Business Accounts Tutor Pack

Business Accounts Tutor Pack answers to chapter questions The answers shown here are to the questions which are not answered at the back of the main text. chapter number chapter answers page 1 1 2 1 3 3 4 5 5 7 6 8 7 10 8 10 9 11 10 14 11 15 12 15 13 17 14 19 15 20 16 22 17 23 18 24 19 25 20 27 21 28 22 30 23 32 24 34 25 35 26 36 27 38 28 40 29-32 41

Osborne Books Limited 2012 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photo-copying, recording or otherwise, without the prior consent of the publishers, or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE. Osborne Books is grateful to Roger Petheram for checking the answers. All answers are the responsibility of the publisher. Published by Osborne Books Limited Tel 01905 748071 Email books@osbornebooks.co.uk www.osbornebooks.co.uk

CHAPTER 1 What are Business Accounts? 1.2 documents processing of prime documents relating to financial transactions initial recording of transactions recording financial transactions in primary accounting records, or books of prime entry double-entry accounts system transfer from primary accounting records into the double-entry book-keeping system of accounts in the ledger trial balance extraction of figures from all the double-entry accounts to check their accuracy final accounts production of a profit and loss account and a balance sheet Information from the accounting system includes: purchases to date sales to date expenses to date debtors total amount owed to the business, and individual debtors creditors total amount owed by the business, and individual creditors assets owned liabilities owed profit during a particular period 1.3 financial accountant preparation of final accounts negotiation with Inland Revenue on taxation matters for a limited company, preparation of final accounts which comply with the Companies Act 1985 cost and management accountant obtains information about recent costs of the business, and costs of products/services estimates costs for the future, and prepares budgets prepares reports and makes recommendations to the owner(s)/managers auditors external statutory audit addressed to the shareholders of a limited company certifying that the accounts show a 'true and fair view' of the business and comply with the legal requirements of the Companies Act 1985 auditors internal internal checking and control procedures of the business in which they are employed In addition, there are likely to be advertisements for book-keepers to carry out various aspects of business accounting. 1.4 (a) Business entity the accounts record and report on the financial transactions of a particular business, and not the owner's personal financial transactions. (b) Money measurement the accounting system uses money as the common denominator in recording and reporting all business transactions; thus the loyalty of a firm's workforce or the quality of a product cannot be recorded because these cannot be reported in money terms. 1.5 assets items owned by a business; liabilities items owed by a business debtors individuals or businesses who owe money in respect of goods or services supplied by the business; creditors individuals or businesses to whom money is owed by the business purchases goods bought, either on credit or for cash, which are intended to be resold later; sales the sale of goods, whether on credit or for cash, in which the business trades credit purchases goods bought, with payment to be made at a later date; cash purchases goods bought and paid for immediately 1 1.6 asset of bank increases by 8,000 capital increases by 8,000 asset 8,000 liability 0 = capital 8,000 asset of computer increases by 4,000 asset of bank decreases by 4,000 asset 8,000 liability 0 = capital 8,000 asset of bank increases by 3,000 liability of loan increases by 3,000 asset 11,000 liability 3,000 = capital 8,000 asset of van increases by 6,000 asset of bank decreases by 6,000 asset 11,000 liability 3,000 = capital 8,000 CHAPTER 2 Double-entry Book-keeping: First Principles 2.1 Dr Capital Account Cr 20-1 20-1 1 Feb Bank 7,500 Dr Computer Account Cr 20-1 20-1 6 Feb Bank 2,000 Dr Rent Paid Account Cr 20-1 20-1 8 Feb Bank 750 Dr Wages Account Cr 20-1 20-1 12 Feb Bank 425 25 Feb Bank 380 Dr Bank Loan Account Cr 20-1 20-1 14 Feb Bank 2,500 Dr Commission Received Account Cr 20-1 20-1 20 Feb Bank 145 Dr Drawings Account Cr 20-1 20-1 23 Feb Bank 200

Dr Van Account Cr 20-1 20-1 28 Feb Bank 6,000 2.3 Dr Bank Account Cr 20-5 20-5 1 Aug Capital 5,000 3 Aug Computer 1,800 15 Aug S Orton: loan 1,000 7 Aug Rent paid 100 20 Aug Office fittings 250 12 Aug Office fittings 2,000 25 Aug Commission received 150 27 Aug S Orton: loan 150 Dr Capital Account Cr 20-5 20-5 1 Aug Bank 5,000 Dr Computer Account Cr 20-5 20-5 3 Aug Bank 1,800 Dr Rent Paid Account Cr 20-5 20-5 7 Aug Bank 100 Dr Commission Received Account Cr 20-5 20-5 10 Aug Cash 200 25 Aug Bank 150 Dr Cash Account Cr 20-5 20-5 10 Aug Commission received 200 17 Aug Drawings 100 Dr Office Fittings Account Cr 20-5 20-5 12 Aug Bank 2,000 20 Aug Bank 250 Dr Sally Orton: Loan Account Cr 20-5 20-5 27 Aug Bank 150 15 Aug Bank 1,000 Dr Drawings Account Cr 20-5 20-5 17 Aug Cash 100 2.5 Dr Bank Account Cr 1 Nov Capital 75,000 3 Nov Photocopier 2,500 7 Nov Bank loan 70,000 10 Nov Office premises 130,000 23 Nov Cash 100 12 Nov Business rates 3,000 25 Nov Office fittings 200 14 Nov Office fittings 1,500 28 Nov Commission received 200 20 Nov Wages 250 Dr Capital Account Cr 1 Nov Bank 75,000 Dr Photocopier Account Cr 3 Nov Bank 2,500 Dr Bank Loan Account Cr 7 Nov Bank 70,000 Dr Office Premises Account Cr 10 Nov Bank 130,000 Dr Rates Account Cr 12 Nov Bank 3,000 Dr Office Fittings Account Cr 14 Nov Bank 1,500 25 Nov Bank 200 Dr Cash Account Cr 15 Nov Commission received 300 18 Nov Drawings 125 23 Nov Bank 100 Dr Commission Received Account Cr 15 Nov Cash 300 28 Nov Bank 200 Dr Drawings Account Cr 18 Nov Cash 125 Dr Wages Account Cr 20 Nov Bank 250 2

2.6 Bank Account 20-7 Debit Credit Balance 1 Nov Capital 75,000 75,000 Dr 3 Nov Photocopier 2,500 72,500 Dr 7 Nov Bank loan 70,000 142,500 Dr 10 Nov Office premises 130,000 12,500 Dr 12 Nov Rates 3,000 9,500 Dr 14 Nov Office fittings 1,500 8,000 Dr 20 Nov Wages 250 7,750 Dr 23 Nov Cash 100 7,850 Dr 25 Nov Office fittings 200 8,050 Dr 28 Nov Commission received 200 8,250 Dr Dr Delivery Van Account Cr 22 Oct Bank 4,000 Dr Wages Account Cr 25 Oct Bank 375 3.5 Dr Purchases Account Cr 2 Apr Wyvern Producers Ltd 200 4 Apr A Larsen 250 CHAPTER 3 Double-entry Book-keeping: Further Transactions 3.1 Dr Bank Account Cr 1 Oct Capital 2,500 2 Oct Purchases 200 4 Oct Sales 150 6 Oct Purchases 90 8 Oct Sales 125 14 Oct Purchases 250 12 Oct K Smithson: loan 2,000 22 Oct Delivery van 4,000 18 Oct Sales 155 25 Oct Wages 375 30 Oct Sales 110 Dr Capital Account Cr 1 Oct Bank 2,500 Dr Purchases Account Cr 2 Oct Bank 200 6 Oct Bank 90 14 Oct Bank 250 Dr Wyvern Producers Ltd Cr 9 Apr Purchases returns 50 2 Apr Purchases 200 20 Apr Bank 150 Dr A Larsen Cr 26 Apr Purchases returns 45 4 Apr Purchases 250 Dr Sales Account Cr 5 Apr Pershore Patisserie 150 7 Apr Bank 175 12 Apr Bank 110 28 Apr Cash 100 Dr Pershore Patisserie Cr 5 Apr Sales 150 15 Apr Sales returns 25 22 Apr Bank 125 Dr Sales Account Cr 4 Oct Bank 150 8 Oct Bank 125 18 Oct Bank 155 30 Oct Bank 110 Dr J Smithson: Loan Account Cr 12 Oct Bank 2,000 Dr Bank Account Cr 7 Apr Sales 175 20 Apr Wyvern Producers Ltd 150 12 Apr Sales 110 30 Apr Amery Scales Ltd 250 22 Apr Pershore Patisserie 125 Dr Purchases Returns Account Cr 9 Apr Wyvern Producers Ltd 50 26 Apr A Larsen 45 3

