.32 £62.60 £ 3.20 £0.56 £ 3.76 5.4 (a) Ivy & Co Dr VAT Account Cr 2010 2010 Apr-30 Purchases Day Book 8,750 Apr-30 Sales Day Book 9,205 May-31 Purchases Day Book 7,350 May-31 Sales Day Book 8,400 Jun-30 Purchases Day Book 9,625 Jun-30 Sales Day Book 10,500 Jun-30 Balances c/d 2,380 28,105 28,105 Jul-01 Balance b/d 2,380 (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 Dr VAT Account Cr 2010 2010 Oct 31 Purchases Day Book 6,580 Oct 31 Sales Day Book 13,125 Nov 30 Purchases Day Book 6,895 Nov 30 Sales Day Book 10,850 Dec 31 Purchases Day Book 9,100 Dec 31 Sales Day Book 11,900 Dec 31 Balances c/d 13,300 35,875 35,875 Jan 01 Balance b/d 13,300 (b) All business records must be kept for 6 years.
  • 16.
    16 © PearsonEducation Ltd 2010 Accounting Answers 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 Balance £ £ £ May 1 Balance b/forward 101.50 May 2 Invoice No. 7821 43.75 145.25 May 8 Invoice No. 7955 35.00 180.25 May 17 Credit Note No. 304 10.20 170.05 May 23 Invoice No. 8204 74.50 244.55 May 28 Cheque 51.50 193.05 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. Chapter 6: Business documentation
  • 17.
    17© Pearson EducationLtd 2010 Accounting Answers 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 Used up in the short term 7.2 Cairns Engineering Co Capital Revenue £ £ (a) New stationery and brochures - 411 (b) New pickup truck 18,000 - (c) New lathe 5,200 - (d) Delivery costs - lathe 200 - (e) Electricity - wiring - electricity costs 1,800 - - 2,100 (f) Wages - Re: Improvements - Other 20,000 - - 45,000 45,200 47,511 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. Chapter 7: Capital and revenue expenditure
  • 18.
    18 © PearsonEducation Ltd 2010 Accounting 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) Revenue (b), (d), (e), (g)
  • 19.
    19© Pearson EducationLtd 2010 Accounting Answers Chapter 8: Books of original entry and ledgers – Sales day book and sales ledger including VAT 8.1 (a) Sales day book / sales ledger / personal account (b) Cash book / general ledger / nominal account (c) Purchases day book / purchases ledger / personal account (d) Cash book / general ledger / nominal account (e) Sales returns day book / sales ledger / personal account (f) 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. Nominal accounts: record expenses, income and capital. 8.3 Sales Day Book Date Details Folio Goods VAT Total 2010 £ £ £ Nov-02 T Bates 186.00 32.55 218.55 Nov-03 D Cope 166.00 29.05 195.05 Nov-09 F Chan 12.00 2.10 14.10 Nov-11 T Bates 54.00 9.45 63.45 Nov-13 B Ho 66.00 11.55 77.55 Nov-18 D Cope 32.00 5.60 37.60 Nov-23 M Saka Sons 20.00 3.50 23.50 Nov-30 F Chan 320.00 56.00 376.00 856.00 149.80 1005.80
  • 20.
    20 © PearsonEducation Ltd 2010 Accounting Sales Ledger Dr T Bates Account Cr Nov-02   Sales 218.55 Nov-11   Sales 63.45 Dr D Cope Account Cr Nov-03   Sales 195.05 Nov-18   Sales 37.60 Dr F Chan Account Cr Nov-09   Sales 14.10 Nov-30  Sales 376.00 Dr B Mo Account Cr Nov-13 Sales 77.55 Dr M Saka Sons Account Cr Nov-23   Sales 23.50 General Ledger Dr Sales Account Cr Nov-30 Credit sales for the month 856.00 Dr VAT Account Cr Nov-30 Sales day book: VAT 149.80 8.4X Sales Day Book Date Details Folio Goods VAT Total 2011 Jul 1 Hall Products 520.00 91.00 611.00 Jul 5 Ash Co 62.00 10.85 72.85 Jul 8 K. Meakin 18.00 3.15 21.15 Jul 14 A. Ballearic 110.00 19.25 129.25 Jul 19 Hall Products 880.00 154.00 1,034.00 Jul 26 G. Huang 126.00 22.05 148.05 Jul 28 A. Ballearic 42.00 7.35 49.35 Jul 31 J. Stead 98.00 17.15 115.15 1,856.00 324.80 2,180.80 Sales Ledger Dr Hall Products Account Cr Jul 1   Sales 611.00 Jul 19   Sales 1,034.00 Dr Ash Co Account Cr Jul 5   Sales 72.85 Dr K. Meakin Account Cr Jul 8   Sales 21.15 Dr A. Ballearic Account Cr Jul 14 Sales 129.25 Jul 28 Sales 49.35
  • 21.
    21© Pearson EducationLtd 2010 Accounting Dr G. Huang Account Cr Jul 26 Sales 148.05 Dr J Stead Account Cr Jul 31 Sales 115.15 General Ledger Dr Sales Account Cr Jul 31 Credit sales for the month 1,856.00 Dr VAT Account Cr Jul 31 Sales day book : VAT 324.80 8.5 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.•
  • 22.
    22 © PearsonEducation Ltd 2010 Accounting Answers 9.1 White Bros Purchases Day Book Date Details Goods VAT Total 2010 £ £ £ May-01 Bould Co 104.00 18.20 122.20 May-07 Harlow Brown 48.00 8.40 56.40 May-16 J Adams Ltd 234.00 40.95 274.95 May-23 Bould Co 170.00 29.75 199.75 May-26 J H Products 320.00 56.00 376.00 May-28 Harlow Brown 62.00 10.85 72.85 May-31 P Yeung Ltd 446.00 78.05 524.05 1384.00 242.20 1626.20 Purchase Ledger Dr Bould Co Account Cr May-01 Purchases 122.20 May-23 Purchases 199.75 Dr Harlow and Brown Account Cr May-07 Purchases 56.40 May-28 Purchases 72.85 Dr J Adam Ltd Account Cr May-16 Purchases 274.95 Dr J H Products Account Cr May-26 Purchases 376.00 Dr P Yeung Account Cr May-31 Purchases 524.05 General Ledger Dr Purchases Account Cr May-31 Credit purchases for the month 1384.00 Dr VAT Account Cr May-31 Purchases Day Book : VAT 242.20 Chapter 9: Purchases day book and purchase ledger including VAT
  • 23.
    23© Pearson EducationLtd 2010 Accounting 9.2 Bakers Electrical Co Purchases Day Book Date Details Goods VAT Total 2010 £ £ £ Jul-03 Peak Electrical 722.00 126.35 848.35 Jul-08 Leigh Electrics 84.00 14.70 98.70 Jul-12 Thomas Motors 274.00 47.95 321.95 Jul-17 Naik Sons 160.00 28.00 188.00 Jul-21 Peak Electrical 158.00 27.65 185.65 Jul-23 W D Services 46.00 8.05 54.05 Jul-25 Leighs Electrics 210.00 36.75 246.75 Jul-30 Naik Sons 178.00 31.15 209.15 1832.00 320.60 2152.60 Purchases Ledger Dr Peak Electrical Ltd Account Cr Jul-03 Purchases 848.35 Jul-21 Purchases 185.65 Dr Leigh Electrics Account Cr Jul-08 Purchases 98.70 Jul-25 Purchases 246.75 Dr Thomas Motors Account Cr Jul-12 Purchases 321.95 Dr Naik Sons Account Cr Jul-17 Purchases 188.00 Jul-30 Purchases 209.15 Dr W D Services Account Cr Jul-23 Purchases 54.05 General Ledger Dr Purchases Account Cr Jul-31 Credit purchases for the month 1832.00 Dr VAT Account Cr Jul-31 Purchases Day Book : VAT 320.60
  • 24.
    24 © PearsonEducation Ltd 2010 Accounting 9.3X Tasty Foods Purchases Day Book Date Details Goods VAT Total 2010 £ £ £ Aug 1 Barker Foods Ltd 62.00 10.85 72.85 Aug 6 Fern Bros 48.00 8.40 56.40 Aug 10 Ash Catering Co 224.00 39.20 263.20 Aug 14 Barker Foods Ltd 136.00 23.80 159.80 Aug 22 Farm Produce 98.00 17.15 115.15 Aug 27 Fern Bros 166.00 29.05 195.05 Aug 29 Leigh Sons 84.00 14.70 98.70 Aug 30 Ash Catering Co 366.00 64.05 430.05 1,184.00 207.20 1,391.20 Purchases Ledger Dr Barker Foods Ltd Account Cr Aug 1 Purchases 72.85 Aug 14 Purchases 159.80 Dr Fern Bros Account Cr Aug 6 Purchases 56.40 Aug 27 Purchases 195.05 Dr Ash Catering Co Account Cr Aug 10 Purchases 263.20 Aug 30 Purchases 430.05 Dr Farm Products Account Cr Aug 22 Purchases 115.15 Dr Leigh Sons Account Cr Aug 29 Purchases 98.70 General Ledger Dr Purchases Account Cr Aug 31 Credit purchases for the month 1,184.00 Dr VAT Account Cr Aug 31 Purchases Day Book : VAT 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•
  • 25.
    25© Pearson EducationLtd 2010 Accounting Answers Chapter 10: Sales returns day book and purchase returns day book 10.1 Sales Day Book (Page 7) Date 2010 Details Goods £ VAT £ Total £ Jun-01 J Alcock 180.00 31.50 211.50 Jun-01 P Twigg 60.00 10.50 70.50 Jun-09 Bell Products 140.00 24.50 164.50 Jun-09 Travis Ltd 330.00 57.75 387.75 Jun-23 B Seddon 780.00 136.50 916.50 Jun-30 P Twigg 440.00 77.00 517.00 1930.00 337.75 2267.75 Sales Returns Day Book Date Details Goods VAT Total 2010 £ £ £ Jun-12 J Alcock 12.00 2.10 14.10 Jun-28 Travis Ltd 50.00 8.75 58.75 62.00 10.85 72.85 Sales Ledger Dr J Alcock Account Cr Jun-01 Sales 211.50 Jun-12 Sales returns 14.10 Dr P Twigg Account Cr Jun-01 Sales 70.50 517.00Jun-30 Sales Dr Bell Products Account Cr Jun-09 Sales 164.50 Dr Travis Ltd Account Cr Jun-09 Sales 387.75 Jun-28 Sales returns 58.75 Dr B Seddon Account Cr Jun-23 Sales 916.50 General Ledger Dr Sales Account Cr Jun-30 Total SDB 1930.00 Dr Sales Returns Account Cr Jun-30 Total SRDB 62.00 Dr VAT Account Cr Jun-30 Total SRDB 10.85 Jun-30 Total SDB 337.75
  • 26.
