Credit sales = Payments from debtors + Debtors 31/12 Debtors 1/1. Cash sales = Total of cash payments + Cash 31/12 Cash 1/1 + Cash drawings

Similar documents
Farm Accounts Question 2.

The figures in the left (debit) column are all either ASSETS or EXPENSES.

Club Accounts - David Wilson Question 6.

Unit 10 : YEAR-END ADJUSTMENTS

Cash flow forecasts Why is it important? Cash is not the same as profit How do we solve a cash flow problem?

IB Interview Guide: Case Study Exercises Three-Statement Modeling Case (30 Minutes)

Cash Flow Statement [1:00]

I m going to cover 6 key points about FCF here:

The Multiplier Effect

FEARLESS MATH. A Guide For Real Estate Agents. By Geoffrey Thompson and Rich Linkemer

Getting to know NEST. How to start putting money away for your future

Evaluating Jobs Based on Wage

How Do You Calculate Cash Flow in Real Life for a Real Company?

of approximately 35%

must be competent at and that is recording, analyzing and summarizing financial transactions. Double

Excel-Based Budgeting for Cash Flows: Cash Is King!

ECO155L19.doc 1 OKAY SO WHAT WE WANT TO DO IS WE WANT TO DISTINGUISH BETWEEN NOMINAL AND REAL GROSS DOMESTIC PRODUCT. WE SORT OF

Annual Qualification Review

with the support of Everyday Banking An easy read guide March 2018

DEMOTT BANKRUPTCY GUIDE. 10 Steps. to rebuilding your financial life BY RUSSELL A. DEMOTT

VAT guide for small businesses. VAT guide

Learning about. Checking. Accounts WHAT YOU NEED TO KNOW Deluxe Corp. All Right Reserved.

Budget Quick-Start Guide. Welcome to the Budget Quick-Start Guide, five simple pages to get you going with

Scenic Video Transcript Dividends, Closing Entries, and Record-Keeping and Reporting Map Topics. Entries: o Dividends entries- Declaring and paying

Looking for the right business finance? We re here to help.

Balancing double entry accounts

GARNISHMENT Instructions for Employer

UNDERSTANDING YOUR DAILY SIMPLE INTEREST LOAN

GuideBook Reporting Your 1031 Exchange

Making Your Balance Sheet Work for You

chief ombudsman & chief executive s report

Instructions for the Money In Money Out Worksheet

Retirement education. Understand how we connect with your participants and how you can help.

VAT for small businesses

VAT - The Essentials. 4 Minute Read

Accounting Principles Guide. Discussion of principles applicable to use of spreadsheet available for download at:

Prof Albrecht s Notes Introduction to the Accounting Cycle Intermediate Accounting 1

1. Introduction Why Budget? The budgeted profit and loss Sales Other income Gross profit 7 3.

Engineering Economics and Financial Accounting

STOP RENTING AND OWN A HOME FOR LESS THAN YOU ARE PAYING IN RENT WITH VERY LITTLE MONEY DOWN

Management and Operations 340: Exponential Smoothing Forecasting Methods

An interactive game designed to familiarize students with the personal finance management issues they are beginning to face as young adults Features

Retirement Investments Insurance Health. When. new. regulations. land we re here to. explain. their impact. A customer guide to the Insurance Act 2015

Real Estate Private Equity Case Study 3 Opportunistic Pre-Sold Apartment Development: Waterfall Returns Schedule, Part 1: Tier 1 IRRs and Cash Flows

Standard Life Active Retirement For accessing your pension savings

Quick-Start Budget Your first budget! It s also the simplest, so you can relax now.

Financial Guide. Northfield Enterprise Center

JOHN MORIKIS: SEAN HENNESSY:

Name Date Class. Concept Assessment. Business Transactions and the Accounting Equation

Financial Literacy. Budgeting

for Newcomers and New Canadians Module 2 How to Build Credit In Canada Student Workbook

Volunteer employer toolkit. All the information and forms you need to help introduce NEST to your workers

Over 50s Life Insurance More than a memory

ICB Level II Certificate in Book-keeping TRAINING MANUAL 1

ALL ABOUT INVESTING. Here is Dave s investing philosophy:

ICAN MID DIET LIVE CLASS FOR MAY DIET 2015 FINANCIAL ACCOUNTING Introduction to financial accounting Recording non-current assets and depreciation

Help with fractions, percentages and decimals! 1 Numerator 2 Denominator

Does your club reconcile your bivio records every month?

6.2 Need for Changes in Financial Position. 6.3 Statement of Changes in Financial Position--- Meaning

Market Mastery Protégé Program Method 1 Part 1

Building Your Future. with the Kohl s 401(k) Savings Plan. Kohl s supports planning for your financial future with increased confidence.