Dr Sales Returns Account Cr 15 Apr Pershore Patisserie 25 Dr Weighing Machine Account Cr 17 Apr Amery Scales Ltd 250 Dr Amery Scales Ltd Cr 30 Apr Bank 250 17 Apr Weighing machine 250 Dr Cash Account Cr 28 Apr Sales 100 29 Apr Wages 90 Dr Wages Account Cr 29 Apr Cash 90 3.6 Dr Purchases Account Cr 20-3 20-3 2 Jun Designs Ltd 350 7 Jun Mercia Knitwear Ltd 400 23 Jun Designs Ltd 285 Dr Cash Account Cr 20-3 20-3 5 Jun Sales 115 26 Jun Rent paid 125 20 Jun Sales 180 Dr Purchases Returns Account Cr 20-3 20-3 6 Jun Designs Ltd 100 17 Jun Mercia Knitwear Ltd 80 Dr Mercia Knitwear Ltd Cr 20-3 20-3 17 Jun Purchases returns 80 7 Jun Purchases 400 Dr Wyvern Trade Supplies Cr 20-3 20-3 10 Jun Sales 350 15 Jun Sales returns 50 28 Jun Bank 300 Dr Sales Returns Account Cr 20-3 20-3 15 Jun Wyvern Trade Supplies 50 Dr Rent Paid Account Cr 20-3 20-3 26 Jun Cash 125 Dr Designs Ltd Cr 20-3 20-3 6 Jun Purchases returns 100 2 Jun Purchases 350 18 Jun Bank 250 23 Jun Purchases 285 Dr Sales Account Cr 20-3 20-3 4 Jun Bank 220 5 Jun Cash 115 10 Jun Wyvern Trade Supplies 350 12 Jun Bank 175 20 Jun Cash 180 3.7 Transaction Account debited Account credited (a) purchases bank (b) bank sales (c) purchases Teme Traders (d) L Harris sales (e) Teme Traders purchases returns (f) sales returns L Harris (g) bank D Perkins: loan (h) cash bank Dr Bank Account Cr 20-3 20-3 4 Jun Sales 220 18 Jun Designs Ltd 250 12 Jun Sales 175 28 Jun Wyvern Trade Supplies 300 4

CHAPTER 4 Business Documents 4.3 invoice to Excel Fashions 49 Highland Street Longton Mercia LT3 2XL INVOICE JANE SMITH, FASHION WHOLESALER Unit 21, Eastern Industrial Estate, Wyvern, Wyvernshire, WY1 3XJ Tel 01927 354172 Fax 01927 354173 VAT REG GB 0745 4731 41 invoice no 2451 account your reference 4.4 invoice to The Card Shop 126 The Cornbow Teamington Spa Wyvernshire WY33 0EG INVOICE DEANSWAY TRADING COMPANY The Model Office, Deansway, Rowcester, RW1 2EJ Tel 01908 765314 Fax 01908 765951 VAT REG GB 0745 4672 76 invoice no 8234 account your reference deliver to as above date/tax point today deliver to as above date/tax point today quantity description price unit total discount net % 5 Dresses 30.00 each 150.00 0.00 150.00 3 Suits 45.50 each 136.50 0.00 136.50 4 Coats 51.50 each 206.00 0.00 206.00 quantity description price unit total discount net % 5 Assorted rubbers 5.00 box 25.00 0.00 25.00 100 Shorthand notebooks 4.00 10 40.00 0.00 40.00 250 Ring Binders 0.50 each 125.00 0.00 125.00 terms 2.5% cash discount for full settlement within 14 days Net 30 days Carriage paid E & OE GOODS TOTAL 492.50 VAT 96.03* TOTAL 588.53 terms 2.5% cash discount for full settlement within 14 days Net 30 days Carriage paid E & OE GOODS TOTAL 190.00 VAT 37.05* TOTAL 227.05 * 492.50 x 97.5% x 20% = 96.03 VAT Note: Students can complete details for telephone, fax, VAT registration number and order number * 190.00 x 97.5% x 20% = 37.05 VAT Note: Students can complete details for telephone, fax, VAT registration number and order number 5

4.5 STATEMENT OF ACCOUNT Dr G Lewis Cr 20-4 20-4 10 Feb Bank 190 2 Feb Purchases 200 10 Feb Discount received 10 16 Feb Purchases 160 24 Feb Bank 152 24 Feb Discount received 8 360 360 TO J Wilson account 3993 date 31 March 20-- Dr L Jarvis Cr 20-4 20-4 4 Feb Sales 150 12 Feb Bank 147 12 Feb Discount allowed 3 150 150 Dr G Patel Cr 20-4 20-4 7 Feb Sales 240 20 Feb Bank 234 20 Feb Discount allowed 6 240 240 date no. details debit credit balance 20-- 1 Mar Balance b/d 145.00 Dr 3 Mar 8119 Invoice 210.00 355.00 Dr 10 Mar Cheque 145.00 210.00 Dr 23 Mar CN345 Credit Note 50.00 160.00 Dr 28 Mar 8245 Invoice 180.00 340.00 Dr Dr Bank Account Cr 20-4 20-4 12 Feb L Jarvis 147 10 Feb G Lewis 190 20 Feb G Patel 234 24 Feb G Lewis 152 Dr Discount Received Account Cr 20-4 20-4 10 Feb G Lewis 10 24 Feb G Lewis 8 AMOUNT NOW DUE 340.00 Dr Discount Allowed Account Cr 20-4 20-4 12 Feb L Jarvis 3 20 Feb G Patel 6 4.6 Dr Purchases Account Cr 20-4 20-4 2 Feb G Lewis 200 16 Feb G Lewis 160 Dr Sales Account Cr 20-4 20-4 4 Feb L Jarvis 150 7 Feb G Patel 240 6