    26 © PearsonEducation Ltd 2010 Accounting 10.2 Purchases Day Book Date Details Goods VAT Total 2010 £ £ £ May-01 J Yau Ltd 120.00 21.00 141.00 May-05 S Wager 80.00 14.00 94.00 May-05 Ash Bros 220.00 38.50 258.50 May-14 J Yau Ltd 60.00 10.50 70.50 May-19 D Wong 300.00 52.50 352.50 May-19 Rughani Co 280.00 49.00 329.00 May-19 Ash Bros 80.00 14.00 94.00 May-31 A Davies 56.00 9.80 65.80 May-31 Rughani Co 172.00 30.10 202.10 1368.00 239.40 1607.40 Purchase Returns Day Book Date Details Goods VAT Total 2010 £ £ £ May-09 J Yau Ltd 30.00 5.25 35.25 May-27 D Wong 42.00 7.35 49.35 72.00 12.60 84.60 Purchase Ledger Dr J Yau Ltd Account Cr May-09 Purchase returns 35.25 May-01 Purchases 141.00 May-14 Purchases 70.50 Dr S Wager Account Cr May-05 Purchases 94.00 Dr Ash Bros. Account Cr May-05 Purchases 258.50 May-19 Purchases 94.00 Dr D Wong Account Cr May-27 Purchase returns 49.35 May-19 Purchases 352.50 Dr Rughani Co Account Cr May-19 Purchases 329.00 May-31 Purchases 202.10 Dr A Davies Account Cr May-31 Purchases 65.80 General Ledger Dr Purchases Account Cr May-31 Total PDB 1368.00 Dr Purchase Returns Account Cr May-31 Total PRDB 72.00 Dr VAT Account Cr May-31 Total PDB 239.40 May-31 Total PRDB 12.60
  • 27.
    27© Pearson EducationLtd 2010 Accounting 10.3X Anderson's Ltd (b) Purchases Day Book Date Details Goods VAT Total 2010 Jan 2 Naylor's Ltd 1,300.00 227.50 1,527.50 Jan 5 Roberts Sons 668.00 116.90 784.90 Jan 19 R. James Co 1,512.00 264.60 1,776.60 3,480.00 609.00 4,089.00 Purchase Returns Day Book Date Details Goods VAT Total 2010 Jan 13 Naylor's Ltd 84.00 14.70 98.70 Jan 30 R. James Co 400.00 70.00 470.00 484.00 84.70 568.70 Sales Day Book Date Details Goods VAT Total 2010 Jan 12 Marlow (Fancy Gifts) 656.00 114.80 770.80 Jan 26 J. Jeynes 2,468.00 431.90 2,899.90 Jan 26 Birch Bros 340.00 59.50 399.50 Jan 28 F J Shah 5,000.00 875.00 5,875.00 Jan 28 Marlow (Fancy Gifts) 380.00 66.50 446.50 8,844.00 1,547.70 10,391.70 Sales Returns Day Book Date Details Goods VAT Total 2010 Jan 30 Marlow (Fancy Gifts) 60.00 10.50 70.50 60.00 10.50 70.50 10.3X (a) (c) (e) Sales Ledger J. Jeynes Account Jan-01 Balance b/d 1,490.00 Jan-31 Balance c/d 4,389.90 Jan-26 Sales 2,899.90 4,389.90 4,389.90 Feb-01 Balance b/d 4,389.90 Marlow (Fancy Goods) Account Jan-01 Balance b/d 552.00 Jan-30 Sales Returns 70.50 Jan-12 Sales 770.80 Jan-31 Balance c/d 1,698.80 Jan-28 Sales 446.50 1,769.30 1,769.30 Feb-01 Balance b/d 1,698.80 F J Shah Account Jan-01 Balance b/d 780.00 Jan-31 Balance c/d 6,655.00 Jan-28 Sales 5,875.00 6,655.00 6,655.00 Feb-01 Balance b/d 6,655.00 Birch Bros Ltd Account Jan-26 Sales 399.50
  • 28.
    28 © PearsonEducation Ltd 2010 Accounting 10.3X (a) (c) (e) Purchase Ledger R. James Co. Account Jan-30 Purchase Returns 470.00 Jan-01 Balance b/d 1,600.00 Jan-31 Balance c/d 2,906.60 Jan-19 Purchases 1,776.60 3,376.60 3,376.60 Feb-01 Balance b/d 2,906.60 Naylor's Ltd Account Jan-13 Purchase Returns 98.70 Jan-01 Balance b/d 900.00 Jan-31 Balance c/d 2,328.80 Jan-02 Purchases 1,527.50 2,427.50 2,427.50 Feb-01 Balance b/d 2,328.80 Roberts Sons Account Jan-31 Balance c/d 1,274.90 Jan-01 Balance b/d 490.00 Jan-05 Purchases 784.90 1,274.90 1,274.90 Feb-01 Balance b/d 1,274.90 10.3X (d) General Ledger Dr Sales Account Cr Jan-31 Total Sales for January 8,844.00 Dr Sales Returns Account Cr Jan-31 Total SRDB 60.00 Purchases Account Jan-31 Total Purchases for January 3,480.00 Purchases Return Account Jan-31 Total PRDB 484.00 Dr VAT Account Cr Jan-31 Total PDB 609.00 Jan-31 Total PRDB 84.70 Jan-31 Total SRDB 10.50 Jan-31 Total SDB 1,547.70 Jan-31 Balance c/d 1,012.90 1,632.40 1,632.40 *Feb-01 Balance b/d 1,012.90 * The balance on the VAT account shows that Anderson's Ltd owe £1,012.90 to HMRC 10.4 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 1,387.68 Add Purchases not received by us 68.42 Add Returns not received by supplier 54.62 Balance per Supplier's Statement 1,510.72
  • 29.
    29© Pearson EducationLtd 2010 Accounting Answers 11.1 Cash Book Cash Bank Cash Bank (1) Capital 4,000 (2) Fixtures 660 (4) Sales 225 (4) Rent 140 (6) T Thomas 188 (12) Wages 275 (8) Sales 308 (15) Cash 200 (10) J King 300 (20) Stationery 60 (14) J Walters (Loan) 500 (22) J French 166 (15) Bank 200 (28) Drawings 100 (30) J Scott 277 (31) Balances c/d 216 4,247 (31) Sales 66 791 5,273 791 5,273 (1) Balances b/d 216 4,247 11.2X Dr Cash Book Cr 2010 Cash Bank 2010 Cash Bank Feb 1 Balance b/d 76.32 2,376.50 Feb 2 Electricity 156.00 Feb 6 D Hill 300.00 Feb 4 Motor expenses 15.00 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 57.10 Feb 14 D Whitman - loan 500.00 Feb 16 Wright Brothers 86.20 Feb 22 J Smith 217.00 Feb 17 Drawings 50.00 Feb 26 Sales 53.00 Feb 17 Post office re: Feb 28 Balance c/d 590.60 Telephone a/c 140.60 Mr S Jepson Feb 23 Petrol 21.00 Feb 27 Brownsons of M/cr 899.00 Feb 28 Salaries 2,400.00 Feb 28 Balance c/d 43.72 133.42 4,405.30 133.42 4,405.30 Mar-01 Balances b/d 43.72 Mar-01 Balances b/d 590.60 Chapter 11: Cash books
  • 30.
    30 © PearsonEducation Ltd 2010 Accounting 11.3 Cash Book Disct Cash Bank Disct Cash Bank (1) Capital 6,000 (1) Fixtures 950 (3) Sales 407 (2) Purchases 1,240 (5) N Morgan 10 210 (4) Rent 200 (9) S Cooper 20 380 (7) S Thompson 4 76   Co (14) L Curtis 115 (12) Rates 410 (20) P Exeter 2 78 (16) M Monroe 6 114 (31) Sales 88 (31) Calances c/d 93 4,195 32 407 6,871 10 407 6,871 General Ledger Discounts Allowed (31) Cash Book 32 Discounts Received (31) Cash Book 10 11.4X Dr M Pinero Cash Book Cr Disct Cash Bank Disct Cash Bank (1) Balance b/d 58 (1) Balance b/d 1,470 (2) Capital 1,000 (3) Office fixtures 780 (4) Sales 220 (5) Bank 200 (5) Cash 200 (6) B Barnes 2 78 (8) Sales 500 (6) T Horton 6 234 (15) Bank 400 (6) T Jackin 10 390 (18) L Graham 4 76 (12) Motor Expenses 77 (18) B Crenshaw 7 133 (15) Cash 400 (18) H Green 11 209 (16) Drawings 120 (22) T Weiskopf 204 (20) Wages 210 (28) Cash 755 (26) Insurance 150 (30) Balance c/d 6,049 (28) Bank 755 (31) Motor Van 4,920 (31) Balance c/d 20 22 1,382 8,422 18 1,382 8,422 Dr General Ledger Discounts Received Account Cr (31) Cash Book 18 Dr Discounts Allowed Account Cr (31) Cash Book 22
  • 31.
    31© Pearson EducationLtd 2010 Accounting Answers 12.1 Receipts £ 32 33 34 35 8 36 37 38 40 41 42 39 Balance b/d Cash Window cleaner Postage stamps Petrol Stationery Jean Ford stamps Office cleaner Parcel postage Magazine Computer disks Petrol Refreshments Office cleaner Balance c/d Balance b/d Jun 01 2010 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 Jun 30 Jul 01 CashJul 01 18.52 131.48 152.00 16.45 133.55 2.00 p Date Details Total VAT Postage Cleaning Motor Expenses Expenses Stationery SundryVoucher Number £ 5.60 10.00 1.45 1.05 2.10 10.20 p£ £ p £ 1.35 7.60 8.95 p £ 6.90 20.00 50.00 p £ 32.00 12.00 44.00 p 8.30 15.20 £ p 3.00 7.20 £ p Amount required to restore imprest = Float required 150.00 Less Cash in hand 16.45 Amount required 133.55 10.00 7.60 37.60 9.75 20.00 3.00 14.10 20.00 20.00 16.45 135.55 152.00 1.35 7.95 4.20 4.20 Chapter 12: Petty cash and the imprest system
  • 32.