FINANCIAL ACCOUNTING II. Berjaya Engineering Sdn Bhd produces the following balances from its books at 31 December 20x1:

Bookkeepers are the accountant s eyes and ears. Few accountants actually take the time

BINARY OPTIONS: A SMARTER WAY TO TRADE THE WORLD'S MARKETS NADEX.COM

4-step guide to life insurance

Accounting Definitions. Definitions

Moving Made Easy. Republic Bank Account Number: Republic Bank ABA Routing Number:

Introduction To The Income Statement

Welcome to NEST. All the key information you need about being a member of NEST

Measuring performance

FINANCIAL RATIOS. LIQUIDITY RATIOS (and Working Capital) You want current and quick ratios to be > 1. Current Liabilities SAMPLE BALANCE SHEET ASSETS

This presentation is part of a three part series.

Rental Vehicle Insurance

MYOB Accounting 101. For Mac Users. Written by: Todd Salkovitz Macintosh Product Manager MYOB Ltd USA Edition

Use these notes to help you fill in the. pages of your tax return. Self-employment (short) A For more about the records you need to keep, go to

REPORT TO BRITISH COLUMBIA S FAIR WAGES COMMISSION. Jeff Guignard, Executive Director of ABLE BC November 23, 2017 in Vancouver

The Casey Research BROKER SURVEY REPORT

The Hard Lessons of Stock Market History

Name of Document PURCHASE ORDER DELIVERY NOTE. Shows a list of transactions and the amount owed at the end of the month The Customer

The days ahead or the daze ahead?

11 Biggest Rollover Blunders (and How to Avoid Them)

What To Do With an Expected Inheritance

Understanding Financial Statements: The Basics

SOCIAL INVESTMENT TAX RELIEF THE NEW RULES

A VERY QUICK GUIDE TO MEMBERS VOLUNTARY LIQUIDATION

Health Insurance Marketplace CUT THE COST. of Health Insurance. A new tax credit helps lower- and middle-income families

Economics. The last two weeks...

SAMURAI SCROOGE: IMPORTANT CONCEPTS

COPYRIGHTED MATERIAL. The Check Is in the Mail. Get Paid to Invest with Dividends

BOOKS OF ORIGINAL ENTRIES

Use these notes to help you fill in the Self-employment (short) pages of your tax return

4 BIG REASONS YOU CAN T AFFORD TO IGNORE BUSINESS CREDIT!

Percents, Explained By Mr. Peralta and the Class of 622 and 623

Managing Money Together. A Workbook for Couples

TRANSCRIPT OF THE HON CHRISTIAN PORTER MP MINISTER FOR SOCIAL SERVICES INTERVIEW WITH DAVID SPEERS, PM AGENDA, SKY NEWS

This presentation is part of a three part series.

Reaching out to renters

HomeEnergy collective Jun 2019

The Business Guys. September Newsletter. Accounting.

Property is anything of value that is owned or controlled. Financial Claim is the legal right to an item or property.

Transcription:

Incomplete Records (A) SALES. Credit sales = Payments from debtors + Debtors 31/12 Debtors 1/1 Cash sales = Total of cash payments + Cash 31/12 Cash 1/1 + Cash drawings PURCHASES. Credit purchases = Payments to creditors + creditors 31/12 creditors 1/1 Cash purchases: Given in the question as 105,200 So total purchases = Credit purchases 51,000 + Cash purchases 105,200 = 156,200 Just before we record that as our purchases figure though, we need to minus from it any drawings of stock which in this case is 7,800 ( 150 x 52wks). The reason for this is that when we take goods from stock we re essentially stopping them from being sold. Since purchases officially refers to things we buy with the intention of re-selling to our customers, we can t count as purchases anything that we don t get to sell. So our final figure for purchases is: 156,200-7,800 = 148,400 BANK. The last big thing to work out before we can start for real is the bank figure. To do this we add up all of the money which has gone into the bank (all of the lodgements + the money received from the loan) and minus all of the payments (all of the bank payments + the money spent from the loan + any money taken out for investments). So it s: Receipts: 61,000 + 116,000 + 3,000 + 180,000 = 360,000 Payments: 14,000 + 38,800 + 5,400 + 2,250 + 6,800 + 28,400 + 155,000 + 4,800 = 255,450 The last figure in that list of payments ( 4,800) is the money taken out of our bank account to go into an investment fund. We were told that 1,200 came out at the end of each month starting at the end of September. i.e. 4 months x 1,200 = 4,800 The bank figure is therefore the receipts 360,000 minus the payments 255,450 = 104,550

GOODWILL. Goodwill is a fixed asset and is the difference between what we paid for a business and what it seems to be worth (which we find out by subtracting all of the liabilities from all of the assets on the 1/1). In this case the company seems to be worth as follows at the start of the year: Assets: Premises 560,000 + Stock 19,000 + Debtors 12,000 + 3 Months Insurance Prepaid 1,600 + Cash 200 = 592,800 Liabilities: Creditors 18,200 + Wages Due 2,600 = 20,800 Therefore the business seems to be worth 592,800-20,800 = 572,000 But we are told that we paid 590,000 for it. Goodwill is therefore the difference between 590,000 and 572,000. i.e. 18,000 So now we re ready to actually do the answer! In completing our trading and profit and loss account, the first part will be easy. We ve already worked out sales and purchases and the two stock figures are clearly shown at the top and bottom of the question. Trading Account for P.Lynch 31/12/06 Sales 374800 Opening Stock 19000 Purchases 148400 Closing Stock -16400 Cost of Sales 151000 151000 Gross Profit 223800 Next we need to do the profit and loss account which involves finding any gains or expenses that P.Lynch had during the year. The only gain involved in this question (and in fact in every leaving cert question on this topic so far) is the very last item in the question - 25 interest earned by Lynch s investments. The expenses he paid during the year are scattered throughout the question: In the Cash Payments heading we can see General Expenses. In the Bank Payments heading we can see Light and Heat, Interest, and Insurance. (Obviously we re looking for expenses here so that s why I m ignoring the fixed