CHAPTER 5 Balancing Accounts the Trial Balance 5.1 (a) and (c) Dr Bank Account Cr 20-9 20-9 1 Jan Capital 10,000 4 Jan Rent paid 500 11 Jan Sales 1,000 5 Jan Shop fittings 1,500 12 Jan Sales 1,250 20 Jan Comp Supplies Ltd 5,000 22 Jan Sales 1,450 31 Jan Balance c/d 6,700 13,700 13,700 1 Feb Balance b/d 6,700 2 Feb Rent paid 500 4 Feb Sales 1,550 15 Feb Shop fittings 850 10 Feb Sales 1,300 27 Feb Comp Supplies Ltd 6,350 12 Feb Rowcester College 750 28 Feb Balance c/d 5,300 19 Feb Sales 1,600 25 Feb Sales 1,100 13,000 13,000 1 Mar Balance b/d 5,300 Dr Capital Account Cr 20-9 20-9 1 Jan Bank 10,000 Dr Rent Paid Account Cr 20-9 20-9 4 Jan Bank 500 28 Feb Balance c/d 1,000 2 Feb Bank 500 1,000 1,000 1 Mar Balance b/d 1,000 Dr Shop Fittings Account Cr 20-9 20-9 5 Jan Bank 1,500 28 Feb Balance c/d 2,350 15 Feb Bank 850 2,350 2,350 1 Mar Balance b/d 2,350 Dr Comp Supplies Limited Cr 20-9 20-9 20 Jan Bank 5,000 7 Jan Purchases 5,000 31 Jan Balance c/d 6,500 25 Jan Purchases 6,500 11,500 11,500 5 Feb Purchases returns 150 1 Feb Balance b/d 6,500 27 Feb Bank 6,350 24 Feb Purchases 5,500 28 Feb Balance c/d 5,500 12,000 12,000 1 Mar Balance b/d 5,500 Dr Sales Account Cr 20-9 20-9 31 Jan Balance c/d 4,550 11 Jan Bank 1,000 12 Jan Bank 1,250 16 Jan Rowcester College 850 22 Jan Bank 1,450 4,550 4,550 28 Feb Balance c/d 11,150 1 Feb Balance b/d 4,550 4 Feb Bank 1,550 10 Feb Bank 1,300 19 Feb Bank 1,600 25 Feb Bank 1,100 26 Feb Rowcester College 1,050 11,150 11,150 1 Mar Balance b/d 11,150 Dr Rowcester College Cr 20-9 20-9 16 Jan Sales 850 27 Jan Sales returns 100 31 Jan Balance c/d 750 850 850 1 Feb Balance b/d 750 12 Feb Bank 750 26 Feb Sales 1,050 28 Feb Balance c/d 1,050 1,800 1,800 1 Mar Balance b/d 1,050 Dr Purchases Account Cr 20-9 20-9 7 Jan Comp Supplies Ltd 5,000 31 Jan Balance c/d 11,500 25 Jan Comp Supplies Ltd 6,500 11,500 11,500 1 Feb Balance b/d 11,500 28 Feb Balance c/d 17,000 24 Feb Comp Supplies Ltd 5,500 17,000 17,000 1 Mar Balance b/d 17,000 Dr Sales Returns Account Cr 20-9 20-9 27 Jan Rowcester College 100 Dr Purchases Returns Account Cr 20-9 20-9 5 Feb Comp Supplies Ltd 150 7

(b) Trial balance as at 31 January 20-9 Dr Cr Name of Account Bank 6,700 Capital 10,000 Rent paid 500 Shop fittings 1,500 Purchases 11,500 Comp Supplies Limited 6,500 Sales 4,550 Rowcester College 750 Sales returns 100 21,050 21,050 (d) Trial balance as at 28 February 20-9 Dr Cr Name of Account Bank 5,300 Capital 10,000 Rent paid 1,000 Shop fittings 2,350 Purchases 17,000 Comp Supplies Limited 5,500 Sales 11,150 Rowcester College 1,050 Sales returns 100 Purchases returns 150 26,800 26,800 5.2 Trial balance of Jane Greenwell as at 28 February 20-1 Dr Cr Name of account Bank 1,250 Purchases 850 Cash 48 Sales 730 Purchases returns 144 Creditors 1,442 Equipment 2,704 Van 3,200 Sales returns 90 Debtors 1,174 Wages 1,500 Capital (missing figure) 6,000 9,566 9,566 5.5 Four from: Error of omission Business transaction completely omitted from the accounting records. For example, cash sale omitted from both cash account and sales account. Reversal of entries Debit and credit entries on the wrong side of the two accounts concerned. For example, cash sale entered wrongly as debit sales account, credit cash account. Mispost/error of commission Transaction entered to the wrong person's account. For example, a sale of goods on credit to A T Hughes has been entered as debit A J Hughes' account, credit sales account. Error of principle Transaction entered in the wrong type of account. For example, cost of petrol for vehicles has been entered as debit motor vehicles account, credit bank account. Error of original entry (or transcription) Amount entered incorrectly in both accounts. For example, sale of 45 entered in both sales account and the debtor's account as 54. Compensating error Two errors cancel each other out. For example, balance of purchases account calculated wrongly at 10 too much, compensated by the same error in sales account. CHAPTER 6 Division of the Ledger Primary Accounting Records 6.2 Purchases Day Book Date Details Invoice Folio Net VAT Gross 20-2 1 Feb Softseat Ltd 961 320 64 384 2 Feb PRK Ltd 068 80 16 96 15 Feb Quality Furnishings 529 160 32 192 19 Feb Softseat Ltd 984 160 32 192 28 Feb Totals for month 720 144 864 Sales Day Book Date Details Invoice Folio Net VAT Gross 20-2 8 Feb High Street Stores 001 440 88 528 14 Feb Peter Lounds Ltd 002 120 24 144 18 Feb Carpminster College 003 320 64 384 25 Feb High Street Stores 004 200 40 240 28 Feb Totals for month 1,080 216 1,296 8

PURCHASES LEDGER Dr Softseat Ltd Cr 28 Feb Balance c/d 576 1 Feb Purchases 384 19 Feb Purchases 192 576 576 1 Mar Balance b/d 576 Dr PRK Ltd Cr 2 Feb Purchases 96 6.3 Purchases Day Book Date Details Invoice Folio Net VAT Gross 20-2 2 May M Roper & Sons 562 PL 302 190.00 38.00 228.00 4 May Wyper Ltd 82 PL 301 200.00 40.00 240.00 10 May Wyper Ltd 86 PL 301 210.00 42.00 252.00 18 May M Roper & Sons 580 PL 302 180.00 36.00 216.00 21 May Wyper Ltd 91 PL 301 240.00 48.00 288.00 25 May M Roper & Sons 589 PL 302 98.00 19.60 117.60 31 May Totals for month 1,118.00 223.60 1,341.60 Dr Quality Furnishings Cr 15 Feb Purchases 192 SALES LEDGER Dr High Street Stores Cr 8 Feb Sales 528 28 Feb Balance c/d 768 25 Feb Sales 240 768 768 Purchases Returns Day Book Date Details Credit Folio Net VAT Gross Note 20-2 18 May M Roper & Sons 82 PL 302 30.00 6.00 36.00 23 May Wyper Ltd 6 PL 301 40.00 8.00 48.00 28 May M Roper & Sons 84 PL 302 38.00 7.60 45.60 31 May Totals for month 108.00 21.60 129.60 1 Mar Balance b/d 768 Dr Peter Lounds Ltd Cr 14 Feb Sales 144 Dr Carpminster College Cr 18 Feb Sales 384 GENERAL LEDGER Dr Purchases Account Cr 28 Feb Purchases Day Book 720 Dr Sales Account Cr 28 Feb Sales Day Book 1,080 Dr Value Added Tax Account Cr 28 Feb Purchases Day Book 144 28 Feb Sales Day Book 216 28 Feb Balance c/d 72 216 216 PURCHASES LEDGER Dr Wyper Ltd (account no 301) Cr 23 May Purchases Returns 48.00 1 May Balance b/d 100.00 31 May Balance c/d 832.00 4 May Purchases 240.00 10 May Purchases 252.00 21 May Purchases 288.00 880.00 880.00 1 Jun Balance b/d 880.00 Dr M Roper & Sons (account no 302) Cr 18 May Purchases Returns 36.00 1 May Balance b/d 85.00 28 May Purchases Returns 45.60 2 May Purchases 228.00 31 May Balance c/d 565.00 18 May Purchases 216.00 25 May Purchases 117.60 646.60 646.60 1 Jun Balance b/d 565.00 1 Mar Balance b /d 72 9