    32 © PearsonEducation Ltd 2010 Accounting Receipts £ 80 81 82 83 84 78 85 86 88 87 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 Balance Balance 15 Oct 2010 15 Oct 16 Oct 17 Oct 18 Oct 20 Oct 20 Oct 23 Oct 23 Oct 25 Oct 27 Oct 28 Oct 31 Oct 01 Nov Cash01 Nov 23.40 76.60 103.50 13.80 86.20 3.50 Date Details Total VAT Postage Cleaning Travel Expenses Expenses Stationery SundryVoucher £ 1.66 0.63 0.74 1.40 4.43 £ £ 7.00 8.60 3.60 15.60 £ £ 8.00 20.00 23.60 16.42 16.42 10.00 18.00 £ 7.40 11.65 £ Amount required to restore the imprest = Float required 100.00 Less Cash in hand 13.80 Amount required 86.20 11.66 7.40 8.60 20.00 4.23 16.42 9.40 13.80 89.70 103.50 7.00 4.99 4.25 b/d c/d b/d Singh's Estate Agents - Petty Cash book12.2X
  • 33.
    33© Pearson EducationLtd 2010 Accounting Answers 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 (Totals so far) 2,328 2010 (Totals so far) 497 Dec-31 J Walters 54 Dec-31 Bank charges 22 Dec-31 Balance c/d 1,863 2,382 2,382 (b) Bank Reconciliation Statement as at 31 December 2010 Balance per cash book 1,863 Add Unpresented cheque 115 1,978 Less Bankings not yet on bank statement (249 1 178) 427 Balance per bank statement 1,551 OR Bank Reconciliation Statement as at 31 December 2010 Balance per bank statement 1,551 Add Bankings not yer on bank statement (249 1 178) 427 1,978 Less Unpresented cheque 115 Balance per cash book 1,863 13.2X (a) Dr Preston Co Cash Book Cr Dec 31 Balance b/d 9,155 Dec 31 Bank charges 110 Dec 31 BGC: P Todd 270 Dec 31 Balance c/d 9,315 9,425 9,425 Jan 1 Balance b/d 9,315 Chapter 13: Bank reconciliation statements
  • 34.
    34 © PearsonEducation Ltd 2010 Accounting (b) Preston Co Bank Reconciliation Statement as at 31 December 2010 £ Balance as per cash book 9,315 Add Unpresented cheque 575 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 £ Balance as per bank statement 7,755 Add Bankings not yet on bank statement ( 945 1 300 1 890) 2,135 9,890 Less Unpresented cheque 575 Balance per cash book 9,315 13.3 (a) Cash Book - James Baxter 2010 £ 2010 £ Mar-31 BGC - A May 929 Mar-31 Balance b/d 2,804 Mar-31 Balance c/d 2,003 Mar-31 Standing order - Oak plc 100 Mar-31 Bank charges 28 2,932 2,932 (b) James Baxter Bank Reconciliation Statement as at 31 March 2010 £ Bank overdraft per cash book 2,003 Add Banking not entered on bank statement 160 2,163 Less Unpresented cheque 490 Bank overdraft per bank statement 1,673 OR James Baxter Bank Reconciliation Statement as at 31 March 2010 £ Balance per bank statement 1,673 O/D Less Banking not entered on bank statement 160 1,513 O/D Add Unpresented cheque 490 Balance per cash book 2,003 O/D
  • 35.
    35© Pearson EducationLtd 2010 Accounting 13.4X (a) E Flynn Cash Book 2010 2010 Dec-06 J Hallworth 155 Dec-01 Balance b/d 3,872 Dec-20 C Walters 189 Dec-10 P Wood 206 Dec-31 P Miller 211 Dec-19 M Roberts 315 Dec-31 K Saunders 180 Dec-29 P Phillips 84 Dec-31 Balance c/d 4,007 Dec-30 s/o Mercantile 200 Dec-31 Bank charges 65 4,742 4,742 (b) E Flynn Bank Reconciliation Statement as at 31 December 2010 Bank overdraft per cash book 4,007 Add Bank lodgements not yet entered on bank statement 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. (b)  Date Narrative £ Date Narrative £ Apr-01 Balance b/d 8,000 Apr-02 F Bashir (10123) 1,200 Apr-07 Sales banked 800 Apr-08 M Tyler (10124) 1,300 Apr-13 Sales banked 550 Apr-15 H Joshi (10125) 1,250 Apr-20 Sales banked 650 Apr-15 DD / MTC 250 Apr-30 Sales banked 750 Apr-20 DD / Pre. Ins 80 Apr-22 CT - M Bell 1,230 Apr-28 Bank charges 120 Apr-30 Dishonoured cheque 280 Apr-30 Balance c/d 7,500 11,980 11,980 May-01 Balance b/d 7,500 (c) Real Kitchen Suppliers Bank Reconciliation Statement as at 30 April 2010 £ £ Balance as per cash book 7,500 Add: Unpresented cheque - 10125 1,250 8,750 Less: cash not yet credited 750 Balance per bank statement 8,000
  • 36.
    36 © PearsonEducation Ltd 2010 Accounting Answers 14.1 The Journal Date Details Dr Cr 2010 £ £ Jan-01 Computer Equipment 4,000 Data Systems Ltd 4,000 Jan-05 Drawings 120 Purchases 120 Jan-08 Bad debts 220 J Oddy 220 Jan-15 Motor vehicle 15,500 Bank 15,500 Jan-29 Office furniture and fittings 250 J Street 250 14.2X (a) Fixtures Dr 1,809 J Harper Cr 1,809 (b) Drawings Dr 500 Purchases Cr 500 (c) Drawings Dr 100 Cash Cr 100 (d) Office equipment Dr 500 K Lamb Cr 500 (e) J Harper Dr 65 Fixtures Cr 65 (f) Bad debts Dr 68 J Brown Cr 68 (g) Office equipment Dr 2,190 Super Offices Cr 2,190 14.3 (a) J Harkness Dr 678 J Harker Cr 678 (b) Machinery Dr 4,390 L Pearson Cr 4,390 (c) Motor Van Dr 10,800 Motor expenses Cr 10,800 (d) E Fletcher Dr 9 Sales Cr 9 (e) Sales Dr 257 Commissions received Cr 257 14.4X (a) H Weld Dr 699 K Webb Cr 699 (b) Cash Dr 189 Bank Cr 189 (c) B Maxim Dr 443 B Gunn Cr 443 (d) K Innes Dr 10 Purchases Cr 10 (e) H Mersey* Dr 178 Cash Cr 178 *Needs double the amount to first cancel out the error and then replace it with the correct amount. Chapter 14: The journal
  • 37.
    37© Pearson EducationLtd 2010 Accounting 14.5X (a) Journal Dr Cr Sep 30 Drawings 750 Purchases 750 Bring correction of error of omission Sep 30 L Patel 500 A Patek 500 Being correction of your error of commission (b) Dr Suspense Account Cr Sep 30 Balance b/d 340 Sep 30 Sales 240 Sep 30 Farmer Co 170 Sep 30 Pointer Bros 270 510 510 (c) Before discovery of the errors in the Trial Balance the debit side was deficient by £340. (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.
  • 38.
    38 © PearsonEducation Ltd 2010 Accounting Answers 15.1 Dr Sales Ledger Control Account Cr 2010 2010 Oct-01 Balance b/d 12,340 Oct-31 SRDB 2,847 Oct-31 SDB 124,790 Oct-31 Bank cash 116,225 Oct-31 Discount allowed 3,638 Oct-31 Balance c/d 14,420 137,130 137,130 Nov-01 Balance b/d 14,420 15.2X Dr Sales Ledger Control Account Cr 2010 2010 Feb 1 Balance b/d 33,950 Feb 28 Bank cash 332,920 Feb 28 SDB 347,480 Feb 28 Discount allowed 4,497 Feb 28 Bank : dishonoured cheques 791 Feb 28 SRDB 11,095 Feb 28 Bad Debts 977 Feb 28 Purchase ledger set offs 1,400 Feb 28 Balance c/d 31,332 382,221 382,221 Mar 1 Balance b/d 31,332 15.3 Dr Purchase Ledger Control Account Cr 2010 2010 Jul-31 PRDB 1,575 Jul-01 Balance b/d 19,450 Jul-31 Bank 26,150 Jul-31 PDB 28,200 Jul-31 Discount received 550 Jul-31 Balance c/d 19,375 47,650 47,650 Aug-01 Balance b/d 19,375 Chapter 15: Sales ledger and purchase ledger control accounts
  • 39.
    39© Pearson EducationLtd 2010 Accounting 15.4X Dr Purchase Ledger Control Account Cr 2010 2010 Jan 31 PRDB 2,835 Jan 31 Balance b/d 35,010 Jan 31 Bank 45,070 Jan 31 PDB 50,760 Jan 31 Discount received 990 Jan 31 Sales ledger set offs 2,000 Jan 31 Balance c/d 34,875 85,770 85,770 Feb 1 Balance b/d 34,875 15.5X (a) Dr Sales Ledger Control Account Cr 2009 2009 Jan 1 Balance b/d 65,000 Dec 31 RIDB 6,430 Dec 31 SDB 453,900 Dec 31 Bank 432,000 Dec 31 Returned cheque 750 Dec 31 Discount All 7,540 Dec 31 Bad Debts 650 Dec 31 Purchase ledger set offs 1,650 Dec 31 Balance c/d 71,380 519,650 519,650 (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.
  • 40.
    40 © PearsonEducation Ltd 2010 Accounting Answers 16.1 Lucy Chan Trading and Profit and Loss Account for the year ending 31 December 2010 £ £ Sales 133,770 Less cost of goods sold Purchases 84,665 Less closing stock 15,085 69,580 Gross Profit 64,190 Less Expenses Rent 4,595 Wages and salaries 28,865 Printing and stationery 2,940 Electricity expenses 2,485 General expenses 1,295 40,180 Net Profit 24,010 16.2X Charles Drew Trading and Profit and Loss Account for the year ending 31 December 2010 £ £ Sales 128,452 Less cost of goods sold Purchases 96,547 Less closing stock 18,495 78,052 Gross Profit 50,400 Less Expenses Wages 11,229 Rent 5,330 Office expenses 1,620 Motor expenses 922 Electricity expenses 1,350 20,451 Net Profit 29,949 Chapter 16: Trading account and profit and loss account of a sole trader
  • 41.
    41© Pearson EducationLtd 2010 Accounting 16.3 G Singh Trading and Profit and Loss Account for the year ended 31 December 2010 £ £ Sales 73,848 Less Cost of goods sold: Purchases 58,516 Less Closing stock 10,192 48,324 Gross Profit 25,524 Less Expenses Wages 8,600 Motor expenses 2,080 Rates 2,680 Insurance 444 General expenses 420 14,224 Net Profit 11,300 16.4X R Cairns Trading and Profit and Loss Account for the year ended 30 June 2010 £ £ Sales 99,082 Less Cost of goods sold Purchases 71,409 Less closing stock 11,498 59,911 Gross Profit 39,171 Less Expenses Wages 9,492 Rates 2,000 Printing and Stationery 562 Electricity 1,266 Insurance 605 Sundry Expenses 1,518 Motor expenses 3,109 18,552 Net Profit 20,619 16.5X J Leung Trading and Profit and Loss Account for the year ended 31 March 2010 £ £ Sales 153,080 Less Cost of goods sold Purchases 133,171 Less closing stock 42,828 90,343 Gross Profit 62,737 Less Expenses Rent and rates 6,708 Insurance 1,312 Electricity expenses 2,219 Motor expenses 2,429 Salaries and wages 26,855 General expenses 3,466 42,989 Net Profit 19,748
  • 42.