assets that we spent money on and also the creditors (because they were for purchases and we already dealt with them. What you might be familiar with from other topics though, is that knowing what the expenses are is only half the battle. We also need to be sure how much we should put into the account for each of these expenses. This means looking at the opening and closing balances and also at any other information in the question, to see if we need to make any changes. Remember the normal accounting rules: If something is due on the 1/1 we subtract. If something is due on the 31/12 we add. If something is prepaid on the 1/1 we add. If something is prepaid on the 31/12 we subtract. So in this case, our four expenses will be as follows: General Expenses: 73,800-2,600 (Wages due 1/1) = 71,200 Light and Heat: 5,400 + 480 (Electricity due 31/12) 25% (we re told that 25% of light and heat wasn t for the business) = 4,410 Interest: 2,250 + 750 (if we borrowed 180,000 at 5% on the 1/9, we should owe 3,000 for the year. So if we ve already paid 2,250 then 750 must be still due at the end of the year) 20% (we re told that 20% of the interest wasn t for the business) = 2,400 Insurance: 6,800 + 1,600 (insurance prepaid on the 1/1) - 1,700 (this is 3 months worth of the 6,800 we paid. If we started the year with 3 months insurance already paid and then we re told that we paid for a full year, then there must still be 3 months prepaid at the end of the year) = 6,700 So now we have the full answer to (a): Trading and Profit and Loss Account 31/12 Sales 374800 Opening Stock 19000 Purchases 148400 Closing Stock -16400 151000 Gross Profit 223800 Gains Investment Income 25 223825

Expenses General Expenses 71200 Light and Heat 4410 Interest 2400 Insurance 6700 84710 NET PROFIT 139115 (b) Thankfully almost all of the hard work is done by now. All we have to do is not leave anything out! The four sections of the balance sheet will be as follows: Fixed Assets. The fixed assets are our goodwill of 18,000 (worked out at the very start), Buildings of 715,000 (the 560,000 we started with plus the 155,000 we bought after taking out the loan), Delivery vans of 28,400 (bought during the year as we can see in the bank payments ), Furniture of 10,500 (that s 14,000 worth of furniture bought during the year as mentioned in the bank payments minus the 25% that we are told was not for the business), and Investment Fund of 4,825 (which is four months of 1,200 that we ve put into the fund from our bank account, along with the 25 interest earned so far). Current Assets. The current assets are our stock 16,400, Debtors 20,200 and Cash 400 (all given in the closing balances of the question), as well as the bank figure we worked out at the very beginning of our answer ( 104,550) and the insurance prepaid of 1,700 that we worked out when we were doing our expenses. Current Liabilities. There are only three current liabilities: Creditors of 30,400 and Electricity due of 480 are both mentioned in the closing balances at the end of the question. The interest we owe on the loan of 750 we worked out earlier when we were doing the expenses. Financed By. The final step is to complete the financed by section. In it we need to put the loan of 180,000, the Net profit of 139,115, the Capital of 590,000 (that s the money put into the business at the very start by the owner), and two slightly sneaky figures: There s 3,000 in here that comes from the Dividends heading in the bank lodgements. Since these are lodgements they can t be dividends that we ve paid. Instead what they mean is that the owner earned dividends from some other shares he has and decided to put the money into this business - i.e. that s why it goes into the financed by section. Finally you ll see a minus figure of 23,770 for drawings. This is just the total of all of the drawings from the business during the year Stock ( 7,800), Cash ( 10,400), Furniture ( 3,500), Interest ( 600), and Light and Heat ( 1,470).

So the answer looks like this: Balance Sheet As At 31/12. Fixed Assets. Goodwill 18000 Buildings 715000 Delivery Vans 28400 Furniture 10500 Investment Fund 4825 776725 Current Assets. Stock 16400 Debtors 20200 Bank 104550 Cash 400 Insurance Prepaid 1700 143250 Current Liabilities. Creditors 30400 Interest Due 750 Electricity Due 480 31630 31630 111620 111620 888345 Financed By. Loan 180000 Capital 590000 Dividends Introduced 3000 Net Profit 139115 Drawings -23770 888345 Part (C) asks us three quick questions: (i) (ii) (iii) An accounting concept is a general rule that governs how accounts are prepared. Consistency and Prudence. Prudence is applied in calculating the value of closing stock. Lynch records stock at the lower of cost and net realisable value, in order to give a pessimistic view. It is possible that stock might ultimately be sold for more than the amount shown in the accounts but the prudence concept ensures that we remain on the side of caution.