GENERAL LEDGER Dr Purchases Account Cr 31 May Purchases Day Book 1,118.00 Dr Purchases Returns Account Cr 31 May Purchases Day Book 108.00 Dr Value Added Tax Account Cr 31 May Purchases Day Book 223.60 31 May Purchases Returns Day Book 21.60 31 May Balance c/d 202.00 223.60 223.60 1 Jun Balance b/d 202.00 CHAPTER 7 Value Added Tax 7.2 amount of VAT-exclusive VAT amount 12.00 2.00 10.00 14.40 2.40 12.00 10.56 1.76 8.80 6.64 1.10 5.54 0.96 0.16 0.80 2.26 0.37 1.89 7.3 (a) and (b) Dr Value Added Tax Account Cr 20-0 20-0 1 Mar Balance b/d 805 31 Mar Purchases Day Book 735 31 Mar Sales Day Book 1,120 31 Mar Sales Returns Day Book 28 31 Mar Purchases Returns Day Book 42 31 Mar Balance c/d 1,204 1,967 1,967 (c) 1 Apr Balance b/d 1,204 At the end of March 20-0, the Value Added Tax account has a credit balance of 1,204. This amount is owing to HM Revenue & Customs and will be paid at the end of the three-month VAT period, together with VAT due for the subsequent month(s) of the VAT quarter. CHAPTER 8 Cash Book 8.3 Dr Cash Book Cr Date Details Folio Disc Cash Bank Date Details Folio Disc Cash Bank allwd recd 20-7 20-7 1 Aug Balances b/d 276 4,928 5 Aug T Hall Ltd 24 541 1 Aug Wild & Sons Ltd 398 8 Aug Wages 254 11 Aug Bank C 500 11 Aug Cash C 500 12 Aug A Lewis Ltd 20 1,755 18 Aug F Jarvis 457 21 Aug Harvey & Sons Ltd 261 22 Aug Wages 436 29 Aug Wild & Sons Ltd 15 595 25 Aug J Jones 33 628 29 Aug Bank C 275 27 Aug Salaries 2,043 28 Aug Telephone 276 29 Aug Cash C 275 31 Aug Balances c/d 361 3,217 35 1,051 7,937 57 1,051 7,937 1 Sep Balances b/d 361 3,217 8.4 Dr Cash Book Cr Date Details Folio Discount Cash Bank Date Details Folio Discount Cash Bank allowed received Year 6 Year 6 1 Mar Balances b/d 106 3,214 2 Mar Rent 10674 250 3 Mar Sales* 100 950 5 Mar Cleaning expenses 35 8 Mar Sales 1,680 9 Mar Purchases 10675 1,200 11 Mar Bank C 150 11 Mar Cash 10676 C 150 13 Mar Sales 1,800 16 Mar Postages 50 22 Mar Bank C 150 18 Mar Telephone 10677 168 25 Mar Sales 2,108 20 Mar Stationery 128 29 Mar Sales* 200 2,000 22 Mar Cash 10678 C 150 31 Mar S Britton 30 720 26 Mar Misc expenses 70 31 Mar D F Pratt 50 1,160 27 Mar Wages 10679 2,000 30 Mar Electricity 10680 106 31 Mar D Coyne 10681 45 855 31 Mar F Cox 10682 26 494 31 Mar Balances c/d 423 8,259 80 706 13,632 71 706 13,632 1 Apr Balances b/d 423 8,259 * An alternative way of showing the transactions of 3 March and 29 March is to record the full amount of sales in the debit cash column, and then to show the amount banked as a separate transfer, ie debit bank, credit cash. 10

8.6 Dr (Receipts) Date Details Folio Cash Bank Disc VAT Sales Sales Sundry allwd ledger 20-7 p p p p p p p 12 May Balances b/d 205.75 825.30 12 May Sales GL 546.00 91.00 455.00 13 May Sales GL 168.00 28.00 140.00 13 May T Jarvis SL 155.00 2.50 155.00 14 May Sales GL 768.00 128.00 640.00 15 May Cash C 250.00 15 May Sales GL 270.00 45.00 225.00 16 May Wyvern District Cncl SL 560.45 5.00 560.45 643.75 3,104.75 7.50 292.00 1,460.00 715.45 Cr (Payments) Date Details Folio Cash Bank Disc VAT Purchases Purchases Sundry recd ledger 20-7 p p p p p p p 12 May Shop rent GL 255.50 255.50 13 May Terry Carpets Ltd PL 363.55 4.65 363.55 14 May Stationery GL 28.80 4.80 24.00 15 May Bank C 250.00 15 May Longlife Carpets Ltd PL 291.50 4.30 291.50 16 May Wages GL 314.20 314.20 16 May Balance c/d 50.75 2,194.20 643.75 3,104.75 8.95 4.80 655.05 593.70 Transfers to general ledger discount allowed column total of 7.50 is debited to discount allowed account discount received column total of 8.95 is credited to discount received account Value Added Tax columns, the total of 292.00 is credited to VAT account, while the total of 4.80 is debited to the VAT account sales column total of 1,460.00 is credited to sales account sundry column the individual payments are debited to shop rent account, 255.50, stationery account, 24.00, and wages account, 314.20 The transactions in the columns for sales ledger and purchases ledger are respectively credited and debited to the individual accounts of the debtors and creditors. CHAPTER 9 Petty Cash Book 9.2 Security and confidentiality aspects of petty cash On taking over, check that the petty cash book has been balanced and that the amount of cash held agrees with the balance shown in the book. Start each week with the imprest amount of cash which has been agreed with the office manager. Keep the petty cash secure in a locked cash box, and keep control of the keys. Provide petty cash vouchers (in numerical order) on request. Pay out of petty cash against correctly completed petty cash vouchers ensuring that: the voucher is signed by the person receiving the money the voucher is signed by the person authorising payment (a list of authorised signatories will be provided) a receipt (whenever possible) is attached to the petty cash voucher, and receipt and petty cash voucher are for the same amount Write up the petty cash book (including calculation of VAT amounts when appropriate); it is important that the petty cash book is accurate. Store the completed petty cash vouchers safely filed in numerical order. They will need to be kept for at least six years in the company s archives, together with completed petty cash books. The office manager will carry out a surprise check from time-to-time the cash held, plus amounts of completed petty cash vouchers, should equal the imprest amount. At the end of each week (or month) balance the petty cash book and draw an amount of cash from the cashier equal to the amount of payments made, in order to restore the imprest amount. Prepare a posting sheet for the book-keeper with the totals of each analysis column, so that he/she can enter the amount of each expense into the double-entry system. Present the petty cash book and cash in hand for checking by the office manager. Deal with any discrepancies promptly, eg: a receipt and petty cash voucher total differing a difference between the totals of the analysis columns and the total payments column in the petty cash book a difference between the cash in the petty cash book and the balance shown in the petty cash book Where discrepancies and queries cannot be resolved, they should be referred to the office manager. Remember that all aspects of petty cash are confidential and should not be discussed with others. 11

9.3 9.4 petty cash voucher No. 851 date today description amount ( ) Postage on urgent parcel of spare parts to Evelode Supplies Ltd 4 45 signature authorised Jayne Smith A Student VAT 4 45 4 45 Documentation will be a post office receipt for 4.45, being the amount of postages paid. petty cash voucher No. 852 date today description amount ( ) Airmail envelopes 2 00 signature authorised Tanya Howard A Student 2 00 VAT 0 40 2 40 Receipts Date Details Voucher Total ANALYSIS COLUMNS number payment Postage Travelling Vehicle Cleaning Ledger Year 8 120.00 1 Jun Balance b/d 80.00 1 Jun Bank 2 Jun Postage 5.20 5.20 6 Jun Rail fare 12.70 12.70 9 Jun Petrol 8.50 8.50 14 Jun Cleaning materials 10.00 10.00 16 Jun S Lancaster 18.30 18.30 18 Jun Petrol 14.30 14.30 20 Jun Postage 6.70 6.70 24 Jun Petrol 12.40 12.40 25 Jun Rail fare 13.20 13.20 27 Jun Postage 7.70 7.70 28 Jun W Rose 19.20 19.20 30 Jun Petrol 14.80 14.80 143.00 19.60 25.90 50.00 10.00 37.50 30 Jun Balance c/d 57.00 200.00 200.00 57.00 1 Jul Balance b/d 143.00 1 Jul Bank Documentation will be a till receipt (or handwritten receipt) from the stationery shop for 2.40. 12