    42 © PearsonEducation Ltd 2010 Accounting Answers 17.1 G Singh Balance Sheet as at 31 December 2010 £ £ £ Fixed Assets Buildings 20,000 20,000 Motor vehicle 12,000 12,000 32,000 32,000 Current Assets Stock 10,192 Debtors 7,800 Cash at bank 6,616 Cash in hand 160 24,768 Less Current Liabilities Creditors 6,418 6,418 Net current assets 18,350 50,350 Financed by Cash introduced 48,000 Add Net profit for the year 11,300 59,300 Less Drawings 8,950 50,350 17.2X R Cairns Balance Sheet as at 30 June 2010 £ £ £ Fixed assets Premises 145,000 - 145,000 Computer equipment 8,000 - 8,000 Motor vehicle 16,500 - 16,500 169,500 - 169,500 Current assets Stock 11,498 Debtors 9,498 Cash at bank 6,541 Cash in hand - 27,537 Less Current liabilities Creditors 3,618 3,618 Net current assets 23,919 193,419 Financed by: Capital introduced 185,000 Add Net profit for the year 20,619 205,619 Less Drawings 12,200 193,419 Chapter 17: The Balance Sheet
  • 43.
    43© Pearson EducationLtd 2010 Accounting 17.3 J Leung Balance Sheet as at 31 March 2010 £ £ £ Fixed Assets Buildings 120,400 120,400 Equipment 17,028 17,028 Motor van 15,050 15,050 152,478 152,478 Current Assets Stock 42,828 Debtors 29,283 Cash at bank 4,876 76,987 Less Current Liabilities Creditors 13,975 13,975 Working Capital 63,012 215,490 Financed by Capital 212,736 Net profit 19,748 232,484 Less Drawings 16,994 215,490 17.4X Sarah Joshi Trading and Profit and Loss Account for the year ended 31 May 2010 £ £ Sales 103,658 Less Cost of goods sold Purchases 85,691 Less closing stock 14,998 70,693 Gross Profit 32,965 Less Expenses Rent 3,000 General expenses 822 Motor expenses 3,473 Printing and stationery 605 Wages and salaries 12,465 Heating and lighting 1,319 Insurance 578 22,262 Net Profit 10,703
  • 44.
    44 © PearsonEducation Ltd 2010 Accounting Balance Sheet as at 31 May 2010 £ £ £ Fixed Assets Buildings 180,000 - 180,000 Computer equipment 3,600 - 3,600 Motor vehicle 19,800 - 19,800 203,400 - 203,400 Current Assets Stock 14,998 Debtors 11,398 Cash at bank 13,850 40,246 Less Current Liabilities Creditors 4,343 4,343 Net current assets / working capital 35,903 Less Long-term liabilities - 239,303 Financed By: Capital 237,240 Add Net profit 10,703 247,943 Less Drawings 8,640 239,303
  • 45.
    45© Pearson EducationLtd 2010 Accounting Answers 18.1 K Jepson Trading account for the year ended 31-Dec-10 £ £ Sales 69,736 Less cost of goods sold Opening stock 12,463 Add purchases 47,536 Add carriage inwards 1,206 61,205 Less closing stock 13,480 47,725 Gross profit 22,011 18.2X Jane Li Trading and Profit and Loss Account for the year ended 31 March 2010 £ £ Sales 98,280 Less Cost of Goods Sold Opening Stock 29,686 Add Purchases 66,429 Add Carriage Inwards 2,020 98,135 Less Closing Stock 33,307 64,828 Gross profit 33,452 Chapter 18: Financial statements: other considerations
  • 46.
    46 © PearsonEducation Ltd 2010 Accounting 18.3 J Mann Trading and Profit and Loss Account for the year ended 31 July 2010 £ £ Sales 110,859 Less sales returns 1,029 109,830 Less cost of goods sold Opening stock 11,949 Add Purchases 65,100 Add carriage inwards 3,570 80,619 Less purchase returns 1,176 79,443 Less Closing stock 8,883 70,560 Gross Profit 39,270 Less Expenses Salaries and wages 10,521 Rent 3,066 Motor Expenses 6,552 General expenses 882 Carriage outwards 1,659 22,680 Net Profit 16,590 18.4X Emily Hart Trading and Profit and Loss Account for the year ended 31 December 2010 £ £ Sales 189,050 Less sales returns 2,850 186,200 Less Cost of Goods Sold Opening Stock 34,732 Add Purchases 122,683 Add Carriage Inwards 400 157,815 Less Purchase Returns 3,000 154,815 Less Closing Stock 32,984 121,831 Gross Profit 64,369 Less Expenses Wages 21,875 Rent and rates 2,800 General expenses 684 Carriage outwards 931 Printing and stationery 525 26,815 Net Profit 37,554
  • 47.
    47© Pearson EducationLtd 2010 Accounting S Shah Trading and Profit and Loss Account for the year ended 30 June 2010 £ £ Sales 178,560 Less sales returns 1,968 176,592 Less cost of goods sold Opening stock 22,733 Add Purchases 113,990 Add carriage inwards 2,976 139,699 Less purchase returns 3,091 136,608 Less Closing stock 28,320 108,288 Gross Profit 68,304 Less Expenses Salaries and wages 37,075 Rent and rates 2,918 Insurance 749 Motor Expenses 4,250 Telephone and internet 4,198 Electricity 1,594 Carriage outwards 1,920 General expenses 3,014 55,718 Net Profit 12,586 Balance Sheet as at 30 June 2010 £ £ £ Fixed Assets Buildings 80,000 80,000 Computer equipment 3,360 3,360 Motor vehicles 17,280 17,280 100,640 100,640 Current Assets Stock 28,320 Debtors 37,402 Cash at bank 4,627 70,349 Less Current Liabilities Creditors 32,618 32,618 Net Current Assets (Working Capital) 37,731 138,371 Less long-term liabilities Long-term loans Nil 138,371 Financed by Capital account Balance b/f 137,305 Add net profit for the year 12,586 149,891 Less Drawings 11,520 138,371 18.5
  • 48.
    48 © PearsonEducation Ltd 2010 Accounting 18.6X J Collins Trading and Profit and Loss Account for the year ended 31 March 2010 £ £ £ Sales 74,400 Less Cost of sales Opening stock 15,104 Add Purchases 46,224 Carriage inwards 936 62,264 Less Closing stock 19,992 42,272 Gross Profit 32,128 Less Expenses Salaries and wages 11,788 Carriage outwards 1,304 Rent 1,824 Rates 1,080 Printing and stationery 810 Travel expenses 490 Telephone 756 Sundry expenses 2,808 20,860 Net Profit 11,268 Balance Sheet as at 31 March 2010 £ £ £ Fixed Assets Fixtures and fittings 2,400 2,400 Computer equipment 9,600 9,600 12,000 12,000 Current Assets Stock 19,992 Debtors 18,308 Cash at bank 15,504 Cash in hand 480 54,284 Less Current Liabilities Creditors 12,180 12,180 Net Current assets 42,104 54,104 Financed by: Capital 51,376 Add net profit 11,268 62,644   Less Drawings 8,540 54,104
  • 49.
    49© Pearson EducationLtd 2010 Accounting Answers 19.1 J Chen (a) Straight Line (b) Reducing Balance £ £ Cost 6,000 6,000 Year 1 Depreciation* 1,250 Year 1 Depreciation 40% 3 £6,000 2,400 4,750 3,600 Year 2 Depreciation 1,250 Year 2 Depreciation 40% 3 £3,600 1,440 3,500 2,160 Year 3 Depreciation 1,250 Year 3 Depreciation 40% 3 £2,160 864 2,250 1,296 Year 4 Depreciation 1,250 Year 4 Depreciation 40% 3 £1,296 519 1,000 777 *Depreciation 5 6,000 2 1, 000_____________ 4 5 £1,250 19.2 Machine (a) Straight Line (b) Reducing Balance £ £ Cost 75,000 75,000 Year 1 Depreciation* 11,070 Year 1 Depreciation 20% 3 £75,000 15,000 63,930 60,000 Year 2 Depreciation 11,070 Year 2 Depreciation 20% 3 £60,000 12,000 52,860 48,000 Year 3 Depreciation 11,070 Year 3 Depreciation 20% 3 £48,000 9,600 41,790 38,400 Year 4 Depreciation 11,070 Year 4 Depreciation 20% 3 £38,400 7,680 30,720 30,720 *Depreciation 5 75,000 2 30,720_______________ 4 5 £11,070 Chapter 19: The concept of depreciation of fixed assets
  • 50.
    50 © PearsonEducation Ltd 2010 Accounting 19.3X (a) Reducing Balance £ Cost 19,200 Year 1 Depreciation 50% of 19,200 9,600   9,600 Year 2 Depreciation 50% of 9,600 4,800   4,800 Year 3 Depreciation 50% of 4,800 2,400   2,400 Year 4 Depreciation 50% of 2,400 1,200   1,200 (b) Straight Line £ Cost 19,200 Year 1 Depreciation 4,500   14,700 Year 2 Depreciation 4,500   10,200 Year 3 Depreciation 4,500   5,700 Year 4 Depreciation 4,500   1,200 19,200 2 1,200 5 18,000 4 4 5 4,500 19.4X Computer Equipment (a) Straight Line (b) Reducing Balance £ £ Cost 4,600 Cost 4,600 Year 1 Depreciation * 1,000 Year 1 Depreciation 25% 3 4,600 1,150   3,600   3,450 Year 2 Depreciation 1,000 Year 2 Depreciation 25% 3 3,450 862   2,600   2,588 Year 3 Depreciation 1,000 Year 3 Depreciation 25% 3 2,588 647   1,600   1,941 Year 4 Depreciation 1,000 Year 4 Depreciation 25% 3 1,941 485   600   1,456 * ​  Depreciation  4,600 2 600  £1,000    ___________________________________   4   ​
  • 51.
    51© Pearson EducationLtd 2010 Accounting 19.5X (a) Reducing Balance £ Cost 72,900 Year 1 Depreciation 33​ 1  __  3  ​% of 72,900 24,300   48,600 Year 2 Depreciation 33​ 1  __  3  ​% of 48,600 16,200   32,400 Year 3 Depreciation 33​ 1  __  3  ​% of 32,400 10,800   21,600 Year 4 Depreciation 33​ 1  __  3  ​% of 21,600 7,200   14,400 Year 5 Depreciation 33​ 1  __  3  ​% of 14,400 4,800   9,600 (b) Straight Line £ Cost 72,900 Year 1 Depreciation 12,660   60,240 Year 2 Depreciation 12,660   47,580 Year 3 Depreciation 12,660   34,920 Year 4 Depreciation 12,660 22,260 Year 5 Depreciation 12,660   9,600 72,900 2 9,600 5 63,300 4 5 5 12,660
  • 52.
    52 © PearsonEducation Ltd 2010 Accounting 19.6 Dumper (a) Reducing Balance (b) Straight Line £ £ Cost 18,000   18,000 Year 1 Depreciation 40% 3 £18,000 7,200 Year 1 Depreciation 5,000   10,800   13,000 Year 2 Depreciation 40% 3 £10,800 4,320 Year 2 Depreciation 5,000   6,480   8,000 Year 3 Depreciation 40% 3 £6,480 2,592 Year 3 Depreciation 5,000   3,888   3,000 Depreciation  ​  18,000 2 3,000   ______________  3   ​ £5,000 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.)
  • 53.
    53© Pearson EducationLtd 2010 Accounting Answers 20.1 (a) Dr Motor Car Account Cr 2001 £ £ Jan-01 Bank 12,500 (b) Dr Provision for Depreciation - Motor Car Account Cr 2001 £ 2001 £ Dec-31 Balance c/d 2,500 Dec-31 Profit and loss a/c 2,500 2002 2002 Dec-31 Balance c/d 4,500 Jan-01 Balance b/d 2,500 Dec-31 Profit and loss a/c 2,000 4,500 4,500 2003 2003 Dec-31 Balance c/d 6,100 Jan-01 Balance b/d 4,500 Dec-31 Profit and loss a/c 1,600 6,100 6,100 2004 Jan-01 Balance b/d 6,100 (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 Cost Total Depreciation Net book value 2001 £ £ £ Motor Car 12,500 2,500 10,000 2002 Motor Car 12,500 4,500 8,000 2003 Motor Car 12,500 6,100 6,400 Chapter 20: Double entry for depreciation and disposal of a fixed asset
  • 54.
    54 © PearsonEducation Ltd 2010 Accounting 20.2X (a) Straight Line Method Dr Machinery Account Cr 2001 £ £ Nov 01 Bank 18,000 Dr Provision for Depreciation - Machinery Account Cr 2002 £ 2002 £ Oct 31 Balance c/d 1,800 Oct 31 Profit and loss a/c 1,800 Nov 1 Balance b/d 1,800 2003 2003 Oct 31 Balance c/d 3,600 Oct 31 Profit and loss a/c 1,800 3,600 3,600 Nov 1 Balance b/d 3,600 2004 2004 Oct 31 Balance c/d 5,400 Oct 31 Profit and loss a/c 1,800 5,400 5,400 Nov 1 Balance b/d 5,400 (b) Reducing Balance Method Dr Machinery Account Cr 2001 £ £ Nov 01 Bank 18,000 Dr Provision for Depreciation - Machinery Account Cr 2002 £ 2002 £ Oct 31 Balance c/d 1,800 Oct 31 Profit and loss a/c 1,800 Nov 1 Balance b/d 1,800 2003 2003 Oct 31 Balance c/d 3,420 Oct 31 Profit and loss a/c 1,620 3,420 3,420 Nov 1 Balance b/d 3,420 2004 2004 Oct 31 Balance c/d 4,878 Oct 31 Profit and loss a/c 1,458 4,878 4,878 Nov 1 Balance b/d 4,878 (c) Straight Line Method Profit and Loss Account (extracts) for the year ended 31 October £ 2002 Depreciation - Machinery 1,800 2003 Depreciation - Machinery 1,800 2004 Depreciation - Machinery 1,800
  • 55.
    55© Pearson EducationLtd 2010 Accounting Balance Sheet (extracts) as at 31 October Cost Total Depreciation Net Book Value 2002 £ £ £ Machinery 18,000 1,800 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 Cost Total Depreciation Net Book Value 2002 £ £ £ Machinery 18,000 1,800 16,200 2003 Machinery 18,000 3,420 14,580 2004 Machinery 18,000 4,878 13,122 20.3 (a) Computer Equipment Account 2001 2004 Jan-01 Balance b/d 9,500 Jan-01 Computer equipment disposals 9,500 (b) Provision for Depreciation : Computer Equipment Account 2001 2001 Dec-31 Balance c/d 1,900 Jan-01 Computer equipment 1,900 2002 2002 Dec-31 Balance c/d 3,800 Jan-01 Balance b/d 1,900 Dec-31 Profit and loss 1,900 3,800 3,800 2003 2003 Dec-31 Balance c/d 5,700 Jan-01 Balance b/d 3,800 Dec-31 Profit and loss 1,900 5,700 5,700 2004 2004 Jan-01 Computer equipment disposals 5,700 Jan-01 Balance b/d 5,700
  • 56.
    56 © PearsonEducation Ltd 2010 Accounting (c) Computer Equipment Disposals Account 2004 2004 Jan-01 Computer 9,500 Jan-01 Depreciaiton 5,700 Dec-31 Profit and loss 450 Jan-01 Bank 4,250 9,950 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 Cost Total Depreciation Net book value 2001 £ £ £ Computer Equipment 9,500 1,900 7,600 2002 Computer Equipment 9,500 3,800 5,700 2003 Computer Equipment 9,500 5,700 3,800 20.4X (a) Motor Van Disposals Account Motor Van 12,000 Provision for depreciation 9,700 Bank 1,850 Profit and loss : loss on sale 450 12,000 12,000 (b) Machinery Disposals Account Machinery 27,900 Provision for depreciation 19,400 Profit and loss : profit on sale 2,770 Bank 11,270 30,670 30,670 (c) Fixtures Disposals Account Fixtures 8,420 Provision for depreciation 7,135 Bank 50 Profit and loss : loss on sale 1,235 8,420 8,420
  • 57.
    57© Pearson EducationLtd 2010 Accounting (d) Buildings Disposals Account Buildings 200,000 Provision for depreciation 110,000 Profit and loss : profit on sale 59,000 Bank 149,000 259,000 259,000 20.5 (a) Straight Line Method  ​  Cost 2 Scrap Value   _________________  No. of Years   ​  ​ 35,000 2 11,000  ______________  4   ​ £6,000 per annum (b) Dr Provision for Depreciation - Vehicles Account Cr 2005 £ 2005 Mar-31 Balance c/d 7,000 Mar-31 Profit and loss 7,000 Apr-01 Balance b/d 7,000 2006 2006 Mar-31 Balance c/d 12,600 Mar-31 Profit and loss 5,600 12,600 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. 20.6X (a) RIALTO TRADERS Plant and Machinery Account 2007 2007 May 1 Balance b/d 500,000 Dec 31 Plant and machinery disposals 200,000 2008 Apr 30 Balance c/d 300,000 500,000 500,000 2008 May 1 Balance b/d 300,000
  • 58.
    58 © PearsonEducation Ltd 2010 Accounting (b) Motor Vehicles Account 2007 May 1 Balance b/d 200,000 2008 2008 Feb 1 Bank 100,000 Apr 30 Balance c/d 300,000 300,000 300,000 May 1 Balance b/d 300,000 (c) Provision for Depreciation - Plant and Machinery Account 2007 2007 Dec 31 Plant and Machinery- Disposals 150,000 May 1 Balance b/d 200,000 2008 2008 Apr 30 Balance c/d 80,000 Apr 30 Profit and Loss 30,000 230,000 230,000 May 1 Balance b/d 80,000 (d) Plant and Machinery - Disposal Account 2007 2007 Dec 31 Plant and Machinery 200,000 Dec 31 Provision for Depreciation 150,000 Dec 31 Bank 40,000 Dec 31 Profit and Loss 10,000 200,000 200,000 (e) (i) Concept 1 – Consistency Concept 2 – Accruals (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.
  • 59.
    59© Pearson EducationLtd 2010 Accounting Answers 21.1 Hart Partners (a) Dr Bad Debts Account Cr 2009 2009 May-16 S Bayley 550 Dec-31 Profit loss 1,240 Jul-31 J Carter 223 Nov-09 T Roche 467 1,240 1,240 Dr Provision For Doubtful Debts Account Cr 2009 Dec-31 Profit loss 520 (b) Profit and Loss Account for the year ended 31 December 2009 (extracts) Gross profit Less Expenses Bad debts written off 1,240 Provision for doubtful debts 520 1,760 (c) Balance Sheet as at 31 December 2009 (extract) Current Assets Debtors 26,000 Less Provision for doubtful debts 520 25,480 21.2 Date 31-Dec Total debtors Profit and loss Dr/Cr Final figure for balance sheet 2007 7,000 70 Dr 6,930 (net) 2008 8,000 10 Dr 7,920 (net) 2009 6,000 20 Cr 5,940 (net) 2010 7,000 10 Dr 6,930 (net) Chapter 21: Bad debts and provision for doubtful debts
  • 60.
    60 © PearsonEducation Ltd 2010 Accounting 21.3X Bad Debts 2007 2007 31 Dec Debtors 298 31 Dec Profit and loss a/c 298 2008 2008 31 Dec Debtors 386 31 Dec Profit and loss a/c 386 2009 2009 31 Dec Debtors 344 31 Dec Profit and loss a/c 344 2010 2010 31 Dec Debtors 477 31 Dec Profit and loss a/c 477 Provision for Doubtful Debts 2007 2007 31 Dec Balance c/d 100 31 Dec Profit and loss a/c 100 2008 2008 31 Dec Balance c/d 130 1 Jan Balance b/d 100 31 Dec Profit and loss a/c 30 130 130 2009 2009 31 Dec Profit and loss a/c 15 1 Jan Balance b/d 130 31 Dec Balance c/d 115 130 130 2010 2010 31 Dec Balance c/d 150 1 Jan Balance b/d 115 31 Dec Profit and loss a/c 35 150 150 2011 1 Jan Balance b/d 150 Profit and Loss Accounts for the years ended 31 December (extracts) 2007 £ £ Bad debts 298 Provision for doubtful debts 100 2008 Bad debts 386 Provision for doubtful debts 30 2009 2009 Bad debts 344 Provision for doubtful debts 15 2010 Bad debts 477 Provision for doubtful debts 35
  • 61.