9.7 Petty Cash Book Receipts Date Details Voucher Total Analysis columns No Payment VAT Postages Travel Meals Sundry Office 20-7 125.00 2 Jun Balance b/d 2 Jun Postages 123 6.35 6.35 3 Jun Travel expenses 124 13.25 13.25 3 Jun Postages 125 3.25 3.25 4 Jun Envelopes 126 4.64 0.77 3.87 4 Jun Window cleaning 127 12.00 2.00 10.00 5 Jun Taxi fare/meals 128 24.00 4.00 8.00 12.00 5 Jun Post/packing 129 12.10 0.60 8.50 3.00 5 Jun Taxi fare/meals 130 21.60 3.60 10.00 8.00 6 Jun Pens/envelopes 131 6.49 1.08 5.41 103.68 12.05 18.10 31.25 20.00 22.28 103.68 6 Jun Cash received 6 Jun Balance c/d 125.00 228.68 228.68 125.00 7 Jun Balance b/d 9.9 Dr Sundry Office Expenses Account Cr 20-7 p 20-7 p 6 Jun Petty Cash Book 22.28 CASH BOOK Dr Cash book Cr Cash Bank Cash Bank 20-7 p p 20-7 p p 6 Jun Petty Cash Book 103.68 Dr Cash Book Cr Date Details Folio Discount Cash Bank Date Details Folio Discount Cash Bank allowed received 20-8 20-8 5 Feb S Kahn 3,250.60 1 Feb Balance b/d 1,598.55 10 Feb Cash sales 88.25 1 Feb Petty cash 169.60 12 Feb B Shean 5.00 140.00 5 Feb Insurance 120.50 12 Feb H Shanks 335.85 5 Feb Rent 240.00 16 Feb S Groves 60.00 1,140.00 16 Feb Motor expenses 120.00 GENERAL LEDGER Dr Value Added Tax Account Cr 20-7 p 20-7 p 6 Jun Petty Cash Book 12.05 Dr Postages Account Cr 20-7 p 20-7 p 6 Jun Petty Cash Book 18.10 Dr Travel Expenses Account Cr 20-7 p 20-7 p 6 Jun Petty Cash Book 31.25 26 Feb Cash sales 220.00 16 Feb Purchases 390.55 26 Feb C Bentley 435.55 19 Feb Drawings 50.00 26 Feb Purchases 990.50 28 Feb Balance c/d 1,930.55 65.00 5,610.25 5,610.25 1 Mar Balance b/d 1,930.55 Dr Meals Account Cr 20-7 p 20-7 p 6 Jun Petty Cash Book 20.00 13

PETTY CASH BOOK Receipts Date Details Voucher Total ANALYSIS COLUMNS number payment Sundry Cleaning Postage & Refreshments expenses Stationery 20-8 30.40 1 Feb Balance b/d 169.60 1 Feb Bank 5 Feb Refreshments 34 15.30 15.30 5 Feb Postage stamps 35 22.90 22.90 10 Feb Sundry expenses 36 12.45 12.45 12 Feb Cleaner's wages 37 20.00 20.00 16 Feb Postage 38 12.50 12.50 19 Feb Refreshments 39 22.45 22.45 19 Feb Sundry expenses 39 10.00 10.00 115.60 22.45 20.00 35.40 37.75 28 Feb Balance c/d 84.40 200.00 200.00 84.40 1 Mar Balance b/d 10.4 (a) Dr Cash Book (bank columns) Cr 1 May Balance b/d 300 2 May P Stone 867714 28 7 May Cash 162 14 May Alpha Ltd 867715 50 16 May C Brewster 89 29 May E Deakin 867716 110 23 May Cash 60 16 May Standing order: A-Z Insurance 25 30 May Cash 40 31 May Bank charges 10 31 May Balance c/d 428 651 651 1 Jun Balance b/d 428 (b) JANE DOYLE BANK RECONCILIATION STATEMENT AS AT 1 MAY 20-7 Balance at bank as per cash book 300 Add: unpresented cheque: cheque no. 867713 80 380 Less: outstanding lodgement 54 Balance at bank as per bank statement 326 CHAPTER 10 Bank Reconciliation Statements 10.3 (a) Dr Cash Book (bank columns) Cr 20-7 p 20-7 p 1 Jan Balance b/d 415.15 23 Jan Direct debit: Omni Finance 207.95 13 Jan BACS credit: T K Supplies 716.50 31 Jan Balance c/d 923.70 1,131.65 1,131.65 1 Feb Balance b/d 923.70 (b) P GERRARD BANK RECONCILIATION STATEMENT AS AT 31 JANUARY 20-7 Balance at bank as per cash book 923.70 Add: unpresented cheques Bryant & Sons cheque no. 001354 312.00 P Reid cheque no. 001355 176.50 488.50 1,412.20 Less: outstanding lodgement G Shotton Limited 335.75 Balance at bank as per cash book 1,076.45 (c) BANK RECONCILIATION STATEMENT AS AT 31 MAY 20-7 Balance at bank as per cash book 428 Add: unpresented cheque E Deakin cheque no. 867716 110 538 Less: outstanding lodgement cash 40 Balance at bank as per bank statement 498 14

10.5 MEMORANDUM TO:... FROM: Accounts Clerk DATE:... SUBJECT: Bank Reconciliation Statements CHAPTER 11 An Introduction to Computer Accounting 11.5 (a) Objections: jobs may be threatened and redundancies may occur the need for retraining possible bad effects to health caused by sitting in front of a computer all day: RSI (Repetitive Strain Injury), back problems, radiation and eye damage from computer screens (b) Potential benefits: Reconciliation of the bank statement balance with that shown in the cash book is carried out at the month-end as follows: 1. From the bank columns of the cash book tick off, in both cash book and bank statement: the receipts that appear in both the payments that appear in both 2. Identify the items that are unticked on the bank statement and enter them in the cash book on the debit or credit side as appropriate. These will be things such as BACS receipts, standing order and direct debit payments, bank charges and interest, unpaid cheques debited by the bank. However, if the bank has made a mistake by debiting or crediting our account in error, don t enter them in the cash book; instead, notify the bank for them to make the correction. 3. Balance the bank columns of the cash book to find the up-to-date balance. 4. Start the bank reconciliation statement with the balance brought down figure shown in the cash book. potential for updating IT skills through training possible increase in pay for skilled work better career prospects job satisfaction through automation of manual processes CHAPTER 12 Final Accounts 12.2 5. In the bank reconciliation statement: add the unticked payments shown in the cash book these are unpresented cheques deduct the unticked receipts shown in the cash book these are outstanding lodgements 6. The resultant money amount on the bank reconciliation statement is the balance of the bank statement. 7. Date the reconciliation statement and file it away for future reference. Note that, if the balances of the cash book (bank columns) and the bank statement were not identical at the beginning of the month, then you will need to refer to the previous bank reconciliation statement prepared at the end of last month. Items appearing on that bank reconciliation statement must also be ticked off at step 1. Anything remaining unticked will be included in this month s reconciliation statement (step 5). Vehicle A Student 15

12.5 CLARE LEWIS TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-4 Sales 144,810 Opening stock 16,010 Purchases 96,318 112,328 Less Closing stock 13,735 Cost of Goods Sold 98,593 Gross profit 46,217 Less expenses: Salaries 18,465 Heating and lighting 1,820 Rent and rates 5,647 Sundry expenses 845 Vehicle expenses 1,684 28,461 Net profit 17,756 12.6 capital revenue expenditure expenditure (a) purchase of vehicles (b) rent paid on premises (c) wages and salaries (d) legal fees relating to the purchase of property (e) re-decoration of office (f) installation of air-conditioning in office (g) wages of own employees used to build extension to the stockroom (h) installation and setting up of a new machine BALANCE SHEET AS AT 31 DECEMBER 20-4 Fixed Assets Vehicles 9,820 Office equipment 5,500 15,320 Current Assets Stock 13,735 Debtors 18,600 32,335 Less Current Liabilities Creditors 12,140 Value Added Tax 1,210 Bank overdraft 4,610 17,960 Working Capital 14,375 NET ASSETS 29,695 FINANCED BY Capital Opening capital 25,250 Add Net profit 17,756 43,006 Less Drawings 13,311 29,695 12.7 (a) (i) Capital expenditure Weighing equipment for business use Extension to business premises Legal fees relating to extension (ii) Revenue expenditure Payment of local authority rates Sales assistants' wages (iii) Revenue receipt Rent received from sub-letting office space (b) (i) Trading account Sales assistants' wages (shown here in trading account because it is a direct selling expense, rather than a general profit and loss account expense) (ii) Profit and loss account Rent received from sub-letting office space Payment of local authority rates (iii) Balance sheet Weighing equipment for business use Extension to business premises (added to the cost of the premises) Legal fees relating to extension (shown in balance sheet, and added to the cost of the premises, because it is an expense which relates to the improvement of fixed assets, rather than a general profit and loss account expense) 16

CHAPTER 13 Accruals and Prepayments 13.1 (a) Expense in profit and loss account of 56,760; balance sheet shows wages and salaries accrued (current liability) of 1,120. (b) (c) Expense in profit and loss account of 2,852; balance sheet shows rates prepaid (current asset) of 713. Expense in profit and loss account of 1,800; balance sheet shows computer rental prepaid (current asset) of 150. 13.4 (a) H EGGLETON BALANCE SHEET AS AT 28 FEBRUARY 20-8 Fixed Assets Freehold property 50,000 Motor vehicles 12,600 Machinery 2,500 Fixtures and fittings 1,250 66,350 13.2 SOUTHTOWN SUPPLIES TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-9 Sales 420,000 Opening stock 70,000 Purchases 280,000 350,000 Less Closing stock 60,000 Cost of Goods Sold 290,000 Gross profit 130,000 Less expenses: Rent and rates 10,250 550 9,700 Electricity 3,100 Telephone 1,820 Salaries 35,600 + 450 36,050 Vehicle expenses 13,750 64,420 Net profit 65,580 Current Assets Stock 4,760 Debtors 540 Prepayment (insurance) 380 Cash 390 6,070 Less Current Liabilities Creditors 550 Bank 3,250 Accrual (wages) 900 4,700 Working Capital 1,370 67,720 Less Long-term Liabilities Mortgage 10,000 NET ASSETS 57,720 FINANCED BY: Capital Opening capital (missing figure) 45,750 Add net profit 13,970 59,720 Less drawings 2,000 57,720 (b) Dr Drawings Account Cr 20-7/20-8 20-7/20-8 2 Jun Bank 500 28 Feb Capital 2,000 28 Aug Bank 500 1 Dec Bank 500 10 Feb Bank 500 2,000 2,000 17

13.6 Dr Capital Account Cr 20-7/20-8 20-7/20-8 28 Feb Drawings 2,000 1 Mar Balance b/d 45,750 28 Feb Balance c/d 57,720 28 Feb Profit and loss account 13,970 59,720 59,720 1 Mar Balance b/d 57,720 JOHN BARCLAY TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 20-9 Sales 864,321 Less Sales returns 2,746 Net sales 861,575 Opening stock (1 July 20-8) 63,084 Purchases (less 250 goods for own use) 599,878 Less Purchase returns 3,894 Net purchases 595,984 659,068 Less Closing stock (30 June 20-9) 66,941 Cost of Goods Sold 592,127 Gross profit 269,448 Add Discount received 4,951 274,399 BALANCE SHEET AS AT 30 JUNE 20-9 Fixed Assets Land and buildings 100,000 Vehicles 83,500 Office equipment 23,250 206,750 Current Asets Stock 66,941 Debtors 74,328 Prepayment 346 Bank 1,197 142,812 Less Current Liabilities Creditors 52,919 Value Added Tax 10,497 Accrual 1,250 64,666 Working Capital 78,146 284,896 Less Long-term Liabilities Bank loan 75,000 NET ASSETS 209,896 Less expenses: Office expenses 33,601 Salaries 122,611 Vehicle expenses 38,144 Discount allowed 3,187 197,543 Net profit 76,856 FINANCED BY: Capital Opening capital 155,000 Add net profit 76,856 231,856 Less drawings (plus 250 goods for own use) 21,960 209,896 18

CHAPTER 14 Depreciation of Fixed Assets 14.3 (a) Dr Vehicles Account Cr 20-8 20-8 1 Jan Balance b/d 12,000 1 Oct Disposals account 12,000 1 Oct Disposals account 5,500 31 Dec Balance c/d 15,000 (part-exchange allowance) 1 Oct Bank 9,500 (balance paid by cheque) 27,000 27,000 20-9 20-9 1 Jan Balance b/d 15,000 14.4 JOHN HENSON TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 20-8 Sales 122,000 Opening stock 6,250 Purchases 71,600 77,850 Less Closing stock 8,500 Cost of Goods Sold 69,350 Gross profit 52,650 Add Discount received 285 52,935 (b) (c) Dr Provision for Depreciation Account Vehicles Cr 20-8 20-8 1 Oct Disposals account 7,200 1 Jan Balance b/d 7,200 31 Dec Balance c/d 3,000 31 Dec Profit & loss account 3,000 10,200 10,200 20-9 20-9 1 Jan Balance b/d 3,000 Dr Disposals Account Vehicles Cr 20-8 20-8 1 Oct Vehicles account 12,000 1 Oct Vehicles account 5,500 31 Dec Profit and loss account 700 (part-exchange allowance) (profit on sale) 1 Oct Prov for dep'n account 7,200 12,700 12,700 Less expenses: Vehicle running expenses 1,480 Rent and rates 5,650 Office expenses 2,220 Wages and salaries 18,950 Provision for depreciation: office equipment 1,000 vehicle 3,000 32,300 Net profit 20,635 BALANCE SHEET AS AT 31 DECEMBER 20-8 Fixed Assets Cost Dep'n to date Net Office equipment 10,000 1,000 9,000 Vehicle 12,000 3,000 9,000 22,000 4,000 18,000 (d) Balance sheet (extract) of Rachael Hall as at 31 December 20-8 Cost Dep n to date Net Fixed assets Vehicles 15,000 3,000 12,000 Current Assets Stock 8,500 Debtors 5,225 Bank 725 14,450 Less Current Liabilities Creditors 3,190 Value Added Tax 1,720 4,910 Working Capital 9,540 NET ASSETS 27,540 FINANCED BY: Capital Opening capital 20,000 Add Net profit 20,635 40,635 Less Drawings 13,095 27,540 19