    61© Pearson EducationLtd 2010 Accounting Balance Sheet as at 31 Decemeber (extracts) £ £ 2007 Debtors 12,000 Less Provision for doubtful debts 100 11,900 2008 Debtors 15,000 Less Provision for doubtful debts 130 14,870 2009 Debtors 14,000 Less Provision for doubtful debts 115 13,885 2010 Debtors 18,000 Less Provision for doubtful debts 150 17,850 21.4X (a) The Journal Date Debit Credit £ £ Apr 30 Bad Debts 500   A. Carter 500 Being bad debt written off (b) Double entry for the creation of a Provision for Doubtful Debts Debit: Profit and Loss Account Credit: Provision for Doubtful Debts Account (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.
  • 62.
    62 © PearsonEducation Ltd 2010 Accounting Answers C Homer Rent Account 2008 2008 Dec-31 Bank 1,600 Dec-31 Profit and loss 2,000 Dec-31 Owing c/d 400 2,000 2,000 2009 Jan-01 Owing b/d 400 Insurance Account 2008 2008 Dec-31 Bank 900 Dec-31 Profit and loss 635 Dec-31 Prepaid c/d 265 900 900 2009 Jan-01 Prepaid b/d 265 Motor Expenses Account 2008 2008 Dec-31 Bank 7,215 Dec-31 Profit and loss 7,381 Dec-31 Owing c/d 166 7,381 7,381 2009 Jan-01 Owing b/d 166 Rates Account 2008 2008 Jan-01 Bank 750 Dec-31 Profit and loss 1,500 Jul-01 Bank 1,125 Dec-31 Prepaid c/d 375 1,875 1,875 2009 Jan-01 Prepaid b/d 375 Rents Receivable Account 2008 2008 Dec-31 Profit and loss 4,800 Apr-15 Bank 2,000 Dec-31 In advance c/d 1,600 Dec-15 Bank 4,400 6,400 6,400 2009 Jan-01 In advance b/d 1,600 Chapter 22: Accruals, prepayments and other adjustments for financial statements 22.1 (a) (b) (c) (d) (e)
  • 63.
    63© Pearson EducationLtd 2010 Accounting T Norton General Expenses Account 2009 2009 Dec-31 Bank 615 Dec-31 Profit and loss 671 Dec-31 Owing c/d 56 671 671 2010 Jan-01 Owing b/d 56 Telephone Account 2009 2009 Dec-31 Bank 980 Dec-31 Profit and loss 1,097 Dec-31 Owing c/d 117 1,097 1,097 2010 Jan-01 Owing b/d 117 Commission Received Account 2009 2009 Dec-31 Profit and loss 3,231 Dec-31 Bank 3,056 Dec-31 Owing c/d 175 3,231 3,231 2010 Jan-01 Owing b/d 175 Carriage Outwards Account 2009 2009 Dec-31 Bank 666 Dec-31 Profit and loss 788 Dec-31 Owing c/d 122 788 788 2010 Jan-01 Owing b/d 122 Insurance Account 2009 2009 Jan-01 Bank 1,080 Dec-31 Profit and loss 1,440 Oct-01 Bank 1,080 Dec-31 Prepaid c/d 720 2,160 2,160 2010 Jan-01 Prepaid b/d 720 22.2 (a) (b) (c) (d) (e)
  • 64.
    64 © PearsonEducation Ltd 2010 Accounting T Dale Stationery Account 2008 2009 01 Jul Stock b/d 290 30 Jun Profit and loss 800 2009 2009 30 Jun Cash and bank 855 30 Jun Stock c/d 345 1,145 1,145 General Expenses Account 2008 01 Jul Owing b/d 64 2009 2009 30 Jun Cash and bank 590 30 Jun Profit and loss 616 30 Jun Owing c/d 90 680 680 Rent and Rates Account 2008 01 Jul Owing b/d: Rent 160 Rates 205 2009 2009 30 Jun Cash and bank 3,890 30 Jun Profit and loss 3,635 30 Jun Owing c/d 360 30 Jun Rent prepaid and c/d 250 4,250 4,250 Motor Expenses Account 2008 01 Jul Owing b/d 180 2009 2009 30 Jun Cash and bank 4,750 30 Jun Profit and loss 4,945 30 Jun Owing c/d 375 5,125 5,125 Commission Receivable Account 2008 01 Jul Owing b/d 80 2009 2009 30 Jun Profit and loss 915 30 Jun Cash and bank 850 30 Jun Owin c/d 145 995 995 22.3X (a) (b) (c) (d) (e)
  • 65.
    65© Pearson EducationLtd 2010 Accounting C Cainen Trading and Profit and Loss Account for the year ended 31 December 2009 £ £ Sales 18,590 Less cost of goods sold   Opening stock 2,050   Add Purchases 11,170   13,220   Less Closing stock 3,910   9,310 Gross Profit 9,280 Less Expenses   Rent (640 2 160) 480   Wages and salaries (2,140 1 290) 2,430   Insurance (590 2 190) 400   Bad debts 270   Telephone (300 1 110) 410   General Expenses 180 4,170 Net Profit 5,110 K Tyler Trading and Profit and Loss Account for the year ended 31 December 2010 £ £ Sales 54,190 Less Sales returns 200 53,990 Less cost of goods sold   Opening stock 8,620   Add Purchases 30,560   39,180   Less Closing stock 12,120 27,060 Gross Profit 26,930 Less Expenses   Wages and salaries (£4,960 1 £510) 5,470   Motor expenses 2,120   Rent and rates (£1,200 2 £160) 1,040   Discounts allowed 290   Lighting expenses (£580 1 £170) 750   Computer running expenses (£1,210 2 £140) 1,070   General expenses 360   Depreciation : Motor vehicles 700 11,800 Net Profit 15,130 22.4 22.5
  • 66.
    66 © PearsonEducation Ltd 2010 Accounting J Sears Trading and Profit and Loss Account for the year ended 31 December 2010 Sales 80,000 Less Sales returns 1,000 79,000 Less Cost of goods sold:   Opening stock 20,000   Add Purchases 70,000   90,000 Less Purchase returns 1,240   88,760 Less Closing stock 24,000 64,760 Gross Profit 14,240 Less Expenses   Wages and salaries (7,200 1 450) 7,650   Telephone (200 2 20) 180   Bad debts 40   Provision for doubtful debts (1,960 3 10% 2 160) 36   Depreciation:    Store fittings 800    Motor van 1,200 9,906 Net Profit 4,334 J Sears Balance Sheet as at 31 December 2010 Cost Depreciation Net Book Value Fixed Assets   Store fittings 8,000 800 7,200   Motor van 6,000 1,200 4,800 14,000 2,000 12,000 Current Assets   Stock 24,000   Debtors 1,960   Less Provision for doubtful debts 196 1,764   Prepaid expenses 20   Bank 600 26,384 Less Current Liabilities Creditors 1,400 Expenses owing 450 1,850 Net current assets 24,534 36,534 Financed by: Capital Balance 1.1.2010 35,800 Add Net profit 4,334 40,134 Less Drawings 3,600 36,534 22.6X
  • 67.
    67© Pearson EducationLtd 2010 Accounting Answers Total Debtors Balances b/d 2,760 Cash 14,610 Sales (difference) 14,940 Balances c/d 3,090 17,700 17,700 Total Creditors Cash 9,390 Balances b/d 1,080 Balances c/d 1,320 Purchases (difference) 9,630 10,710 10,710 K Rogers Trading Account for the year ended 31 October 2009 £ £ Sales 14,940 Less Cost of Goods sold Opening Stock 2,010 Add Purchases 9,630 11,640 Less Closing Stock 2,160 9,480 Gross Profit 5,460 Total Debtors 2008 2009 1 Jun Balance b/d 5,670 31 May Bank 45,112 2009 31 May Sales 45,550 31 May Balance c/d 6,108 51,220 51,220 Total Creditors 2008 1 Jun Balances b/d 3,410 2009 2009 31 May Bank 29,375 31 May Purchases 30,091 31 May Balances c/d 4,126 33,501 33,501 Trading Account for the year ended 31 May 2009 £ £ Sales 45,550 Less Cost Of Goods Sold Opening Stock 11,590 Add Purchases 30,091 41,681 Less Closing Stock 13,425 28,256 Gross Profit 17,294 Chapter 23: Incomplete records 23.1 (a) (b) 23.2X
  • 68.
    68 © PearsonEducation Ltd 2010 Accounting D Lewinski Balance Sheet as at 30 June 2009 £ £ Fixed assets Plant 36,000 Fixtures 3,600 39,600 Current assets Stock 13,500 Debtors 9,300 Bank 6,000 Cash 1,350 30,150 Less Current Liabilities Creditors 7,200 Net current assets 22,950 62,550 Financed by: Capital Cash introduction 60,000 Add Net profit 18,550 78,550 Less Drawings 16,000 62,550 J Marcano Statement of Affairs as at 31 August 2009 £ £ Fixed assets   Fixtures 3,500   Motor Van 3,500 7,000 Current assets   Stock 16,740   Debtors 11,890   Bank 2,209   Cash 115 30,954 Less Current liabilities   Creditors 9,952 21,002 28,002 23.3 (a) Capital is £62,550 (b) 23.4
  • 69.
    69© Pearson EducationLtd 2010 Accounting Statement of Affairs as at 31 August 2009 £ £ £ Fixed assets   Fixtures 5,500   Less Depreciation 300 5,200   Motor Van 3,500   Less Depreciation 700 2,800 8,000 Current assets   Stock 24,891   Debtors 15,821   Bank 72   Cash 84 40,868 Less Current liabilities   Trade creditors 6,002   Expenses owing 236   Bank overdraft 165 6,403 Net current assets 34,465 42,465 Capital   Balance as at 31/08/2009 28,002   Add Cash introduced 12,800   Add Net profit (C) 9,223 (B) 50,025   Less Drawings 7,560 (A) 42,465 (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. Dr Total Debtors Account Cr 2008 1 Apr Balances b/d 2,980 2009 2009 31 Mar Sales 11,520 31 Mar Cash 10,820 31 Mar Balances (difference) c/d 3,680 14,500 14,500 Dr Total Creditors Account Cr 2008 1 Apr Balance b/d 1,880 2009 2009 31 Mar Cash 7,780 31 Mar Purchases 8,120 31 Mar Balance (difference) c/d 2,220 10,000 10,000 23.5X (a)
  • 70.
    70 © PearsonEducation Ltd 2010 Accounting A Hanson Calculation of Capital as at 31 March 2008 and 31 March 2009 31.3.2008 31.3.2009 £ £ Bank 1,460 1,740 Office furniture 600 500 Stock 2,320 2,620 Cash 60 80 Debtors 2,980 3,680 7,420 8,620 Less Creditors 1,880 2,220 Capital 5,540 6,400 £ Capital as at 31 March 2008 5,540 Add Net profit (B) 3,400 (A) 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. Total Debtors Account Dec-01 Balances b/d 450 Nov 30 Bank 7,500 Sales 7,628 Nov 30 Balance c/d 578 8,078 8,078 Calculation of Sales £ Credit Sales 7,628 Cash Sales 200,552 Drawings 12 3 £1,500 18,000 226,180 (b) (c) 23.6X (a)  (i)
  • 71.
    71© Pearson EducationLtd 2010 Accounting Rent Account Dec 01 Balance b/d 350 Nov 30 Profit and loss 8,760 Nov 30 Bank 8,900 Nov 30 Balance c/d 490 9,250 9,250 Loan Interest Account Nov 30 Bank 600 Nov 30 Profit and loss 700 Nov 30 Balance c/d 100 700 700 Dec 1 Balance b/d 100 The loan interest needs adjusting so that the amount incurred for the year is 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. (ii) (iii) (b)
  • 72.
    72 © PearsonEducation Ltd 2010 Accounting Answers 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 Receipts Payments Bank balance b/f 2,715 Teams' travel expenses 1,598 Subscriptions 8,570 Groundsman wages 3,891 Donations 1,500 Postage and stationery 392 Receipts from raffles 3,816 Rent of pitches and club house 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) 8,730 Donations 1,500 Profit on raffles (3,816 2 624) 3,192 13,422 Less Expenditure: Teams' travel expenses 1,598 Groundsman's wages (3,891 1 75) 3,966 Postage and stationery 392 Rent of pitches and club house (4,800 1 400) 5,200 General expenses 419 11,575 Surplus of income over expenditure 1,847 Chapter 24: Accounting for non-profit making organisations
  • 73.
    73© Pearson EducationLtd 2010 Accounting 24.3X (a) Superball Football Club Receipts and Payments Account for the year ended 31 May 2009 Receipts Payments Cash bank balnces b/d 905 Hire of transport 3,710 Subscriptions 8,124 Ground maintenance costs 1,156 Disco receipts 3,149 Groundsman's wages 5,214 Collections at matches 5,090 Committee expenses 906 Prize money 1,000 Costs of disco 1,112 Rent of ground 2,450 General expenses 814 Cash bank balances c/d 2,906 18,268 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) 8,058 Profit on disco (3,149 2 1,112) 2,037 Collections at matches 5,090 Prize money received 1,000 16,185 Less Expenditure: 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 814 14,310 Surplus of income over expenditure 1,875
  • 74.
    74 © PearsonEducation Ltd 2010 Accounting 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 463 Less Cost of goods sold Opening stock 88 Add Purchases 397 485 Less Closing Stock 101 384 Gross Profit 79 (c) Down Town Sports and Social Club Income and Expenditure Account Year Ended 31 May 2008 £ £ Income Subscriptions (135 1 14) 149 Net proceeds of jumble sale 91 Net proceeds of dance 122 Gross profit from bar 79 441 Less Expenditure Wages 198 Hire of rooms 64 Loss on sale of equipment (92 2 80) 12 Depreciation : equipment 30 304 Surplus of income over expenditure 137
  • 75.
    75© Pearson EducationLtd 2010 Accounting 24.5X (a) Sevenoaks College Drama Society Trading Account Year Ended 31 December 2010 £ £ Sale of refreshments 1,200 Less cost of goods sold   Opening stock 100   Add Purchases 845 945   Less Closing Stock 165 780 Gross Profit 420 (b) Income and Expenditure Account Year Ended 31 December 2010 Income £ £ Subscriptions 1,600 Profit on sale of refreshments 420 Ticket sales 4,000 6,020 Expenditure Hire of costumes (1,500 - 650) 850 Rent of theatre 750 Administrative expenses 440 *Depreciation of scenery 2,000 4,040 Surplus of income over expenditure   1,980 (c) Balance Sheet as at 31 December 2010 £ £ £ Fixed Assets Scenery (at valuation) 12,500 Current Assets Stock of refreshments 165 Less Current Liabilities Subscriptions in advance 90 Bank Overdraft 595 685 (520) 11,980 Represented by Accumulated Fund 10,000 Add Surplus of income over expenditure 1,980 11,980 * Workings - Scenery - Balance as at 1 January 2010 7,500 Add Purchase of new scenery 7,000 14,500 Less Value as at 31 December 2010 14,000 Depreciation 2,000
  • 76.
    76 © PearsonEducation Ltd 2010 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.
  • 77.
    77© Pearson EducationLtd 2010 Accounting Answers 25.1 E Smith Manufacturing and Trading Account for the year ended 31 March 2009 £ £ Stock of raw material 1.4.2008 2,400 Add Purchases 21,340 Carriage inwards 321 24,061 Less Stock of raw materials 31.3.2009 2,620 Cost of raw materials consumed 21,441 Manufacturing wages 13,280 Prime cost 34,721 Add factory overhead expenses Rent and rates 2,300 Power 6,220 Other expenses 1,430 9,950 44,671 Add Work in progress 1.4.2008 955 45,626 Less Work in progress 31.3.2009 870 Production cost of goods completed c/d 44,756 Sales 69,830 Less Cost of goods sold Stock finished goods 1.4.2008 6,724 Add Production cost of goods completed b/d 44,756 51,480 Less Stock finished goods 31.3.2009 7,230 44,250 Gross profit 25,580 Chapter 25: Manufacturing accounts
  • 78.
    78 © PearsonEducation Ltd 2010 Accounting 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 8,460 Add Purchases 38,720   Carriage inwards 2,720 41,440 49,900 Less Stock of raw materials 30.9.2009 10,970 Cost of raw materials consumed 38,930 Manufacturing wages 20,970 Prime cost 59,900 Factory Overhead Expenses   Power 6,120   Factory expenses 12,650   Depreciation: Plant and machinery 7,560 26,330 86,230 Add Work-in-progress 1.10.2008 3,070 89,300 Less Work-in-progress 30.9.2009 2,460 Production cost of goods completed c/d 86,840 Sales 174,610 Less Cost of goods sold: Stock of finished goods 1.10.2008 12,380 Add Production cost of goods completed b/d 86,840 99,220 Less Stock of finished goods 30.9.2009 14,570 84,650 Gross profit c/d 89,960 Less Expenses:   Salesmen's salaries and expenses 26,420   Office and administration expenses 25,910   Delivery van expenses 5,890   Advertising 5,080   Depreciation:    Delivery van expenses 3,040    Office equipment 807 3,847 67,147 Net Profit 22,813
  • 79.
    79© Pearson EducationLtd 2010 Accounting 25.3X (a) Joey Peterson Manufacturing Account for the year ended 30 June 2010 £ £ Stock of raw materials 1.7.2009 81,600 Add Purchases 314,000 395,600 Less Stock of raw material 30.6.2010 94,500 Cost of raw materials consumed 301,100 Direct Wages (450,000 1 8,900) 458,900 Direct factory power 40,000 Prime cost 800,000 Add Indirect manufacturing cost Factory rent and rates 96,000 Indirect factory wages 98,600 General expenses 14,400 Insurance (66,900 2 6,900) 3 ​ 1  __  3  ​ 20,000 Depreciation : Plant and Machinery 50,000 279,000 1,079,000 Add Work in progress 1.7.2009 125,300 1,204,300 Less Work in progress 30.6.2010 154,300 Production Cost 1,050,000 (b) Trading Account for the year ended 30 June 2010 Sales 2,000,000 Less Cost of goods sold Stock of finished goods 1.7.2009 115,440 Add Production Cost 1,050,000 1,165,440 Less Stock of furnished goods 30.6.2010 85,440 1,080,000 Gross Profit 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 (b) (i) Selling price of one engine 1 £2,000,000 1 50% 5 ​  £3,000,000  _____________  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
  • 80.
    80 © PearsonEducation Ltd 2010 Accounting Answers (a) Stead and Jackson Appropriation Account for the year ended 31 December 2010 £ Net profit 45,000 Less Salary: Jackson 5,000 40,000 Balance of profits shared: Stead 1__ 2 20,000 Jackson 1__ 2 20,000 40,000 (b) Capital Accounts Stead Jackson Stead Jackson 2010 Dec 31 Balance b/d 24,000 16,000 (c) Current Accounts Stead Jackson Stead Jackson 2010 2010 Dec 31 Drawings 15,000 19,000 Dec 31 Balance b/d 2,300 3,500 Dec 31 Balances c/d 7,300 9,500 Dec 31 Salary 5,000 Dec 31 Share of profits 20,000 20,000 22,300 28,500 22,300 28,500 2011 Jan 1 Balance b/d 7,300 9,500 (a) Wain, Brown and Cairns Appropriation Account for the year ended 31 March 2010 £ £ Net profit 60,000 Less: Salaries Wain 10,000 Brown 8,000 18,000 42,000 Balance of profits shared: Wain 50% 21,000 Brown 30% 12,600 Cairns 20% 8,400 42,000 Chapter 26: Partnership accounts 26.1 26.2X
  • 81.
    81© Pearson EducationLtd 2010 Accounting (b) Capital Accounts Wain Brown Cairns Wain Brown Cairns 2010 Mar 31 Balance b/d 30,000 50,000 70,000 Current Accounts Wain Brown Cairns Wain Brown Cairns 2010 2010 Mar 31 Drawings 12,000 15,050 14,980 Mar 31 Balance b/d 2,400 3,100 5,700 Mar 31 Balances c/d 21,400 8,650 — Mar 31 Salaries 10,000 8,000 — Mar 31 Share of profits 21,000 12,600 8,400 Mar 31 Balances c/d 880 33,400 23,700 14,980 33,400 23,700 14,980 2010 2010 Apr 1 Balance b/d — — 880 Apr 1 Balance b/d 21,400 8,650 — 26.3 Simpson and Young Tradign and Profit and Loss Appropriation Account for the year ended 30 June 2010 £ £ Sales 254,520 Less Cost of sales: Opening stock 18,000 Add Purchases 184,980 202,980 Less Closing stock 19,000 183,980 Gross profit 70,540 Less Expenses: Wages and salaries (32,700  500) 33,200 Rent, Rates and insurance (3,550  250) 3,300 Electricity 980 Stationery and printing 420 Motor expenses 3,480 General office expenses 1,700 Depreciation: Motor van (20% of 16,000) 3,200 Office equipment (10% of 5,600) 560 46,840 Net profit 23,700 Less interest on capital: Simpson (10% of 50,000) 5,000 Young (10% of 20,000) 2,000 7,000 16,700 Share of profits: Simpson 3/5ths Young 2/5ths 10,020 6,680 16,700
  • 82.