14.5 SIMON ADO TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 OCTOBER Sales (work done) 19,480 Opening stock 180 Purchases of materials 3,415 3,595 Less Closing stock 190 Cost of Goods Sold 3,405 Gross profit 16,075 Add Discount received 200 16,275 Less expenses: Advertising 90 Telephone 710 Motor expenses 580 Provision for depreciation: van 2,000 tools and equipment 300 3,680 Net profit 12,595 BALANCE SHEET OF SIMON ADO AS AT 31 OCTOBER Fixed Assets Cost Dep'n to date Net Van 8,000 2,000 6,000 Tools and equipment 3,000 300 2,700 11,000 2,300 8,700 Current Assets Stock 190 Prepayments 120 Cash 320 630 Less Current Liabilities Creditors 85 Bank overdraft 90 175 Working Capital 455 NET ASSETS 9,155 FINANCED BY: Capital Opening capital 2,960 Add Net profit 12,595 15,555 Less Drawings 6,400 9,155 CHAPTER 15 Bad Debts and Provision for Bad Debts 15.1 Profit and loss account (expenses) debit bad debts written off, 210 provision for bad debts, 500 Credit Balance sheet debtors 20,000, less provision for bad debts 500, net debtors 19,500 15.3 WONG PAU YEN TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 AUGUST Sales 94,600 Less Sales returns 1,300 Net sales 93,300 Opening stock 1,200 Purchases 51,000 Less Purchases returns 900 Net purchases 50,100 51,300 Less Closing stock 1,300 Cost of Goods Sold 50,000 Gross profit 43,300 Less expenses: Heat and light 1,400 Wages and salaries 19,660 Rent and rates 6,370 Motor expenses 1,340 Sundry expenses 6,040 Provision for depreciation: plant and machinery 2,000 vehicles 1,280 Provision for bad debts 340 38,430 4,870 20

BALANCE SHEET AS AT 31 AUGUST Fixed Assets Cost Dep'n to date Net Plant and machinery 20,000 6,000 14,000 Vehicles 10,000 4,880 5,120 30,000 10,880 19,120 Current Assets Stock 1,300 Debtors 8,500 Less Provision for bad debts 340 8,160 Prepayment 360 Cash 100 9,920 Less Current Liabilities Creditors 4,660 Accruals 1,190 Bank overdraft 1,690 7,540 Working Capital 2,380 NET ASSETS 21,500 FINANCED BY: Capital Opening capital 24,230 Add Net profit 4,870 29,100 Less Drawings 7,600 21,500 15.5 D MARTIN TRADING AND PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER YEAR 6 Sales 337,200 Less Sales returns 4,950 Net sales 332,250 Opening stock 21,480 Purchases 191,200 Carriage inwards 1,200 Less Purchases returns 3,600 Net purchases 188,800 210,280 Less Closing stock 24,900 Cost of Goods Sold 185,380 Gross profit 146,870 Add income: Discount received 2,090 Reduction in provision for bad debts 400 149,360 Less expenses: Rent 14,000 Electricity 4,160 Salaries 53,300 Carriage outwards 6,000 Insurance 3,420 Bad debts 2,400 Bank interest 720 Telephone 3,200 Discount allowed 2,700 Loan interest 2,600 Loss on sale of vehicle 750 Provision for depreciation: vehicles 5,000 office furniture 1,000 99,250 Net profit 50,110 21

BALANCE SHEET AS AT 31 DECEMBER YEAR 6 CHAPTER 16 The Extended Trial Balance Fixed Assets Cost Dep'n to date Net Freehold premises 160,000 160,000 Motor vehicles 25,000 10,000 15,000 Office furniture 10,000 3,500 6,500 195,000 13,500 181,500 Current Assets Stock 24,900 Debtors 31,400 Less Provision for bad debts 1,570 29,830 Prepayments 4,780 Cash 600 60,110 Less Current Liabilities Creditors 7,880 Accruals 6,160 Bank overdraft 7,000 21,040 Working Capital 39,070 220,570 Less Long-term Liabilities Loan from D Samson 26,000 NET ASSETS 194,570 FINANCED BY: Capital Opening capital 184,460 Add Net profit 50,110 234,570 Less Drawings 40,000 194,570 Loss on sale of vehicle: cost price (1 January, year 3) 5,000 depreciation at 20% pa (years 3, 4 and 5) 3,000 book value at date of sale 2,000 sale proceeds 1,250 loss on sale (debited to profit and loss account) 750 16.1 EXTENDED TRIAL BALANCE ALAN HARRIS 30 JUNE 20-2 20-1 22

CHAPTER 17 The Regulatory Framework of Accounting 17.1 Going concern concept This presumes that the business to which the final accounts relate will continue to trade in the foreseeable future. The trading and profit and loss account and balance sheet are prepared on the basis that there is no intention to reduce significantly the size of the business or to liquidate the business. If the business was not a going concern, assets would have very different values, and the balance sheet would be affected considerably. Example: fixed assets are valued at cost, less accumulated depreciation to date. Accruals concept This means that expenses and revenues are matched so that they concern the same goods and the same time period. Examples: The accrual of an expense in profit and loss account which has been used in the accounting period but not yet paid for. The prepayment of an expense for the next accounting period. The recording of opening and closing stocks in the trading account. The use of debtors' and creditors' accounts to record amounts owing to the business, or owed by the business. Consistency concept This requires that, when a business adopts particular accounting methods, it should continue to use such methods consistently over a number of accounting periods. In this way, direct comparison between the final accounts of different years can be made. Examples: The continued use of a particular depreciation method, eg straight-line. The method of stock valuation used. The treatment of capital and revenue expenditure. Prudence concept This concept requires that final accounts should always, where there is any doubt, report a conservative figure for profit or the valuation of assets. To this end, profits are not to be anticipated and should only be recognised when it is reasonably certain that they will be realised; at the same time, all known liabilities should be provided for. Examples: A provision for bad debts the debtors have not yet gone bad, but it is expected, from experience, that a certain percentage will eventually need to be written off as bad debts. The valuation of stock at the lower of cost and net realisable value in order to give the lower valuation for the final accounts. 17.4 (a) Opening stock at 1 January Year 7 Balance from ledger (1 January Year 7) 17,300 (1.1) adjustment of incorrect stock value 12 items @ 15 each = 180 80 recorded 100 17,400 (1.2) items omitted from physical stock take, cost price 250 Revised stock valuation at 1 January Year 7 17,650 Closing stock at 31 March Year 7 Balance from ledger (31 March Year 7) 16,200 (2.1) reduction to net realisable value (500) 15,700 (2.2) correction of undercast on stock sheet 3,000 18,700 (2.3) reduction to net realisable value: 190 150 (40) Revised stock valuation at 31 March Year 7 18,660 23 (b) TRADING ACCOUNT FOR QUARTER ENDED 31 MARCH YEAR 7 Sales 107,800 Opening stock 17,650 Purchases 54,200 71,850 Less Closing stock 18,660 Cost of Goods Sold 53,190 Gross profit 54,610 17.6 (a) STORES LEDGER RECORD Date Receipts Issues Balance Quantity Price Value Quantity Price Value Quantity Price Value Year 3 1 Sep Balance 30 10.00 300 3 Sep 40 11.00 440 30 10.00 300 40 11.00 440 70 10.571 740 6 Sep 100 12.00 1,200 70 10.571 740 100 12.00 1,200 170 11.412 1,940 7 Sep 50 11.412 571 120 11.412 1,369 8 Sep 70 14.00 980 120 11.412 1,369 70 14.00 980 190 12.363 2,349 10 Sep 80 12.363 989 110 12.363 1,360 15 Sep 150 11.50 1,725 110 12.363 1,360 150 11.50 1,725 260 11.865 3,085 17 Sep 60 11.865 712 200 11.865 2,373 18 Sep 40 11.865 475 160 11.865 1,898 24 Sep 90 11.865 1,068 70 11.865 830 28 Sep 200 12.00 2,400 70 11.865 830 200 12.00 2,400 270 11.963 3,230 30 Sep 70 11.963 837 200 11.963 2,393 Note: rounding may cause some figures to differ; these should have no material effect