    82 © PearsonEducation Ltd 2010 Accounting Simpson and Young Balance Sheet as at 30 June 2010 Cost Accumulated Depreciation Net Book Value £ £ £ Fixed assets   Buildings 28,000 28,000   Office equipment 8,400 3,360 (W1) 5,040   Motor vans 16,000 8,200 (W2) 7,800 52,400 11,560 40,840 Current assests   Stock 19,000   Debtors 28,000   Prepayments 250   Cash at bank 7,250 54,500 Less Current liabilites   Creditors 15,200   Accruals 500 15,700 Net current assets 38,800   79,640 Financed by: Capital accounts Simpson Young Total   Balance b/f 50,000 20,000 70,000 Current accounts   Balance b/f 640 300   Add Share fo profit 10,020 6,680   Add Interest on capital 5,000 2,000   15,660 8,980   Less Drawings 10,000 5,000   5,660 3,980 9,640   79,640 (W1) Provision for depreciation on office equipment: 8,400  5,600  560  3,360 (W2) Provision for depreciation on motor vans: 16,000  11,000  3,200  8,200
  • 83.
    83© Pearson EducationLtd 2010 Accounting 26.4X (a) Michael and Morgan Profit and Loss Account (Including Appropriation) for the year ended 30 September 2009 £ £ Gross Profit 385,000 Add Discounts Received 15,000 400,000 Less Expenses Administrative Expenses 6,790 Advertising (7,375  125) 7,500 Rent and rates (12,000 2 1,500) 10,500 Wages and salaries (135,000  5,000) 140,000 Depreciation - Shop fittings * 12,000 176,790 Net Profit 223,210 Less Salary - Michael 30,000 193,210 Share of profits: Michael 2/5ths 77,284         Morgan 3/5ths 115,926 193,210 2 (b) Michael — Current Account Oct 01 Balance b/d 1,500 Sep 30 Salary 30,000 Sep 30 Drawings 9,650 Sep 30 Profit share 77,284 Sep 30 Balance c/d 96,259 Sep 30 Advertising 125 107,409 107,409 Oct 01 Balance b/d 96,259 (c) Michael and Morgan Balance Sheet Extract as at 30 September 2009 Michael Morgan Total Capital Accounts Balance 50,000 40,000 90,000 Current Accounts Balance (1,500) 2,000 Add Share of Profits 77,284 115,926 Add Salary 30,000 2 Add Advertising 125 2 105,909 117,926 Less Drawings 9,650 8,200 96,259 109,726 205,985 295,985 * Workings £ Shop fittings : Cost 76,000 Less : Depreciation to date 28,000 48,000 Reducing Balance Method 5 25% 3 £48,000 5 £12,000
  • 84.
    84 © PearsonEducation Ltd 2010 Accounting Answers 27.1 (a) C Blake Ltd Appropriation Account for the year ended 31 December 2009 £ £ Net profit b/d 11,340 Less Appropriations Transfer to General Reserve 1,500 Dividends payable: Preference dividend 10% (£10,000 3 10%) 1,000 Ordinary dividend 12.5% (£60,000 3 12.5%) 7,500 10,000 Retained profits carried forward to next year 1,340 (b) C Blake Ltd Balance Sheet as at 31 December 2009 Fixed Assets £ £ £ Buildings at cost 50,000 Equipment at cost 45,000 Less Accumulated depreciation 4,500 40,500 90,500 Current Assets Stock 8,800 Debtors 4,120 Less Provision for doubtful debts 350 3,770 Bank (balancing figure) 9,660 Cash 2,160 24,390 Less Creditors: amounts falling due within one year Creditors 3,550 Dividends payable (£1,000 1 £7,500) 8,500 12,050 12,340 102,840 Less Creditors: amounts due after more than one year Debentures 30,000 72,840 Financed by: Share Capital Called-up share capital 60,000 ordinary £1 shares 60,000 10,000 preference £1 shares 10,000 70,000 Revenue reserves General reserve 1,500 Profit and loss account 1,340 2,840 72,840 Note: The Authorised Share Capital is 90,000 £1 ordinary shares and 10,000 - 10% preference shares. Chapter 27: Limited company accounts
  • 85.
    85© Pearson EducationLtd 2010 Accounting 27.2X (a) Reynolds Ltd Profit and Loss Appropriation Account for the year ended 30 September 2010 £ £ Net profit 70,000 Add Retained profits b/f from last year 30,000 100,000 Less Appropriations: General reserve 8,000 Dividends payable: Ordinary shares — (150,000 3 6p) Paid 9,000 — (150,000 3 14p) Proposed 21,000 Preference shares — (7% 3 50,000) Proposed 3,500 41,500 Retained profits carried to next year 58,500 (b) Reynolds Ltd Balance Sheet as at 30 September 2010 (Extract) £ £ Financed by: Called-up share capital Preference shares 50,000 Ordinary shares 150,000 200,000 Revenue Reserves General Reserve (45,000 1 8,000) 53,000 Profit and loss account 58,500 111,500 311,500 Note: The Authorised Share Capital is 200,000 £1 ordinary shares and 50,000 - 7% preference shares.
  • 86.
    86 © PearsonEducation Ltd 2010 Accounting 27.3 Chang Ltd Trading and Profit and Loss Account for the year ended 31 December 2010 Sales 316,810 Less Cost of goods sold: Opening stock 25,689 Add Purchases 201,698 227,387 Less Closing stock 29,142 198,245 Gross profit 118,565 Less Expenses   Wages and salaries (54,207 1 581) 54,788   Rent (4,300 2 300) 4,000   Lighting expenses 1,549   Bad debts 748   Provision for doubtful debts (938 2 861) 77   General expenses 32,168   Deprecation: Machinery (55,000 3 10%) 5,500 98,830 Net profit 19,735 Add Retained profits b/f from last year 34,280 54,015 Less Proposed dividend 10,000 Retained profits c/f to next year  44,015 Balance Sheet as at 31 December 2010 Fixed Assets   Premises 65,000   Machinery 55,000   Less Aggregated depreciation (15,800 1 5,500) 21,300 33,700 Current Assets 98,700   Stock 29,142   Debtors 21,784   Less Provision for doubtful debts 938 20,846   Prepayments 300   Bank 23,101 73,389 Less Creditors falling due wihtin one year   Dividend payable 10,000   Creditors 17,493   Expenses owing 581 28,074 Net current assets 45,315 144,015 Financed by: Capital and reserves   Called -up share capital 100,000 Revenue reserves   Profit and loss account 44,015 144,015
  • 87.
    87© Pearson EducationLtd 2010 Accounting 27.4X (a) Wayland Limited Appreciation Account for the year ended 31 December 2010 £ '000's £ '000's Net profit 250 Add Profit and Loss Balance 1st January 2010 195 445 Less Appropriations   Transfer to general reserve 25   Preference dividend (6% 3 250,000) 15   Ordinary dividend 2 (Interim Dividend) 20           2 (8% 3 750,000) 60 120 Retained profits carried forward 325 (b) Wayland Limited Balance Sheet as at 31 December 2010 Cost Aggregate Depreciation Net Book Value £ '000's £ '000's £ '000's Fixed Assets   Land and buildings 1,500 — 1,500   Fixtures and fittings 50 10 40   Motor vehicles 85 15 70 1,635 25 1,610 Current Assets   Stock 165   Debtors 103   Bank 107 375 Current Liabilities   Creditors 135   Value added tax 25   Dvidends Payable:    Preference shares 15    Ordinary shares 60 235   Working capital 140 1,750 Creditors: amounts falling due after one year 5% debentures 250 1,500 Capital and Reserves   Called up capital    Ordinary shares 750    6% Preference shares 250 1,000 Capital reserves   Share premium 100 Revenue Reserves   General reserve 75   Profit and loss account shareholders' funds 325 400 1,500
  • 88.
    88 © PearsonEducation Ltd 2010 Accounting Answers (a) M Ltd (i) Current ratio £200,000________ £50,000  4 : 1 (ii) Acid test ratio £200,000 2 £100,000___________________ £50,000  2 : 1 (iii) Stockturn £288,000______________________ £120,000 1 £100,000 4 2  2.6 times (iv) Debtors : Sales ratio £60,000________ £360,000  12 months  2 months (v) Creditors : Purchases ratio £50,000________ £268,000  12 months  2.2 months (vi) Gross profit % £72,000________ £360,000  100%  20% (vii) Net profit % £43,200________ £360,000  100%  12% (viii) Rate of return on shareholders' sunds £43,200________ £350,000  100%  12.3 % N Ltd £130,000________ £65,000  2 : 1 £130,000 2 £64,000__________________ £65,000  1 : 1 £187,500____________________ £60,000 1 £64,000 4 2  3.0 times £62,500________ £250,000  12 months  3 months £65,000________ £191,500  12 months  4 months £62,500________ £250,000  100%  25% £35,000________ £250,000  100%  14% £35,000________ £255,000  100%  13.7% Chapter 28: Analysis and interpretation of financial statements (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%) 28.1
  • 89.
    89© Pearson EducationLtd 2010 Accounting (a) Cruise Furnishings Holmes Supplies (i) Gross profit margin 600_____ 1,800  100  33 1__ 3 % 600_____ 2,400  100  25% (ii) Net profit margin 150_____ 1,800  100  8.33% 160_____ 2,400  100  6.67% (iii) Current ratio 210____ 66  3.18 : 1 180____ 60  3 : 1 (b) Rate of stock tunover for Cruise Furnishings 1200_____ 120  10 Times a year (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 Holmes 210 2 111__________ 66  1.5 : 1 180 2 120__________ 60  1 : 1 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 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. 28.2
  • 90.
    90 © PearsonEducation Ltd 2010 Accounting (a) Year Ended 28.02.2009 29.02.2010 Net Profit Margin ​  Net profit  _________  Sales   ​ ​ 100  ____  1   ​ ​  16,000  ______ 35,000  ​ ​ 100  ____  1   ​ 45.71% ​  26,000  ______ 52,000  ​ ​ 100  ____  1   ​ 50% (b) Mark — up ​ Gross Profit  ____________  Cost of Sales  ​ ​ 100  ____  1   ​ ​  21,600  _______  *13,400  ​ 100  161.19% ​  35,500  ________  **16,500  ​ 100  215.15% *2,900 1 14,500 2 4,000 5 13,400 **4,000 1 19.500 2 7,000 5 16,500 (c) Rate of stock turnover ​  Cost of sales  _____________  Average Stock  ​ ​  13,400  ________________  2,900 1 4,000 4 2  ​ ​  16,500  _________________  4,000 1 7,000 4 2  ​  3.88 times  3 times (d) 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? 28.3X
  • 91.
    91© Pearson EducationLtd 2010 Accounting Answers 29.1 To: Director of Finance From: Administrative Assistant Date: June 2010 Re: 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.• 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.• 29.2 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. Chapter 29: Computers and accounting systems
  • 92.
    92 © PearsonEducation Ltd 2010 Accounting 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• 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.•