(b) VEE LIMITED TRADING ACCOUNT FOR SEPTEMBER YEAR 3 Sales: 130 units at 14 each 1,820 260 units at 16 each 4,160 5,980 Opening stock 300 Purchases 6,745 7,045 Less Closing stock 2,393 Cost of Goods Sold 4,652 Gross profit 1,328 (d) Date Details Folio Dr Cr 20-8 31 Dec Profit and loss GL 1,160 Prepayments GL 80 Photocopying expenses GL 1,240 1,240 1,240 Transfer to profit and loss account of expenditure for the year (e) CHAPTER 18 The Journal 18.2 (a) Date Details Folio Dr Cr 20-8 31 Dec Stock GL 22,600 Trading GL 22,600 Stock valuation at 31 December 20-8 transferred to trading account (b) Date Details Folio Dr Cr 20-8 31 Dec Profit and loss GL 890 Telephone expenses GL 890 Transfer to profit and loss account of expenditure for the year (c) Date Details Folio Dr Cr 20-8 31 Dec Profit and loss GL 23,930 Salaries GL 22,950 Accruals GL 980 23,930 23,930 Transfer to profit and loss account of expenditure for the year Date Details Folio Dr Cr 20-8 31 Dec Drawings GL 200 Motoring expenses GL 200 Transfer of private motoring to drawings account (f) Date Details Folio Dr Cr 20-8 31 Dec Drawings GL 175 Purchases GL 175 Goods taken for own use by the owner (g) Date Details Folio Dr Cr 20-8 31 Dec Profit and loss GL 500 Provision for depreciation - fixtures and fittings GL 500 Depreciation charge for year on fixtures and fittings 24

(h) Date Details Folio Dr Cr 20-8 31 Dec Disposals GL 5,000 Machinery GL 5,000 Provision for depreciation account machinery GL 3,750 Disposals GL 3,750 Bank CB 2,400 Disposals GL 2,000 VAT GL 400 Profit and loss GL 750 Disposals GL 750 11,900 11,900 Sale of machine no...; profit on sale 750 transferred to profit and loss account CHAPTER 19 Correction of Errors 19.2 (a) error of omission Date Details Folio Dr Cr J Rigby SL 150 Sales GL 150 Sales invoice no... omitted from the accounts. (b) mispost/error of commission Date Details Folio Dr Cr H Price Limited PL 125 H Prince PL 125 (i) Date Details Folio Dr Cr 20-8 31 Dec Bad debts written off GL 125 N Marshall SL 125 (c) Correction of mispost cheque no...: to H Price Limited error of principle Account of N Marshall written off as a bad debt - see memo dated... 31 Dec Profit and loss GL 125 Bad debts written off GL 125 Transfer to profit and loss account of bad debts for the year Date Details Folio Dr Cr Delivery van GL 10,000 Vehicle expenses GL 10,000 Correction of error vehicle no... invoice no... (j) (d) reversal of entries Date Details Folio Dr Cr 20-8 31 Dec Profit and loss GL 100 Provision for bad debts GL 100 Decrease in provision for bad debts 25 Date Details Folio Dr Cr Postages GL 55 Bank CB 55 Postages GL 55 Bank CB 55 110 110 Correction of reversal of entries on...

(e) compensating error Date Details Folio Dr Cr Purchases GL 100 Purchases returns GL 100 (iv) Stock 1,300 Trading 1,300 (v) Suspense 1,000 Wages 1,000 Correction of under-cast on purchases account and purchases returns account on...(date)... (vi) Printing and stationery 12 Motor expenses 12 (f) error of original entry Errors (ii), (iii) and (v) would have caused the trial balance to disagree. Date Details Folio Dr Cr L Johnson SL 98 Bank CB 98 Bank CB 89 L Johnson SL 89 187 187 Correction of error cheque for 89 received on...(date)... (b) Statement of corrected net profit for the year ended 31 January 20-8 Net profit (unadjusted) 34,765 Add: reduction in provision for bad debts 113 closing stock undervalued 1,300 wages overstated 1,000 2,413 37,178 19.5 (a) JOURNAL Details Dr Cr Less: bad debts written off 303 insurance understated 243 rent paid understated 90 636 Adjusted net profit 36,542 (i) Bad debts written off 303 Debtors 303 Profit and loss 113 Provision for bad debts 113 (c) 416 416 (ii) Insurance 243 Suspense 243 (iii) Suspense 780 Rent 780 Rent 870 Suspense 870 Dr Suspense Account Cr 20-7/20-8 20-7/20-8 Rent (iii) 780 Insurance (ii) 243 Wages (v) 1,000 Rent (iii) 870 31 Jan Trial balance difference 667 1,780 1,780 1,650 1,650 26

CHAPTER 20 Control Accounts 20.4 (a) SALES LEDGER Dr Arrow Valley Retailers Cr 20-8 p 20-8 p 1 Feb Balance b/d 826.40 20 Feb Bank 805.74 3 Feb Sales 338.59 20 Feb Discount allowed 20.66 28 Feb Balance c/d 338.59 1,164.99 1,164.99 1 Mar Balance b/d 338.59 (c) Reconciliation of sales ledger control account with debtor balances 1 February 20-8 28 February 20-8 p p Arrow Valley Retailers 826.40 338.59 B Brick (Builders) Limited 59.28 Mereford Manufacturing Company 293.49 nil Redgrove Restorations 724.86 954.26 Wyvern Warehouse Limited 108.40 427.91 Sales ledger control account 2,012.43 1,720.76 Dr B Brick (Builders) Limited Cr 20-8 p 20-8 p 1 Feb Balance b/d 59.28 28 Feb Bad debts written off 59.28 Dr Mereford Manufacturing Company Cr 20-8 p 20-8 p 1 Feb Balance b/d 293.49 24 Feb Sales returns 56.29 3 Feb Sales 127.48 28 Feb Set-off: purchases ledger 364.68 420.97 420.97 Dr Redgrove Restorations Cr 20-8 p 20-8 p 1 Feb Balance b/d 724.86 7 Feb Sales returns 165.38 17 Feb Sales 394.78 28 Feb Balance c/d 954.26 1,119.64 1,119.64 1 Mar Balance b/d 954.26 20.5 (a) Dr Sales Ledger Control Account Cr 1 Sep Balances b/d 12,000 1 Sep Balances b/d 800 Credit sales 23,150 Sales returns 738 Cash refund 111 Cash discount allowed 1,000 Dishonoured cheque 130 Bad debts written off 1,377 30 Sep Balances c/d 120 Cash received from debtors 700 Cheques received from debtors 25,000 30 Sep Balances c/d 5,896 35,511 35,511 1 Oct Balances b/d 5,896 1 Oct Balances b/d 120 Dr Wyvern Warehouse Limited Cr 20-8 p 20-8 p 1 Feb Balance b/d 108.40 15 Feb Bank 105.69 17 Feb Sales 427.91 15 Feb Discount allowed 2.71 28 Feb Balance c/d 427.91 536.31 536.31 1 Mar Balance b/d 427.91 (b) Sales ledger debit balances 6,007 Sales ledger control account debit balance 5,896 Difference 111 (b) Dr Sales Ledger Control Account Cr 20-8 p 20-8 p 1 Feb Balances b/d 2,012.43 28 Feb Sales returns 221.67 28 Feb Credit sales 1,288.76 28 Feb Cheques received from debtors 911.43 28 Feb Cash discount allowed 23.37 28 Feb Set-off: purchases ldgr. 364.68 28 Feb Bad debts written off 59.28 28 Feb Balances c/d 1,720.76 3,301.19 3,301.19 1 Mar Balances b/d 1,720.76 As the difference is the same amount as the cash refund to Mr Green, with the sales ledger debit balances higher, it seems likely that the cash refund has not been recorded on Mr Green's account in the sales ledger. 27